Across the mortgage industry, everyone braced themselves for big change last month; the moratorium on the HECM fixed-rate Standard product took effect April 1. However, if you’ve been in this industry for any amount of time, you know that change is constant and the results are never as dire as predicted. (Remember the comp changes from Dodd-Frank or amendments to the GFE over the years?) Successful companies will adapt and embrace this change from the beginning. This is an opportunity to educate both ourselves and the greater senior community on the options and benefits of other product offerings.
The moratorium on the fixed Standard came as a surprise to many, even though changes had been debated for some time. Conventional wisdom suggested that some adjustments would need to be made to the overall proceeds available to the borrower, and that tax and insurance escrow accounts and financial assessment would be the most likely outcome. The bottom line is that there is nothing that beats the security of a long-term, fixed-rate loan, which many seniors actually prefer, and we will have to use the resources offered by NRMLA and CIS (Coalition for Independent Seniors) to advocate for all products going forward, as there is a need for each and every one.
It’s important to remember that the intent of these changes is to help our customers. According to the FHA, the fixed Standard has had a higher rate of default, and the hope is that with this change more seniors will be able to remain in their homes and benefit from the HECM without defaulting on their loans. The reality is that this is continued fallout from the real estate and mortgage market implosion years ago. We all hope and expect that as the overall housing market continues to improve, we will see other adjustments over time.
The main thing to remember is that given how small the overall penetration remains in the marketplace, there are still tens of thousands of seniors we could help. In order to keep your sales team up to speed, here are some important points to discuss internally:
-The fixed Standard has not been completely eliminated; this is a moratorium, which means that with some adjustments, it is possible the product will reappear in the future.
-The fixed Saver, a fantastic product fit for many people, can finally grow. Make sure that you have the knowledge to fully promote this product, as it is a great option for many that would have previously chosen a fixed Standard.
-With the fixed Saver, the borrower’s overall proceeds will be smaller, but the significantly lower mortgage insurance premium (MIP) associated with closing costs also result in major savings for the borrower.
-The HECM product has been around since 1986 and grew profitably for many years without the fixed Standard option.
-The adjustable-rate HECMs are and always have been strong products providing multiple alternatives to a borrower.
Relearning the ARM
Since the fixed Standard became the most popular product in the industry, many professionals have allowed the benefits of the ARM to fall into the background. Borrowers can still benefit from these products, as ARMs can provide
flexibility and improve cash flow management. With the Standard ARM, the available proceeds from the loan remain at the same level as the fixed, and the Saver ARM offers the lower MIP, which lowers the cost of the loan as discussed above. For all ARM products, the option of a line of credit allows tremendous flexibility for the borrower. In addition, the monthly payment option helps the borrower manage cash flow and avoid using all of the proceeds at one time, ensuring that borrowers can age in their homes for as many years as they wish.
Preparing for Change
Some sales professionals I have spoken to lately have rarely if ever closed an ARM HECM, as they always had the fixed Standard option available during their tenure. For many of these originators, they know only the basics of the fixed Standard and the proceeds it affords the borrower. As with any change in a product or option, the entire team, including the training, sales and marketing departments, must be coached and educated on how to adjust for this. It’s important to take advantage of the available resources to learn the ARM. Many of the large lenders are offering webinars, conference calls and training sessions with expanded discussion of the ARM products, including information on how to understand them better and how to explain them to borrowers. For many, this will be the first time speaking the language of the ARM, so they must be retrained to understand the complexities of the product. In turn, they will have to be able to explain it to our senior customers, so they must take the time to learn it in a complete manner and truly understand the options and numbers in an ARM HECM. Patience during this transition will pay off and lead to a stronger sales team and industry.
When Opportunity Knocks
This change presents an incredible opportunity
for all of us in the industry to be able to communicate the ways our products can benefit today’s senior. As we all know, the product and industry still suffer from a lack of understanding in the overall financial and professional community, with a lot of distrust and misconceptions surrounding the process. People fear losing their homes and the equity they have worked hard to build. This moratorium gives us a chance to reach out to referral sources and other contacts and “re-educate” them on the HECM and the changes that we are experiencing. Make the call or schedule the meeting, or send a letter or email to estate attorneys, financial planners, etc. Be sure you are fully knowledgeable about the product, and then work to educate these professionals. The more clearly they understand, the better it will be for you and the more it will benefit the industry as a whole. Their referrals are invaluable, and it helps to tell them about the benefits a HECM can bring to their clients. We always have the challenge of explaining and educating how the HECM makes a difference in people’s lives and truly impacts their future and senior years. Educating the doubters and naysayers is crucial for us all.
The bottom line? Change will always come in this industry; that is simply a fact. Remember that the HECM product helps people and allows seniors to maintain their lifestyle as they age. Our businesses and the industry always adjust, improving and expanding with the changes of the greater housing market. Make sure your team understands this change is a positive one and understands that there are still thousands and thousands of seniors around the country we can help!