By Michael S. Mooney
Assistant Vice President
MetLife Home Loans, a division of MetLife Bank, N.A.
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Reverse mortgages have changed dramatically, and can now serve a wider variety of borrower needs. Is your bank making the most of this important mortgage option for homeowners age 62 and older?

With many older homeowners wanting—or needing—to supplement their retirement income by tapping into home equity, the popularity of reverse mortgages has grown significantly. And today—as a result of game-changing product developments that went into effect in October 2010—it’s a new world for reverse mortgages. There are more loan options than ever before, including choices offering greatly reduced up-front costs, which has opened up the marketplace and made reverse mortgages more accessible. For banks striving to provide competitive products and services that benefit their customers, the reverse mortgage need, opportunity and product offerings are advantageous.

 

 

Why reverse mortgages? A growing need, skyrocketing potential
With people living longer, spending more time in retirement, and dealing with an economic downturn that has diminished many nest eggs and opportunities for traditional sources of retirement support (such as government- and employer-sponsored programs), reverse mortgages have become an increasingly important financial option. And with the “baby boom” generation now in its older years, the reverse mortgage industry is destined to grow. Demographic statistics provide a glimpse into the industry’s potential:

>    More than 39 million Americans are over age 65. That number is expected to grow to more than 72 million by 2030.¹

>    Those age 62 or older hold an estimated $4.22 trillion of home equity.²

>    The average home equity in a senior-owned household is estimated at $190,000.³

>    Only 2% of eligible consumers have actually obtained a reverse mortgage.⁴

 

 

HECM Re-engineering Opens Up the Marketplace
Traditionally, the standard Home Equity Conversion Mortgage (HECM) has been particularly beneficial to “needs-based” borrowers for whom maximizing proceeds is the primary driver. However, for customers who didn’t have an immediate need, the relatively high up-front cost often outweighed the benefit.

But now, the innovative HECM Saver reverse mortgage allows older homeowners to pay substantially less in up-front costs, compared to HECM Standard. This can save the average homeowner thousands of dollars, depending on the home’s value. This is great news for banks, because it enables us to serve a broader segment of the older population—including customers who had previously ruled out a reverse mortgage due to the high up-front cost, as well as those who have never considered a reverse mortgage.

While the maximum amount of money the homeowner can borrow with HECM Saver is less than with HECM Standard, the lower up-front costs may make it an attractive option—for example, to older homeowners in the middle-income or affluent brackets who may be considering a home equity loan (HEL) or home equity line of credit (HELOC).

 

 

HECM Saver vs. HELOC
As the chart below shows, HECM Saver stacks up favorably against the HELOC, for homeowners age 62 and older:

 

 

		HECM Saver	HELOC
	No monthly mortgage payments (Interest accrues on the loan amount disbursed. Borrowers remain responsible for paying property taxes and required insurance premiums, and any home maintenance.)	X
	Government-insured 5	X
	Non-recourse provision	X
	Unused line of credit (LOC) growth	X
	Ability to freeze LOC or call note		X

 

To test the potential for HECM Saver to be positioned directly against the traditional HELOC and HEL, in November 2010 MetLife Home Loans conducted a non-branded, web-based survey, fielded by independent contractor Rochester Research Group. The final sample consisted of 528 completed online interviews from a nationwide panel of seniors.

We began the survey by asking participants, “If a home equity line of credit and a reverse mortgage were available side-by-side and you had a financial need, which one would you be most likely to choose?” Initially, a clear preference for HELOC existed, with 36% of respondents choosing HELOC, and only 11% choosing reverse mortgage.

Then, after comparing the two products we asked the question again, and the results were dramatically different—with the majority (38%) choosing reverse mortgage, and only 13% choosing HELOC:

 



A variety of options to suit individual needs
Choosing a HECM Saver line of credit is just one way for older homeowners to use a reverse mortgage to leverage their home equity as a means of extending their retirement assets and increasing cash flow. For instance, HECM Saver can enable homeowners approaching age 62 to delay the start of their Social Security payments, so they can ultimately receive larger Social Security checks each month. Other strategies may involve monthly tenure payments to supplement the borrower’s other income sources, or a lump sum to pay off an existing mortgage and free up funds for other uses. And a reverse mortgage may even be used to purchase a home.+

As a banker, you can add significant value to your services by understanding the potential of reverse mortgages to help your older customers support immediate needs, plan for long-term care or gain another cash-flow source—so they can live a more comfortable life. As anyone who’s in the reverse mortgage business knows, despite the increasing popularity of reverse mortgages and the product’s benefits, many Americans do not fully understand how a reverse mortgage works. There are many common misconceptions among potential borrowers, so educating them is more important than ever—to ensure suitability, and help them make informed decisions. Today’s expanded reverse mortgage product suite presents opportunities to educate older homeowners in your area about this product, and opportunities to build your business.

If your bank isn’t offering reverse mortgages, or if your program isn’t as successful as it could be, consider establishing a relationship with a reverse mortgage company that you can trust to help you better serve your customers and enhance your competitive advantage. In doing so, be sure to align your institution with a reverse mortgage provider that understands and can accommodate your bank’s particular business needs and goals. And choose one that you can rely on for the knowledge, expertise and leading-edge processes you need to successfully compete in this space. Whether you’re an experienced reverse mortgage producer, are new to the business, or are seeking a trusted reverse mortgage expert who can work closely with your customers—it’s important to be well-equipped to respond to this growing need for responsible reverse mortgage solutions.

Mike Mooney is Assistant Vice President of MetLife Home Loans, a division of MetLife Bank, N.A., a MetLife company. With a dedication to responsible reverse mortgage lending, thought leadership and product innovation, MetLife Home Loans is committed to helping older Americans make the most of this important mortgage option. The #1 wholesale reverse mortgage lender in 2010* and a member of the National Reverse Mortgage Lenders Association (NRMLA), MetLife Home Loans adheres to the highest ethical standards in the industry. Email: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it


¹ “Demographic Profile: Americans 65+,” MetLife Mature Market Institute, 2009
² National Reverse Mortgage Lenders Association/Hollister Reverse Mortgage Market Index 2008
³ Reverse Market Insight, data as of 2009
⁴ Reverse Market Insight, January 2010, data as of December 31, 2009

⁵ A HECM loan is a loan made or originated by a private lender. The Federal Housing Administration, or FHA, insures a lender’s HECM loan against certain losses, but it is still the lender’s loan and not an FHA or government loan.

+ Only applicable for the purchase of a single-family-unit dwelling to be occupied as a principal residence. Program, rates, fees, terms and conditions are not available in all states and subject to change.

*Source: Reverse Market Insight, January 2011

 

 

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All loans are subject to approval. Certain conditions and fees apply.
Mortgage financing provided by MetLife Home Loans, a division of MetLife Bank, N.A. Equal Housing Lender.

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