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We are beginning to see some interesting dynamics emerge in the current housing market as home prices continue to rise. In fact, recent research from Black Knight suggests that avail- able equity in U.S. homes reached $5.4 trillion at the end of
2017, a record level and 10 percent higher than the peak reached in 2005.
At the same time, the supply of homes on the market has dropped to one of
the lowest levels in U.S history, with the shortage affecting mainly starter and
mid-priced homes. To further complicate matters, the country’s baby boomer
and millennial generations (roughly neck and neck in size) generally want the
same things in a home: You guessed it, that starter to mid-priced home. These
two groups both desire relatively small and flexible spaces, low maintenance
demands and walkable communities, among other features, according to
Given new home inventory will likely remain low, millennials and baby boomers
probably will need to focus on purchasing and renovating existing housing stock
or simply renovating an already-owned home to meet evolving needs. While
there are a number of financing products available to both groups, boomers
qualify for a loan that can help meet their specific financial and housing needs:
the Home Equity Conversion Mortgage, or HECM.
The HECM is the only reverse mortgage insured by the federal government and
is only available through lenders approved by the Federal Housing Administration (FHA). Mortgage originators who add this product to their toolkit can earn
new business from past clients, as well as expand their existing base of clients
and referral partners — such as real estate agents, financial advisers and other
How it works
A HECM is a loan for homeowners 62 and older that allows them to tap the
equity in their home to fund retirement and other needs. Borrowers are not
required to pay back the loan until the home is sold or otherwise vacated, but
they are obligated to remain current on property taxes, homeowner’s insurance and applicable homeowners’ association dues.
Failure to meet these requirements can result in a default on the loan agreement. Borrowers who wish to obtain a HECM must also undergo mandatory
counseling with a U. S Department of Housing and Urban Development-approved
counselor and undergo a financial assessment to ensure they can cover the cost
of taxes, insurance and applicable homeowner association dues. With a HECM,
borrowers retain the title to the home at all times.
For many seniors, a HECM can free up liquidity for purposes other than retirement costs. HECMs can help seniors age in place by allowing them to use loan
proceeds to retrofit their current home with accessibility features. Alternatively, the added financial lift from a HECM might make it more feasible to buy a
home closer to family or to an active adult community. The HECM for Purchase
Steve Resch is vice president of retirement strategies at Finance of
America Reverse and is responsible for helping financial advisers integrate
home equity into retirement-planning and wealth-management discussions.
He previously served as a managing partner and investment adviser at both
S. J. Resch Company and ProEast Asset Management. Resch is a frequent
speaker on leveraging home equity in retirement and has been quoted in Kiplinger’s
Personal Finance, Reverse Review and other media outlets.
128 Scotsman Guide Residential Edition | ScotsmanGuide.com | June 2018 128
“Mortgage originators who add this product to their toolkit
can earn new business from past clients, as well as expand
their existing base of clients and referral partners.”