Key facts
- Senior homeowners possess significant home equity that may be untapped by traditional mortgage products.
- Homeowners aged 55 and older hold an estimated $15 trillion in home equity.
- Reverse mortgages allow access to home equity without requiring monthly principal and interest payments.
- Improvements in reverse mortgage products have strengthened consumer protections.
- Proprietary reverse mortgages can offer advantages over HECMs, such as potentially lower closing costs.
- Lenders can partner with companies like Finance of America to offer reverse mortgages through wholesale arrangements.
Mortgage lenders seeking new avenues for growth should consider targeting senior homeowners who hold substantial home equity but may not qualify for or afford traditional home equity products, according to Jonathan Scarpati, chief production officer at Finance of America (FOA).
Scarpati shared these insights on Thursday at HousingWire’s Mortgage Banking Summit in Dallas. He noted that the aging homeowner demographic represents a significant growth opportunity, surpassing first-time homebuyers.
He explained that these senior borrowers are often past clients of lenders, now entering a new life stage. American homeowners collectively hold approximately $34.5 trillion in home equity, with those aged 55 and older accounting for about $15 trillion of this wealth. Scarpati emphasized that lenders not offering reverse mortgage products are only competing for half of this potential market.
Reverse mortgages allow homeowners to access their equity without the burden of monthly principal and interest payments, making them particularly suitable for individuals on fixed incomes with limited cash flow but significant equity. Examples of use include funding home repairs, paying off existing liens, or establishing a line of credit for future expenses.
Scarpati, who has two decades of experience in the reverse mortgage industry, highlighted the evolution of these products, pointing to enhanced consumer protections like those for nonborrowing spouses and stricter financial assessment requirements. He also noted the rise of proprietary reverse mortgages, which can address needs not met by the Home Equity Conversion Mortgage (HECM) and may offer lower closing costs by avoiding HECM's mortgage insurance premium. FOA's proprietary offerings include HomeSafe Second, a second-lien product designed to compete with home equity lines of credit.
For forward lenders hesitant to build a dedicated reverse mortgage operation, Scarpati suggested wholesale partnerships as a viable entry strategy. FOA assists lenders by identifying and training originators to specialize in reverse mortgages, enabling them to add this revenue stream without disrupting their existing business. He estimated that nearly two-thirds of the top 20 mortgage lenders now have established reverse mortgage departments.