Back in 2009, when Congress first authorized the Reverse for Home Purchase concept, it would have seemed unusual to write an article on how the H4P could be more advantageous than traditional conventional financing. However, with recent changes coming to the forward world, this will be the case for many active-adult communities.
This article isn’t written by a compliance expert, nor is it intended to be legal advice. However, any practicing originator needs to be well-versed in compliance in order to remain competitive in today’s hyper-regulatory world. Under the rule of TILA-RESPA Integrated Disclosure (TRID), the current GFE and HUD-1 will be replaced by two new forms known as the Loan Estimate (LE) and the Closing Disclosure.
The process and operational adjustment needed to implement these major changes—which are the largest overhaul of their kind since the early 1970s—makes our implementation of GFE/MDIA a few years ago look like first grade. Without getting too far into the weeds, the timelines outlined in the new rules have caused many lenders and closing agents to warn that for forward mortgages, the 30-day loan cycle is a thing of the past and that Realtors should write purchase contracts for 45 days.
Fortunately for those of us in HECM Land, reverse mortgages are exempt from the new regulations, which begets the obvious question: If reverses are exempt, why spill ink over it?
Those loan officers who serve the active-adult space realize that these new forward rules represent yet another opportunity to differentiate us from the traditional lending process and demonstrate how the H4P can help Realtors sell six to 12 more homes per year. Originators who regularly sell the H4P have likely heard two main complaints from Realtors/builders about the product: We’re prohibited from taking an application prior to the CO being issued and no sales concessions are allowed.
While those restrictions have slowed the growth of the H4P concept, originators who focus on the big picture can make these forward TRID changes play out in their favor. Several years ago, while hosting a regional meeting in Florida for a large bank in the HECM space, a local Realtor spoke to our group and was asked what drew him to the Reverse for Purchase concept. His answer was simple: “It helps me create more cash buyers!” The comment derived from the fact that a reverse mortgage (even with the new FA rules) features a much easier qualifying process than a traditional conventional loan.
New regulations are always a hot topic for LOs to consider. However, there has been a larger trend in conventional underwriting that has driven customers away from a traditional conforming purchase loan and toward the possibility of an H4P. Many well-qualified borrowers in active-adult communities may show little income on paper, (i.e., Social Security, a small pension), but they are blessed with substantial assets that are their primary source of income.
Up until two to three years ago, conventional underwriting guidelines allowed for latitude in using those assets to qualify for a conforming loan. However, those same rules have become dramatically tighter over the past few years, and have caused several of our clients to look to the H4P as an alternative solution.
The many new regulations about to hit the forward world present a significant opportunity for aggressive loan officers to educate Realtors/builders about how reverse mortgages can enhance their business by removing last-minute hurdles to closing deals.
As you update your personal business plan for the new post-FA world, don’t ignore a significant (and growing) potential block of referral partners from the Realtor and builder communities. With traditional sources of financing more difficult to obtain than in years past, the H4P will prove to be a nice complement to help them sell more homes.
