Finance of America Reverse will soon debut a hybrid product that combines elements of a reverse mortgage with a forward mortgage.
The lender says it’s an innovative approach to servicing borrowers who are in retirement age but don’t qualify or wish to refinance into a long-term mortgage.
The new product, called EquityAvail, funds at closing and requires that the borrower make payments for 10 years but at a reduced amount, Finance of America Reverse said this week.
“A lot of people are in this kind of transitionary period where a reverse mortgage doesn’t offer enough proceeds for them to pay off their existing debt, and refinancing into a forward mortgage really saddles them with a pretty significant monthly payment for a really long time – through their 90s if they’re in their 60s, which can be a really big negative impact on retirement,” said Kristen Sieffert, president of Finance of America Reverse. “So, what we built this for was to get borrowers access to a higher LTV, and we were able to do that by adding in a payment, a small payment component to the reverse mortgage.”
As Sieffert explained, a borrower would refinance out of their forward mortgage into this loan, and for the first 10 years they’d have a smaller payment, typically about half of what their existing forward mortgage payment is.
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“And then after that time period, the payments are automatically eliminated and the borrower doesn’t have to make those payments at all anymore, so it creates a really nice glide path into creating a sustainable retirement for people,” Sieffert said. She also noted that the borrower is still responsible for taxes and insurance for the duration.
As is the case with a reverse mortgage, the unpaid balance becomes payable when the borrower sells the house, no longer uses it a a primary residence or dies. EquityAvail has no origination or monthly servicing fees.
“It was a really challenging product to build,” Sieffert said. “Technically it is a forward mortgage because there is a payment component, but it’s also a reverse mortgage. So we actually had to build it to comply with both sides of the regulatory spectrum.”
The EquityAvail product is a non-recourse loan, which means the borrower or the heirs will not owe more than the home’s value. The maximum loan amount is $4 million, and there’s no minimum home value requirement
Sieffert told HousingWire that they plan to keep the EquityAvail loans on their books. The firm will later use the same investor network for proprietary reverse mortgages to securitize the new product.
Finance of America Reverse, owned by Blackstone, will be rolling out the new product in April. It will be available through its retail channel but also through its wholesale network. Though Finance of America Reverse is retaining servicing rights, they have signed a subservicer. The company declined to name the subservicer.
“Every year, more than a million homeowners over the age of 60 enter into a 30-year mortgage obligation, yet current qualification standards only require lenders to ensure borrowers can afford mortgage payments for about three years,” Sieffert said. “After that, they’re on their own. Then, there’s another million or so individuals of the same age who are denied a 30-year mortgage altogether due to insufficient cash flow. The result is more than two million homeowners who, if given the opportunity, would have likely explored a more suitable loan alternative at this stage in life. Our commitment to help these people is what led FAR to create a solution from the ground up that can unlock a whole new world of options.”