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Lenders Seek Niche in Reverse Mortgage for Empty Nesters - Article in National Mortgage News - By Bonnie Sinnock APR 30, 2014

Open Mortgage, LLC

Austin, TX, May 6, 2014 (GLOBE NEWSWIRE) -- (http://www.myprgenie.com) -- Lenders are gearing up to sell a type of reverse mortgage typically used by seniors looking to downsize their homes, as Texas, a key market, opens to the niche-within-a-niche product.

This version of the government-insured Home Equity Conversion Mortgage, known as the HECM for purchase, gives seniors flexibility in buying a home. The "loan" allows a borrower to tap the equity in an existing home to buy a new one, frequently because the borrower has an empty nest and needs less space. This setup means a senior can pay for the purchase before selling the old home and without taking on more debt payments.

Texas recently became the last state in the union to approve HECM for purchase loans, says Joe Morris, senior vice president in the reverse mortgage division at Open Mortgage in Austin.

HECMs have never grown very fast. Still, adding a Realtor-friendly loan in one of the largest HECM markets should help lenders seeking additional sources of purchase volume to make up for dwindling refinancing business.

However, Texas could also be a promising market has it has numbered among the top three states overall for HECMs in the last 12 months, according to Suits. Also it has been the second largest state market for traditional HECMs, according to HUD/NRMLA.

Relatively few borrowers get traditional "forward" mortgages after age 62 due the loan payment qualifications, which those living on a fixed income in this demographic might find difficult to meet.

Reverse mortgages that allow homeowners to tap home equity without making payments lower that hurdle, although they have had some qualifying criteria that traditional "forward" mortgages lack.

And while HECM for purchase loans lack the monthly payment qualifications forward loans have, borrowers still have to meet income qualifications to make sure they can pay for living expenses and property maintenance costs.

Generally, borrowers do sell the old home, as the new loan requires owner-occupancy. However, if borrowers can show the financial wherewithal to support the costs of both properties, they theoretically could retain ownership of both.

While HECM for purchase may not directly boost lenders' volumes much, it can help build lenders' relationships with real estate agents who have increasingly been important referral sources as refinancing volumes have dwindled.

"I wouldn't say it's the most promising product as far as numbers are concerned, but I think each year the HECM for purchase gathers momentum as more people understand it and as more Realtors understand it," Morris says.

CONTACT: Diane Creasy, diane@corp.openmtg.com, 512-492-3352

Source:Open Mortgage, LLC