The instability in the housing market has been a point of frustration for the reverse mortgage industry, but there could be a silver lining that could spur the HECM for purchase product that has failed to gain much traction.
CNN Money reported on a trend of baby boomers taking advantage of the current housing market to purchase dream retirement homes that they could previously afford. The article relates the story of seven different couples and how they were able to acquire their ideal retirement home for about half of the price they had originally expected in the places where they desired to retire.
The article focused on boomers who are still in the pre-retirement phase of their lives, mostly their fifties and sixties, who made the decisions to buy their retirement home now to capitalize on market lows. This raises an interesting idea that may be too complex for the HECM product. Considering that a percentage of seniors would like to retire in a location or home different then the one they currently live in, what if the HECM product allowed seniors to use the program to purchase a second home in a different area, with the intent to make it their primary residence at some point. Some may remember that a few years back, there were proprietary products that did allow for reverse mortgages on second homes.
This type of situation would certainly require some additional qualifications guidelines as it related to the current housing expense and the addition of the tax,insurance and maintenance costs of the acquired property. There would also be concerns as to whether it was truly a second home or retirement home, instead being intended as an investment property. However, it would make for an nice application of the product to help seniors seize the market to buy home now.
Even without the ability to use the HECM for purchase program in this scenario, the current market has opened the door for seniors to upgrade or otherwise improve their current living situation. For the percentage of seniors who would like to move now either to a more suitable property in the same area, or look to relocate, the combination of low home prices and structure of the HECM for purchase program, they have the opportunity to extend the value of their down payment funds.
Of course, this implies that the interested seniors have enough equity in their current home to sell it at market prices and have sufficient funds for the necessary down payment they qualify for with the HECM for purchase. They could also tap other assets for this purpose, as long as they did appropriate analysis to ensure they weren't depleting precious retirement funds. In that analysis, they have to compare that amount of retirement funds required to finance retirement if they were to have a mortgage payment, and without.
It seems that realtors have yet to embrace the idea of the HECM for purchase product as a way to tap an underserved market. Either there just has been enough effort to educate them and they are unaware of how it works, or they don't understand it and therefore are unwilling to risk suggesting it as an option to their clients.
With the current market conditions, now could be a great time for seniors to improve their living situation and enjoy the benefits of a HECM mortgage.