The relationship between HECM for Purchase (H4P) lenders and real estate agents is rife with unfulfilled opportunity. Realtors can bring the senior buyer to the FHA-insured H4P vault and you can open it for them. How great is that? The relationship between agent and lender can be nurtured and developed by our mutual interest in assisting seniors. But it may require a change in marketing strategy that looks at those seniors as investors as well as buyers.
Unfortunately, the H4P lending opportunity has been vastly underutilized since its government-funded inception in 2009. As a Realtor, I believe that underutilization is 99.9 percent product misunderstanding by the Realtor community. I am an agent working in Southeast Florida, and given this area’s particular appeal to retirees, the H4P should be doing considerably better here than anywhere else in the country. The challenge we agents face is that buyer interest in the H4P needs to be sparked. The challenge lenders face is that agents seldom mention the product or understand the significant value it presents to both buyers and agents.
My partner and I see the baby boom generation as a vastly untapped pool of property investors that could benefit from the opportunity created by the H4P. Agents and lenders should work together to better reach my fellow boomers with a smarter message.
My partner and I are working with investors to acquire $33 million worth of SFR forward mortgaged properties that we will improve to FHA standards and make available for lease or purchase. Lender leverage will allow our venture to quadruple acquisitions in the coming year. H4P leverage for boomers would be an option of significant value as we release properties into the market.
We believe that there will be hundreds of H4P mortgage opportunities as well as scores of revenue-producing investment properties coming through our channel in the next decade. Such a volume of property acquisition needs buyers, lenders and agents capable of servicing them properly.
Today’s real estate agents don’t quite grasp the H4P opportunity that only they can effectively present if they understand the product and explain it as an asset opportunity. H4P lenders have the best potential to refer H4P-savvy senior investors, while organizations like ours educate agents to handle the task.
As an agent, I was taught to financially qualify a buyer in order to justify my time, energy and effort. Financially qualifying the buyer at my end is as simple as asking, “Are you taking a mortgage or paying cash?” If the buyer said they were taking a mortgage, I’d refer them to the forward mortgage lender for further financial qualification. If they said they were paying in cash, I’d ask for written proof of funds and delve no further. I was not taught to introduce the H4P alternative’s investment equation. Mea culpa, because by not mentioning a valuable third option to senior clients, the H4P, I failed to do my duty to the over-62 buyer and may have even missed out on additional sales and commission.
The forward lender and I work together because I don’t want to waste my time on a property search for someone who can’t qualify for a mortgage. The client needs to establish their credit qualification to buy what is within their loan-to-value leveraged worth. Together with the forward agent, the Realtor can do amazing things for buyers who qualify at any age.
The situation with an H4P prospect is completely different. The H4P concept was created in 2009—a horrendously timed birth. Its introduction occurred just as the mortgage bubble burst. In South Florida, housing values fell 56 percent following the crash. Money dried up and Starbucks, Costco and Walmart got a reserve of employees with real estate licenses. A new mortgage product courtesy of the FHA was not on our radar. Survival was.
As a real estate agent for the past eight years, I can tell you that there has been very little institutionalized information or effective marketing training offered to Realtors concerning the H4P from either local or state organizations, or from the National Association of Realtors. Even the NAR Senior Certification program makes no mention of the H4P in its 11 hours of formal coursework. That is a troublesome issue for me as a real estate agent for one simple reason: Over the next 16 years, 32 of every 100 of Florida’s 38 million residents will be over the age of 62.
In February 2014, Florida surpassed New York in population, making it the third most populous state behind California and Texas. Florida is now ranked seventh in population growth. Furthermore, Florida has a rapidly growing percentage of retired boomers. The U.S. Census Bureau estimates that 32.5 percent of Florida’s population (8.4 million people) will be 60 or older by the year 2030, a substantial increase from 2012.
Here’s the good news for H4P lenders: Florida also has one of the highest densities of real estate agents who are often the first contact point for retiring boomers. Roughly 10 percent of all licensed U.S. real estate agents live in Florida (130,000 agents) and one-third of these licensed agents reside in South Florida counties (Broward, Miami-Dade, Monroe and Collier).
It is my opinion that South Florida is a perfect region for introducing a fresh approach to the H4P. South Florida has a growing base of senior buyer prospects and a large group of competitive Realtors looking for an edge. The irony is that Florida, while ranking fourth in the nation in reverse mortgage originations, seems to be out of touch with its H4P opportunity. I believe agents have an obligation to change our approach to the senior market and with assistance from H4P lenders, that change can happen quickly. We must make senior buyers aware of the liquidity available through the H4P and present it as more valuable to the senior than the cash deal.
Agents want to close deals as quickly as possible. A cash closing is a simple process that does not include a mortgage lender, questions, underwriters and, most of all, an extended time to closing. What many agents don’t know is that an H4P deal can close in as short a time as most cash deals, as long as the federal criteria have been met.
There are so many challenges facing Realtors right now. Fannie Mae hosts a property website (homepath.com) for consumers, investors and agents that offers both forward mortgages and rehab funding to buyers. Zillow, Trulia, Yahoo, Google and others give consumers access to property listings through MLS, which is the heart of our business model. Realtor.com is a top ranking website. Recently, the broker reciprocity agreement that holds MLS together was modified, allowing brokers to sell their own MLS data to financial institutions and Internet publishers. The Florida Legislature recently funded the hiring of more judges to speed up the foreclosure action against tens of thousands of delinquent property owners, turning the county courthouse website into a virtual auction for Realtors. Finally, brokerage discounters are offering reduced commissions to buyers and sellers. All of this adds up to a need for a marketing advantage. I believe the H4P is that advantage.
Agents are distracted from all sides by competitors. Yet there has never been a more overlooked or better friend to agents than the H4P mortgage lender, nor has there been a more opportune moment for agents to understand and co-market the H4P.
Our (yours and mine) ideal H4P borrower is the one who doesn’t need an H4P loan. Instead, they want the liquidity made possible by leveraging their home equity; for them, it makes good financial sense in their portfolio. That’s the story that needs to be understood by agents.
Our local association hosts free “lunch and learn” events for agents sponsored by various organizations, including title companies, attorneys and mortgage companies. Last fall, one such event was hosted by one of my H4P contacts. The class was titled “HECM for Purchase: A New Option for Realtors.” It was packed with agents in search of that elusive new marketing option, who were intrigued by the association email and didn’t mind getting a free lunch.
The good news was that the H4P instructor giving the class knew her material. The bad news was that she didn’t know her audience. The hour-long class became a two-hour defense of the reverse mortgage.
Each question from the audience of Realtors was off-topic. The agents’ questions were based on their personal experiences with HECMs. Enlightenment as to the marketing value of the H4P would have to wait for another instructor and another day.
My partner, who is a former HECM broker, told me that there had been numerous attempts by his firm in 2009 to reach out to real estate agents across the country when the H4P was introduced. When I told my partner of my experience in the “lunch and learn,” he only shook his head, smiled and said, “Déjà vu.” It seemed that reaching out to agents and motivating them needed a new approach. Our research for investors led us to discover an anomaly about property values in South Florida. We’ve decided to take a new and more direct approach to marketing the H4P option based on that anomaly.
South Florida has always been a mecca for retirees, particularly from the northeastern states where taxes are high and winters are cold. The growing influx of senior homebuyers in South Florida will bring thousands of prospective cash-rich retirees to this region over the next decade and a half.
The mortgage collapse of 2009 is still impacting property in this region. Eighteen percent of single-family homes in the area are either bank-owned or in the process of foreclosure. My partner and I have been making leveraged purchases, rehabilitating and renting properties as income properties for our investors, and the venture has yielded ROIs ranging from 20 to 50 percent over the past six months. We believe these properties present an amazing revenue opportunity for seniors who have cashed out in the north and are intent on living the good life in South Florida. How can they take advantage of the property investment opportunity? The H4P, of course.
If real estate agents in South Florida were to see that presenting the H4P would mean the sale of not just one, but several properties, they may back off their “cash addiction.” If they see that H4P lenders consider agents to be excellent referral partners, they will respond. If Realtors in the retirement regions of the southeastern U.S. understand that the H4P rules are simple to follow and easy to execute, their interest will be piqued. If a trained H4P real estate agent anywhere in the U.S. receives referrals from mortgage lenders that have H4P-savvy senior clients downsizing for asset growth and using H4P liquidity for property buying, this could take root on a national scale.
The National Association of Realtors is an enormous association. All it takes to impact those 1.3 million real estate agents is a few success stories from other agents who are trained to handle the H4P buyer. If reverse lenders market the liquidity, the benefits and the opportunity for the H4P in South Florida to local agents, I believe they can stimulate significant growth.