A Reverse Mortgage Trend to Watch: HECM Saver
The HECM Saver is the biggest new thing in the reverse mortgage world. It began back on September 21, 2010, in Mortgagee Letter 2010-34, when the FHA announced a new reverse mortgage program—the HECM Saver—to be available beginning October 4, 2010. The purpose of this program was to offer an alternative reverse mortgage that would be less expensive. In a standard reverse mortgage, the up-front mortgage insurance is 2% of the value of the home, up to a maximum value of $625,500. On a $500,000 home, for example, this would be $10,000. It is this piece in particular that makes a reverse mortgage more expensive than a regular forward mortgage. In a HECM Saver the up-front mortgage insurance has been reduced to .01%, a negligible amount, in exchange for the borrower being eligible for less money, and the interest rate tends to be a little higher.
The FHA initially projected a 20% market share for this product, and after one year the market share is only about 10%, but it is rising. Most industry analysts believe this is an excellent product whose time has come, and will continue to gain traction in the marketplace. Both consumers and originators need time to be educated about it.
The Saver is available in both a fixed-rate lump sum and a variable rate line of credit version and has been getting attention from financial planners as an estate planning tool. Harold Evensky is a big name in that field, and a new edition of his famous book, The New Wealth Management, has recently been published. In a July article of Advisor Perspectives, Evensky is quoted as saying that this new type of reverse mortgage will “be an immensely powerful tool.” Evensky believes that a reverse mortgage Saver is a good way for clients to create “standby” liquidity.
John Salter, a professor at Texas Tech and wealth manager for Evensky & Katz Wealth Management, agrees. In the September 18, 2011 edition of Reverse Mortgage Daily, Salter said that the Saver allows seniors to tap into cash when their other investment sources are not performing as needed, without the higher cost of the traditional reverse loans. This means that even affluent seniors should consider the reverse mortgage as a contingent source of cash that would not disturb money already invested in higher yielding vehicles. For Salter, “the takeaway is that for advisors, anybody should think seriously about utilizing the value of the reverse mortgage.”