According to the most recent annual report to Congress by the U.S. Department of Housing and Urban Development (HUD), the Home Equity Conversion Mortgage (HECM) for Purchase (H4P) program saw its share of total HECM endorsements in 2023 rise to its highest level since 2019.
That’s not saying all that much. H4P endorsements accounted for roughly 6% of the 32,963 HECMs endorsed for Federal Housing Administration (FHA) insurance that fiscal year. It represented a modest recovery for a highly underutilized option within a wider and similarly underutilized lending program sponsored by the federal government.
Still, signs of new life have emerged over the past seven months. In October, FHA announced a series of new H4P program provisions that could better align the reverse-for-purchase program with forward purchase programs. And while HUD recently walked back some of these changes, industry professionals still reacted positively to the net outcome of the new H4P policies.
This has led to 2024 being an active year for H4P conversations, but members of the industry are split on whether or not it will serve as a major boon to reverse mortgage business in the months and years ahead.
Education and new business
RMD spoke with three national managers at different lending companies who deal in the reverse mortgage product. They shared ideas about how much H4P is driving active conversations, volume predictions and actual business. Each of them agree that the product has a lot of potential, but how to realize that potential isn’t exactly clear.
For Shannon Robinson, vice president of reverse lending at New American Funding (NAF), the renewed interest in H4P has led to more business compared to 2023, she said.
“I think we’ve already done more purchases this year than we did last year, so it’s definitely becoming a big part of the business,” she said. “The awareness we’re driving around H4P has just made people more curious. The inventory is so low, so people are wanting to figure out how they can move into a home.”
This has led NAF personnel to have more dedicated H4P conversations with potential customers who may not have known that this subset of the HECM program exists — which, in one sense, inflates lead times in order to sufficiently educate borrowers. On the other hand, increased interest has led the company to close more H4P loans, she said.
“We’ve actually received quite a few referrals from our forward loan officers that have turned into purchase transactions,” she said. “This is their bread and butter, where they excel, and they’re really working closely with builders.”
Robinson added that NAF’s forward lending professionals are availing themselves of the reverse division’s dedicated expertise on a more regular basis.
A sleeping giant?
When asked if H4P could be considered a “sleeping giant” — in the sense that it could help propel reverse mortgage business at some point in the future — the leaders were somewhat split.
“I think there is a segment of the population that wants to downsize and maybe they’re unsure about what their options are,” said Ryan Ogata, executive vice president of reverse mortgage lending at Guaranteed Rate.
“For various reasons, this HECM for Purchase is, in my mind, a great mechanism for somebody to sell a property that they’ve outgrown, retain more of the sales proceeds from that sale in their pocket, and be able to buy the downsized property.”
Current dynamics tied to high home prices, limited inventory and historically high interest rates are contributing to longer homeownership tenures, Ogata said, and older homeowners seeking some kind of change may be unsure about how to move forward.
“They see the need to facilitate that transition, but they don’t really know how to do it and also keep as much liquidity in their pocket as possible,” he said. “That’s where this product comes into play.”
For Jesse Allen, president of the 55+ Lending division at OneTrust Home Loans, H4P has a lot of potential, but he doesn’t think it rises to the standard of a “sleeping giant.”
“In reality, I don’t think so,” he said. “In a tough market, lots of folks look for silver bullets. I think hard work and a smart, responsible culture of continuous improvement breeds the most sustainable success over time. My operating philosophy here is built on people, vision alignment, systems and operating excellence to go after it — and a culture of continuous improvement.”
Potential is real
After reentering the reverse mortgage business in 2016, Allen said his perspective could have been different considering the uptake rates of those times. Now his perspective has changed, but that doesn’t diminish the potential for the H4P program to grow a lot in the years to come, he said.
“I think it’s a huge opportunity, especially with affordability the way it is, to help people who may feel they’re locked into a place they don’t view as their dream retirement home,” he said. “It’s a way for builders to have homeowners buy their dream retirement home with upgrades and the right community near friends and family.”
There’s also an element that could help older homeowners feel like they have more control over the way their retirement plays out, he said.
“I think it’s empowering as a product, much more so than the 6% adoption rate suggests,” Allen said. “There’s a gap there. I do believe we’re going to see a story of continuous improvement.”
Ogata seemed to agree with this idea, saying that the prevalence of good information will help the program reach more of its potential.
“As more correct information about the HECM program makes its way into the hands of consumers, and as we as an industry do a better job educating about the safeguards, I think there’s going to be much more adoption for the downsizing I’m talking about,” he said.
Robinson is also bullish on the potential for growth.
“I think the opportunity is the same; it’s always been there. We just haven’t seen it take off,” she said. “Not everyone’s great at person-to-person transactions, but for the loan officers that are here, we’re helping them through this process.
“We understand the changes that have come through, and we’ll do our best to continue to support our agents and loan officers as we all work through these changes. But I see it as a great opportunity to continue to expand and grow the HECM for Purchase.”
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