Fairway's Jensen on HECM reform, borrower misconceptions

Key facts

• Misconceptions about reverse mortgages remain a significant barrier to wider adoption.
• Jensen advocates for using home equity earlier in retirement planning, rather than as a last resort.
• The upfront mortgage insurance cost for HECMs is currently 2% of the home value, a significant increase from historical rates.
• Proprietary reverse mortgages are becoming more profitable and attractive alternatives due to the high upfront costs of HECMs.

Christine Jensen, a senior vice president of reverse lending at Fairway Home Lending, has observed significant evolution in the reverse mortgage market over her career. In a recent interview, she highlighted persistent misconceptions about how home equity can be leveraged in retirement planning, often stemming from traditional financial advice that prioritizes debt-free living.

Jensen explained that many individuals, influenced by parents who lived through the Great Depression, view debt negatively. This mindset creates cognitive dissonance when considering reverse mortgages, which involve borrowing against home equity. She aims to educate financial planners to view home equity as a proactive asset rather than a last resort.

A key barrier to reverse mortgage adoption, according to Jensen, is the cost associated with Home Equity Conversion Mortgages (HECMs), particularly the upfront mortgage insurance premium. She recalled that in the past, borrowers could opt for a 'Super Saver' program with a higher premium to access 100% of their principal limit, or a lower premium (0.5%) for reduced initial access. Today, the upfront premium is 2% of the home value, making HECMs less attractive.

This high cost has prompted the secondary market to develop more agile and profitable proprietary reverse mortgage products. Jensen noted that these alternatives allow borrowers to access home equity without the substantial upfront insurance cost of HECMs, suggesting a shift in the market's response to borrower needs.