“We decided going forward that we’re going to focus 100% on retail,” she said. “We look for like-minded companies that have the same culture, because culture and leadership are key. And I think you have to start building scale in this business.”
Scale is an important tool for maintaining investment in people and technology, Schmidt said, and the additional companies that Guild has brought aboard recently reflect its goals for culture and leadership and may have had issues of scale that were solved by joining Guild, she said.
When asked about the particulars of culture and how Guild aims to define that trait, Schmidt said that three values lead the charge: listening, collaboration and learning.
“For us, [potential acquisitions] have to be able to have a good understanding of their people and listen to what they have to say,” she said. “Everybody has a voice. Those are the kinds of leadership qualities that create that culture. Sometimes it’s not easy to identify that. We have to spend a lot of time doing a lot of discovery to identify that.”
When asked about recent acquisitions like Academy Mortgage and Cherry Creek Mortgage, Schmidt said that Guild had identified the kinds of values they want in their organization as well as the geographic advantage that would come from bringing them into the fold. There were also product advantages.
“Those two are more West Coast companies even though they had a national footprint, and so we’ve known them for years,” she said. “We had a good sense of their culture in advance. They both have great cultures and we were competing for the same people, so we knew the fit would be really good. So now, for all the western states, we pretty much have the market share that we wanted to get to.”
The Cherry Creek acquisition allowed Guild to expand and build out its reverse mortgage capabilities since the company served as a leading lender in the space for quite a while. With Academy, the homebuilder business was most attractive to Guild, Schmidt said.
Schmidt also talked about the need to invest in the company’s technology platform to better enable its people. Recruitment efforts are also following the company’s broad retail-focused strategy, and Schmidt asserted that any retail loan originator will want to “talk to Guild” if they want to advance in the retail origination space.
Schmidt also alluded to further development of its technology by leveraging artificial intelligence, and she shared that the company hired a specialist in its technology division to help grow the company’s efforts.
But to avoid moving too quickly and potentially running afoul of a developing and controversial technology, she said the company’s approach is to “start small and be careful.”
A lower credit score doesn’t necessarily mean a lender will deny you a home equity loan. It does mean the loan will be more expensive, as you won’t get the lowest interest rate.
It’s possible to get a home equity loan with a fair credit score — as low as 620 — as long as other requirements around debt, equity and income are met.
Strategies for getting a loan despite your bad credit include taking on a co-signer, applying to a place where you currently bank, and writing a letter of explanation to the lender.
Alternatives to a home equity loan include personal loans, cash-out refinances, reverse mortgages and shared equity agreements.
Can you get a home equity loan with bad credit?
Yes, you can. A lower credit score doesn’t necessarily mean a lender will deny you a home equity loan. Some home equity lenders allow for FICO scores in the “fair” range (the lower 600s) as long as you meet other requirements around debt, equity and income.
That’s not to say it’ll be easy: Lenders tend to be stringent, even more so than they are with mortgages. Still, it’s not impossible. Here’s how to get a home equity loan (even) with bad credit.
Requirements for home equity loans
Not all home equity lenders have the exact same borrowing criteria, of course. Still, general guidelines do exist. Typical requirements for home equity loan applicants include:
A minimum credit score of 620
At least 15 percent to 20 percent equity in your home
A maximum debt-to-income (DTI) ratio of 43 percent, or up to 50 percent in some cases
On-time mortgage payment history
Stable employment and income
To learn the requirements for a home equity loan with a specific lender, you’ll need to do some research online or contact a loan officer directly. If you aren’t ready to apply for the loan just yet, ask for a no-credit check prequalification to avoid having the loan inquiry affect your credit score.
What are “good” and “bad” scores for home equity loans?
First, let’s define our terms. Here’s how FICO — the most popular credit scoring model — categorizes different scores:
Score
Classification
Source: MyFico.com
300-579
Poor
580-669
Fair
670-739
Good
740-799
Very Good
800-850
Excellent
When it comes to home equity loans, lenders set a high bar for creditworthiness — higher, even, than mortgages. That’s because they are considered riskier than mortgages: You, the applicant, are already carrying a big debt load. Should you default and your home get seized, the home equity loan — as a “second lien” — only gets paid after the primary (the original) mortgage.
Furthermore, home equity loans don’t have government backing, like some mortgages do. The lender bears all the risk.
So home equity lenders set stricter criteria, demanding scores squarely in the “fair” range. A score in the 500s – good enough for an FHA mortgage — will have a tough time qualifying for a home equity loan. Some lenders have loosened their standards of late and are approving applicants with scores as low as 620. But a “good” score, preferably above 700, remains the threshold for many institutions. It can vary even within one lender, depending on factors like the loan amount or other loan terms.
And of course — as with any loan — the lower your credit score, the less likely you will qualify for the best interest rates.
How to apply for a bad credit home equity loan
Before applying for a home equity loan, remember that it’s not just a question of getting the financing, but also how you can overcome a lower credit score to get the best possible rate. Here are some steps to take:
1. Check your credit report
While it’s possible to get a home equity loan with bad credit, it’s still wise to do all you can to improve your score before you apply (more on that below). A better credit score gets you a better rate. It can also help you get a bigger loan (up to the tappable amount of your equity, of course).
Check your credit reports at AnnualCreditReport.com to get a sense of where you stand. If there are any errors, like incorrect contact information, contact the credit bureau — Equifax, Experian or TransUnion — to get it updated as soon as possible.
2. Determine your equity level
To qualify for a home equity loan, lenders typically require at least 15 percent or 20 percent equity. The amount of equity you have, your home’s appraised value and combined loan-to-value (CLTV) ratio help determine how much you can borrow.
Home Equity
Bankrate’s home equity loan calculator can quickly estimate your potential home equity loan amount.
To estimate your home’s equity, take the value of your home and subtract the balance left on your mortgage. While lenders will only consider the official appraised value of your home when determining how much you can borrow, you can get an idea of your home’s value through Bankrate or a real estate listing portal or brokerage. Let’s say your home is worth $420,000 and you have $250,000 to pay on your mortgage:
$420,000 – $250,000 = $170,000
In this example, you’d have $170,000 in home equity. That doesn’t mean you can borrow $170,000, however. If the lender requires you to maintain at least 20 percent equity, you’d need to preserve $84,000 ($420,000 * 0.20). That leaves you with a home equity loan of up to $86,000 ($170,000 – $84,000).
Say you want to add a $60,000 home equity loan to the mix. That would increase your total mortgage debt — for both your first mortgage and the home equity loan — from $250,000 to $310,000.
That 20 percent equity requirement also means you’d need a CLTV ratio of 80 percent or lower. To calculate your CLTV ratio, divide the total mortgage debt ($310,000) by the value of your home ($420,000):
($250,000 + $60,000) / $420,000 = 73.8%
In this example, you’d be under the lender’s 80 percent CLTV requirement.
3. Find out your DTI ratio
The DTI ratio is a measure lenders use to determine whether you can reasonably afford to take on more debt. To calculate your DTI ratio, simply divide your monthly debt payments by your gross monthly income. For example, say you bring in $6,000 a month in income and have a $2,200 monthly mortgage payment and a $110 monthly student loan payment:
$2,310 / $6,000 x 100 = 38.5%
To make things even easier, you can use Bankrate’s DTI calculator.
For a home equity loan, most lenders look for a DTI ratio of no more than 43 percent.
4. Consider a co-signer
If your credit disqualifies you for a home equity loan, a co-signer with better credit might be able to help, in some cases.
“A co-signer can help with credit and income issues for an applicant who has a lower credit score, but ultimately the main applicant or primary borrower will have to have at least the bare minimum credit score that is required based on the bank’s underwriting guidelines,” says Ralph DiBugnara, president of Home Qualified, a real estate platform for buyers, sellers and investors.
A co-signer is just as responsible for repaying the loan as the primary borrower, even if they don’t actually intend to make payments. If you fall behind on loan payments, their credit suffers along with yours.
5. Try a lender you already work with
If your bank, credit union or mortgage lender offers home equity products, it might be able to extend some flexibility, or at least help with your application, since you’re an existing customer.
“A loan officer familiar with the details of an applicant’s situation can help them present it to an underwriter in the best possible way,” says DiBugnara.
6. Write a letter to the lender
Write a letter of explanation describing why your credit score is low, especially if it has taken a recent hit. This letter should matter-of-factly explain credit issues — avoid catastrophizing — and include any relevant paperwork, like bankruptcy documentation. If your credit score was impacted by late payments due to job loss, for example, but you’re employed now, your lender can take this context into consideration.
Lenders that offer home equity loans with bad credit
There are home equity lenders that offer loans to borrowers with lower credit scores. Here are some to consider, along with requirements:
Lender
Bankrate Score (scale of 1-5)
Loan types
Credit score minimum
Maximum CLTV
Maximum DTI
Figure
4.37
HELOC
640
75%-90%
Undisclosed
Guaranteed Rate
3.3
HELOC
620
90%-95%
50%
Spring EQ
2.7
Home equity loan, HELOC
620 for home equity loans, 680 for HELOCs
Up to 97.5%
43%
TD Bank
4.0
Home equity loan, HELOC
660
Undisclosed
Undisclosed
Connexus Credit Union
3.5
Home equity loan, HELOC
640
90%
Undisclosed
Discover
4.4
Home equity loan
660
90%
43%
Pros and cons of getting a home equity loan with bad credit
Getting a home equity loan with bad credit has its benefits and drawbacks. You can tap your equity to help with expenses, but it’s also risky.
Pros
You’ll pay a fixed rate: Home equity loans are for a fixed sum at a fixed interest rate, so you’ll know exactly how much your payment is each month. This can help you budget for and reliably pay down debt, which can help boost your credit score.
You could get out of costlier debt: If you have high-interest debt — like credit card debt — you could pay it off with a lower-rate home equity loan, then repay that loan, with one payment, for less.
Cons
You’re taking on more debt: If you’ve had trouble managing money in the past, it might not be wise to take on more debt with a home equity loan, even if you qualify.
It’ll be more expensive: A lower credit score won’t qualify you for the best home equity loan rates, meaning you’ll pay more in interest.
You could lose your home: If you fall behind on loan payments, you’ll further damage your credit. Even worse: If you’re eventually unable to pay back the loan, your home could go into foreclosure.
What to do if your home equity loan application is denied
If your application for a home equity loan is rejected, don’t despair. First, ask the lender for specific reasons why your application was denied. The answer can help you address any issues before applying in the future.
If your credit was one of the deciding factors, you can improve your score by making on-time payments and paying down any outstanding debt. If you don’t have enough equity in your home, wait until you’ve built a bigger stake (mainly by making your monthly mortgage payments) before submitting a new application.
Both these approaches may take a half-year to a year to make a significant difference in your credit profile. If you’re in more of a hurry, consider applying to other lenders, as their criteria may differ. Just bear in mind that more lenient terms often mean higher interest rates or fees.
And of course, you can consider other forms of financing.
Home equity loan alternatives if you have bad credit
If you need cash but have bad credit, a home equity loan is just one option. Here are some alternatives:
Personal loans
Personal loans can be easier to qualify for than a home equity product, and they aren’t tied to your home. This means that if you fail to repay the loan, the lender can’t go after your house. Personal loans have higher interest rates, however, and shorter repayment terms. This translates to a more expensive monthly payment compared to what you might get with a home equity loan.
Cash-out refinance
In a cash-out refinance, you take out a brand-new mortgage for more than what you owe on your existing mortgage, pay off the existing loan and take the difference in cash. Most lenders require you to maintain at least 20 percent equity in your home in order to cash out.
A caveat, however: A cash-out refi makes the most sense when you can qualify for a lower rate than what you have on your current mortgage, and if you can afford the closing costs. With bad credit, getting that lower rate might not be possible.
Reverse mortgage
Reverse mortgages allow homeowners over the age of 62 to tap their home’s equity as a source of tax-free income. These types of loans need to be repaid upon your death or when you move out or sell the home. You can use reverse mortgages for anything from medical expenses to home renovations, but you must meet some requirements to qualify.
Shared equity agreement
Home equity investment companies might work with you even if you have a lower credit score, often lower than what traditional lenders would accept. These companies offer shared equity agreements in which you receive a lump sum in exchange for an ownership percentage in your home and/or its appreciation.
Unlike with home equity lines of credit (HELOCs) or home equity loans, you don’t make monthly repayments in a shared equity arrangement. Some companies wait until you sell your home, then collect what they’re owed; others have multi-year agreements in which you’ll pay the balance in full at the end of a stated period.
Make sure you understand all the terms of this complex arrangement. Technically, you’re not borrowing money, you’re selling a stake in your home — to a financial professional who naturally wants to see a return on their investment.
How to get a HELOC with bad credit
Applying for a HELOC is pretty much the same as applying for a home equity loan, but if you have bad credit, a loan might have a slight edge over the line of credit. That’s because home equity loans have fixed interest rates and fixed payments, so you’ll know exactly what you need to repay each month. This predictability could help you better manage your budget and keep up with payments.
A HELOC, on the other hand, has a variable rate, which can cause unexpected increases in your monthly payments. For this reason, lenders often have higher credit score criteria for HELOCs than home equity loans.
Tips for improving your credit before getting a home equity loan
To increase your chances of getting approved for a home equity loan, work on improving your credit score well before applying — at least several months. Here are three tips to help you improve your score:
Pay bills on time every month. At the very least, make the minimum payment, but try to pay the balance off completely, if possible — and don’t miss that due date.
Don’t close credit cards after you pay them off. Either leave them open or charge just enough to have a small, recurring payment every month. That’s because closing a card reduces your credit utilization ratio, which can decrease your score. The recommended utilization ratio: no more than 30 percent.
Be cautious with new credit. Getting a higher credit limit on a card or getting a new card can lower your credit utilization ratio — but not if you immediately max things out or blow through the bigger balance. Treat the newly available funds as sacred savings.
FAQ on getting a home equity loan with bad credit
In general, it’s better to get a home equity loan with bad credit. A home equity loan often has a lower credit score requirement compared to a HELOC, and it comes with a fixed interest rate, so your payment will be the same every month, making it easier to plan for.
Yes — in fact, this is the rule for any type of loan, including a home equity product. The higher your credit score, the lower your interest rate.
The Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of the Treasury, is sounding the alarm over challenges faced by elder financial exploitation (EFE).
In a newly released trends report, FinCEN highlighted more than $27 billion worth of “suspicious activity” across more than 155,000 filings of Bank Secrecy Act (BSA) data with FinCEN between June 15, 2022 and June 15, 2023.
The data is linked to elder financial exploitation, “or the illegal or improper use of an older adult’s funds, property, or assets.” Within the $27 billion-plus in reported suspicious activity, EFE could include both actual and attempted transactions that “may affect personal savings, checking accounts, retirement savings, and investments, and can severely impact victims’ well-being and financial security,” the report stated.
This is a follow-up to a prior notice issued by FinCEN in June 2022, which aimed to alert financial institutions of a rising trend of EFE. FinCEN noted that companies should be aware of these activities and attempt to counteract them through both internal mechanisms and reporting to authorities.
“FinCEN has long recognized the threat that [EFE] poses and the need to protect the older adult population from financial abuse,” FinCEN Director Andrea Gacki said in a statement. “FinCEN’s analysis highlights the critical role of financial institutions in helping to identify, prevent, and report suspected [EFE]. We are grateful for their vigilance and for the BSA information they have filed — and continue to file — in response to FinCEN’s 2022 advisory.”
Seventy-two percent of all EFE filings included in the data were filed by banks, with two banks alone accounting for 50,670 (33%) of all filings. The most commonly cited typology of the EFE incidents were “account takeovers,” and adult children of the elder victims were the most common perpetrators, according to the report.
“BSA filers reported adult children as the perpetrators of elder theft in nearly 40% of cases, based on a manual review of EFE-related filings,” the report explained.
Perpetrators also relied primarily on what FinCEN refers to as “unsophisticated means,” or those that “minimize direct contact with financial institution employees” and which include “using previously compromised identifying information and/or passwords, guessing passwords, or mass spam emails that elicit replies containing sensitive information.”
This is because direct involvement with financial institution personnel would increase the likelihood of being caught, since workers at these institutions “would likely identify EFE activity more frequently if victims or perpetrators conducted transactions in person, and presumably not permit the requested transactions.”
Financial institutions also filed significantly more reports related to scams targeting seniors, most frequently including “tech support” scams in which a perpetrator falsely claims to offer technical assistance, or “romance scams” in which a perpetrator attempts to present themselves as a potential romantic partner to the victim.
Real estate scams are also included in the typology of the report, although it does not mention reverse mortgages specifically. The U.S. Department of Housing and Urban Development (HUD) Office of the Inspector General (OIG) previously identified reverse mortgage scams as a potential vehicle for perpetrators to target elderly victims.
Late last year, the FBI warned the public about a problematic rise in instances of elder financial abuse. Seniors are common targets of financial scammers, and authorities consistently warn the public to safeguard the financial accounts and assets of their loved ones.
Following the submission of a letter by Indiana Sen. Mike Braun (R) to Ginnie Mae President Alanna McCargo about concerns related to the Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) program, McCargo’s predecessor, Ted Tozer, hopes the senator will dive deeper into the program’s mechanics and what led to the collapse of Reverse Mortgage Funding (RMF).
The late 2022 failure of RMF and the subsequent assumption of its reverse mortgage portfolio by Ginnie Mae were major concerns for Braun, which influenced his decision to inquire about the program’s challenges.
“RMF’s failure raised serious red flags,” Sen. Braun said in a subsequent email to RMD. “The scope of this failure is glaring, comprising 36 percent of all existing HECM loans at the time. I am seeking clarity about Ginnie Mae’s actions in dealing with this distressed issuer and their actions to fix underlying programmatic problems.”
In an interview with RMD, Tozer explained that his major concern with Braun’s letter is that the senator didn’t characterize what he says is the actual reason for Ginnie Mae’s assumption of the company’s portfolio.
“Ginnie Mae, like any creditor, took control of the collateral when they (RMF) defaulted on their debts,” Tozer said. “This is to protect the taxpayer. RMF was obligated to make payments to the bondholder, but they could not come up with the cash to facilitate that funding and defaulted. Ginnie Mae had no choice but to take the loans as collateral.”
But Braun’s letter does not mention the intent to protect U.S. taxpayers, Tozer added.
“My concern is he didn’t make it clear that Ginnie Mae was stepping in to protect the taxpayer,” Tozer explained. “By doing this, he kind of threw Ginnie Mae under the bus, questioning why Ginnie Mae took this action with RMF. I think that’s the thing he misunderstood.”
Braun’s letter also requested information about Ginnie Mae’s attempts to “market RMF’s assets to potential buyers,” and to explain details about challenges the company encountered in locating a financier for RMF.
“Ginnie Mae did that,” he said. “They tried to find people willing to take over the debt obligations and the underlying collateral, but as I understand it, every other HMBS issuer was having enough problems obtaining liquidity for the 98% buyouts, and they didn’t want to take on additional obligations.”
Braun noted that Ginnie Mae had never before extinguished an issuer from the HMBS program, but Tozer contends that’s not the issue at the heart of the matter.
“The issue was not the fact that Ginnie Mae did the extinguishment,” he said. “The problem is that the HMBS program is so cash-intensive for older HECMs that hit the 98% threshold, and [independent mortgage banks (IMBs)] just don’t have the financing facilities to handle those buyouts.”
Tozer said he interpreted some of the letter’s content to be disfavorable to the actions Ginnie Mae has taken to protect both the HMBS program and taxpayers.
“[The letter] made it sound like Ginnie Mae was just sitting back and not doing anything, but it’s back to the fact that the IMBs are the only ones doing HMBS,” he said. “It’s a very cash-intensive business, and IMBs just don’t have the financial wherewithal that depositories do to raise a lot of cash to meet their obligations.”
Tozer hopes that Ginnie Mae can explain this to Braun in its own response, but he has also personally reached out to the senator’s office to offer any information he may need. When asked about the interaction, Tozer said he was satisfied that the senator’s office understood his concerns.
Because of certain persistent reputational challenges faced by the reverse mortgage industry, it can be challenging for borrowers to find objective informational sources about the product category.
That’s what drove a listener of the podcast “The Indicator from Planet Money,” a production of National Public Radio (NPR), to ask hosts Wailin Wong and Darian Woods about the product during a recent episode.
“I was wondering if you guys could explain reverse mortgages,” the listener asked the group. “I’m trying to understand all things housing with the market being so crazy these days.”
Wong and Woods introduced the segment by talking about notable reverse mortgage ad spokesmen like Tom Selleck and Henry Winkler, before offering an overview of the Home Equity Conversion Mortgage (HECM) product backed by the Federal Housing Administration (FHA).
“[A] reverse mortgage is a loan where you can borrow money against the value of your house,” Woods explained. “So, the house’s title is still in your name, but you’re receiving payments while you start to owe more and more to the lender.”
Woods went on to explain the factors that determine the loan’s proceeds, including interest rates, the home’s value and age of the primary borrower.
“But theoretically, a borrower could get anything from a few hundred dollars to a few thousand tax-free dollars a month while also not needing to pay their mortgage,” he said.
The pair then discussed the perceptions of the products, with Wong asking if it was “too good to be true.” Woods said that such a loan isn’t “free money,” but added that it could be a viable solution for the right borrower.
“It is definitely appealing to folks who are strapped for cash day to day, but their home is maybe the only big asset that they have. But we should mention reverse mortgages don’t have the best reputation,” he said.
The show then played audio from a segment on “The Daily Show” that aired last year, which took a flippant look at reverse mortgages without an abundance of factual rigor, saying that most reverse mortgages end “with you losing your house, or dying and losing your house, or dying and losing your house and saddling your kids with debt.”
Woods, however, was quick to specify the context.
“This is a bit of an exaggeration for comedic effect,” he said. “Debt doesn’t go across generations, but it is up to whoever managed the estate to figure out how to pay this debt back. And usually, it’s by selling the house.”
The pair then asked Cora Hume with the Consumer Financial Protection Bureau(CFPB) to weigh in. Hume said that reverse mortgages can be expensive compared to other home equity-tapping tools.
“A lot of older adults are very surprised about how quickly the amount they owe grows and how quickly their equity that they have in their home decreases,” Hume said on the show.
Woods also cited a 2023 CFPB report that said a majority of reverse mortgage direct-mail advertising is sent to “more financially vulnerable consumers, those of low or moderate income.”
Woods ended the segment by reiterating that reverse mortgages can work for people in the right situation, with Wong adding “people should do their homework” and “read the fine print.”
Reverse mortgage volume dropped in February compared to the month prior, and new data compiled by Reverse Market Insight (RMI) shows that the primary culprit for the month was retail reverse mortgage originations.
The retail channel volume decrease of 15.7% effectively “masked” a gain of 3.9% posted on the wholesale side of the business, according to RMI. To get a better idea of the dynamics driving this data, RMD spoke with Jon McCue, RMI’s director of client relations, for additional perspective and a breakdown of why business moved this way.
Retail vs. wholesale drop
When asked about why retail suffered a heavier drop for the month, McCue said it could stem from a few different factors.
“I know some companies have gone back to brokering their loans because the volumes are not high enough to support their own staff to compete in the full correspondent space, so I’m sure there is an uptick in part to that,” McCue said. “Outside of that, a one-month decline like this is really too early to weigh in heavily with speculation. If this becomes a trend, then I think that would tell us more.”
Four of the top 10 lenders in the space — South River Mortgage, Goodlife Home Loans, Longbridge Financial and Liberty Reverse Mortgage — managed to post gains for the month. When asked about why the bigger lenders sustained drops in the retail and consumer-direct business channels compared to the wholesale side, McCue said part of it is data visibility.
“Given that the vast majority of brokers in the space only do zero to one loans a month, it is easier to see the significant decreases in the larger players since their volumes are more visible to the entire space,” he said.
“Because of this fact, when there are industry headwinds, we tend to see it first in the larger lenders simply because it is easier to see. However, if we go back to the November and December case number assignments, the writing was sort of on the wall that a month like this was coming.”
That’s because those were the two lowest case number assignment months in all of 2023, McCue said. South River Mortgage does not have a wholesale channel, so its growth was due entirely to retail, but for the other lenders it was a bit more channel-driven, with the exception of Longbridge, he added.
“Longbridge led the wholesale channel in February and was No. 3 in retail, so when combined it gave them a nice boost month over month,” McCue said. “Goodlife was all from their wholesale channel, and Liberty was a little bit of a combined effort as well from both its channels.”
Case numbers, product types
In terms of case numbers, the low-issuance months at the end of 2023 served as a bit of a telegraph, McCue noted.
“Since we are speaking of February endorsements, we need to go back to around the November and December case number assignments, which happened to be the lowest in all of 2023 at just over 2,600 and 2,200 respectively,” he explained.
“With that said, you shouldn’t be too surprised to see endorsements fall off in February. However, ever since the start of the year, we have seen an uptick in case numbers, which correlates to the uptick in activity LOs have been seeing and that [RMD has] reported on.”
Earlier in the year, RMD spoke to reverse mortgage managers and loan officers across the country, who did in fact report a more steady stream of inbound inquiries and product interest. Part of that was also due to an apparent increase in originator sentiment around the HECM for Purchase (H4P) product, which RMI hopes to see more of in the months ahead.
“We are firm believers that the H4P product is prime to take off,” McCue said. “When looking at H4P volumes over the years, interest rates have had very little to do with its success. In fact, the lowest levels of H4P were in the lowest rate environment during the 2020 pandemic as inventory tightened and seniors were not interested in moving given all that was happening.”
Industry perseverance
But other data suggests that seniors may be more willing to move again. He cited the 2024 Generational Trends report from by the National Association of Realtors (NAR), which indicated that the senior demographic made up the second-largest portions of buyers and sellers.
“This tells me [seniors] are moving again, so what are their options? For the right people in this high interest rate environment, an H4P may just be what they need,” McCue said. “And now that the program has gone through some recent changes, it is more closely related to its forward counterpart.”
The reverse mortgage industry, he added, is adding its own brand of perseverance to the table.
“With the rate environment we are in, it is tough, but case number assignments have been on the rise since January, the H4P product got some much needed improvements, and in speaking with LOs, it sounds like they are keeping busy,” McCue said. “Currently, all signs are pointing in the right direction, but that isn’t because of rates. It’s because of the hard work of all the professionals in this space working very hard to help their clients.”
Reverse mortgage industry professionals have spoken for months about the consequences of high interest rates on their ability to pursue business, and now AARP has taken a closer look at the impacts.
While higher rates are bad news for the mortgage industry in a broad sense, the impact on reverse lending is more nuanced, Bruce Simmons of American Liberty Mortgage in the Denver area explained to AARP.
“If a reverse mortgage can help your situation, it still makes sense for a lot of people,” Simmons told the organization. “There are so many people who can benefit from this today, even with the rates the way they are.”
These sentiments echo what Simmons shared with RMD at the beginning of this year when asked about how business is progressing after the general tumult observed in 2023. Inconsistent interest rate forecasts have made things challenging in his business, but different kinds of marketing — including a refocusing exercise on his existing marketing efforts — have helped to improve things, Simmons told RMD in February.
But a rise in interest rates also impacts the amount of money owed on the negatively amortizing loan, observed Stephanie Moulton, a longtime reverse mortgage academic researcher from Ohio State University.
“It might accelerate the growth of the balance and reduce, potentially, the equity when your heirs go to sell the home, because your balance is going to grow faster,” she told AARP.
But the utility of eliminating a forward mortgage payment still has the potential to add value for reverse mortgage borrowers, along with a raft of disbursement options such as a standby line of credit or monthly term payments, Simmons added.
Bruce McClary, senior vice president of the National Foundation for Credit Counseling (NFCC) also shared that while reverse mortgages can add value for borrowers in certain situations, the fee structure of a home equity line of credit (HELOC) could potentially make more sense for some seniors. But certain situations may make a reverse mortgage a better idea for some individual borrowers.
“[It] depends on an individual’s capacity to borrow, the reasons for borrowing and what they’re going to use the money for,” McClary told AARP. “The answers will be different depending on people’s financial circumstances and their goals.”
Property preservation company MCS announced last month that it had entered the reverse mortgage business after acquiring Five Brothers Asset Management Solutions. In part one of RMD’s interview with MCS CEO Craig Torrance, he explained his company’s interest in the reverse space.
In the second part of the interview, Torrance goes deeper into the value proposition of engaging in the reverse mortgage business; the ways companies like his might be able to simplify certain necessary property obligations; and more about what the company is inheriting from Five Brothers in terms of knowledgeable people and reverse industry relationships.
Editor’s note: This interview has been edited and condensed for clarity and readability.
Chris Clow/RMD: What do you hope the industry can do to offer more or better information about how MCS will pursue continued business in the reverse mortgage space?
Craig Torrance: I think [we] will naturally, hopefully, bring in the lenders to think through what this relationship will look like going forward, and to identify what else we can do to help folks in the space. Generally, I think as we pull together resources and understand as an industry what we can do, there will be more of that type of thinking around what services can be created for reverse mortgage owners to utilize and say, ’Hey, I need work done. I need somebody to cut my grass.’
In many cases, some of those services are managed by family members. So, you’ve got the elderly folks in the reverse mortgage, and the kids are the ones trying to figure out how to maintain mom’s house. If we can professionalize that so people feel good knowing the person performing this work at mom’s house is from a solid, reputable company — and that the lender, the servicer and everybody’s kind of involved in that — it’s probably an upside for the whole community.
Clow: It’s my understanding that Five Brothers was a member of the National Reverse Mortgage Lenders Association (NRMLA). Is that a membership MCS will continue with?
Torrance: Yes. We grabbed everything out of the business, and we’re also going to continue with the team there. They bring a lot of industry expertise, and the business was huge: It was a 50-year-old business. They spent a lot of time in this space, with a lot of people there having 20 to 25 years of experience in reverse. Part of the deal was to bring all that expertise into MCS and continue.
So, we really want to be active in the reverse space, be a participant in the industry, be part of the conversations and share what we think we can do to help out. Hopefully, everyone can raise their hands.
Clow: What’s your assessment of the competitive landscape for this specific segment of the reverse business?
Torrance: We don’t see any direct competitor to our place. We see direct competitors in certain segments, like property preservation in forward (lending). There are competitors in single-family rental (SFR) service centers. In reverse, there are a few competitors. But to us, what is key is that when you put it all together, there isn’t any one company that can do all the things we can. That’s why we feel good about the business model.
Adding in reverse allows all those reverse companies to pull from a commercial business, from our single-family rental business and from our forward mortgage business. That ultimately means we have more vendors, better technology and tools — we believe — than our competitors. So, we have individual competitors in certain segments but no one overall competitor, which makes us somewhat unique.
Clow: HousingWire is read by people across the business — from loan originators up through executives at lenders and servicers, as well as government officials. Is there anything in particular you think they should know about MCS getting into reverse?
Torrance: I think the key message that I would double down on is the conversation around labor in the U.S. and how costs to perform this kind of maintenance work have only accelerated over the last few years. What we’ve found is that this is ultimately a fee-based business. When you perform some of these basic types of maintenance services, there’s a cap on how much you can charge for that.
What has happened is we have seen vendors leave the space, so we are at a point where they would rather work for Amazon than cut grass because they can make more money than cutting grass on a defaulted reverse mortgage property. So, what we’ve seen is people shy away from this segment and these FHA-backed properties. MCS is trying to solve that problem by bringing more work to the vendors today through reverse, forward, commercial and SFR.
Clow: Is there anything that we didn’t speak to about this entrance into the space that you think people should know?
Torrance: The only thing I would add in is that Five Brothers has built a technology platform to really enable the reverse process very well. When it comes to technology, people say you can build anything. It’s just ones and zeros at the end of the day. And to an extent, that’s true, but the reality is that it’s hard to build the platform to do reverse mortgage process servicing.
It’s hard to build a servicing platform, and the servicing platform that reverse people use is different from forward. So, thinking through that, what they’ve really done over the last 20 to 30 years is they’ve created a process flow and enabled that process for a really slick tech engine that you can now move through the reverse process very easily. It’s transparent, and we can unlock a lot of efficiencies, and ultimately get to compliance and deliver great service through there.
That was critical for me. Technology needs to unlock this. Five Brothers probably has the best property preservation platform for reverse in that segment. We now have that platform, will continue to invest in it and we can only just accelerate that over the next few years.
Finance of America Companies (FOA), parent company of industry-leading reverse mortgage lender Finance of America Reverse (FAR), released a new “investor update” this week to update shareholders and other stakeholders on different elements of its reverse mortgage business including its strategic initiatives, business model and an update on its integration of American Advisors Group (AAG).
The company also provides commentary for its fourth quarter 2023 financial performance, assesses its market advantages and offers an assessment of impacts stemming from changes in Ginnie Mae’s Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) program.
Business update and market share
The company announced the availability of the update in a filing with the Securities and Exchange Commission (SEC). FOA begins the update by listing statistics illustrating the market potential of reverse mortgages, including the amount of home equity held by seniors ($13 trillion based on the Reverse Mortgage Market Index), a majority of seniors’ aging in place preferences and sources of anxiety in retirement.
Citing data from New View Advisors, FOA describes itself as “the largest Ginnie Mae HECM issuer for the last 10 years” when including AAG, with 37% of total 2023 issuance compared to Longbridge Financial (21%), Liberty Reverse Mortgage (16%) and Mutual of Omaha Mortgage (15%).
The company also said it “continues to evaluate new products to reach additional segments of the population facing a retirement gap,” and describes recent reverse mortgage industry consolidation following influential industry changes in 2017 and the 2022 bankruptcy of Reverse Mortgage Funding (RMF).
“As a result, the industry has consolidated from approximately 20 HECM issuers controlling 50% of the market in 2017 to only four today, and FOA’s market share has increased to 37% over that same period with the acquisition of AAG,” the company said.
Last July, the company sold its title insurance business to Essent Group, followed by strategic changes in September including a transition of its offshore-based operations to a team in the Philippines and the sale of “certain operations” of its home improvement lending business to Aqua Finance.
“Following the wind down of its forward mortgage business and sales of non-reverse segments including Lender Services, Commercial Originations and Home Improvement, FOA is focused solely on the reverse mortgage market,” the company said. “The Company has substantially completed its exit from all non-core businesses at the end of Q1’24.”
Reverse mortgage leader and ‘right-sizing,’ future goals
Following its acquisition of AAG in March 2023, the company became the industry’s leading reverse mortgage lender. This resulted in the company taking “aggressive actions to rightsize its originations and back-office headcount to align with continuing operations,” saying it reduced its overall headcount by roughly 30% from its Q2 2023 peak following the acquisition of AAG.
This has resulted in FOA having “less than 1,000 employees” as of the end of 2023, the company said, leaving the organization “well-positioned to evaluate opportunities for further industry consolidation,” the update explained.
The company is also transitioning into what it calls a “de-levered, cash-generation business model,” which it plans to accomplish by “monetizing its existing balance sheet while new originations generate free cash flow and long-term equity value.”
That positive free cash flow it is aiming for will potentially go toward new financing on newly-originated HECM mortgage servicing rights (HMSRs), and wants to reach a point where “incremental financing” on HMSRs create additional liquidity.
FHA, HMBS program changes
The company went into additional detail regarding changes handed down to the HMBS program by Ginnie Mae brought about by the bankruptcy of RMF. Last September, Ginnie Mae announced it would begin allowing the securitization of multiple participations related to a particular HECM in any one issuance month. In January, the government-owned company announced its plans to develop a new reverse mortgage-backed security product in response to industry liquidity challenges.
The Federal Housing Administration (FHA) announced a series of several different HECM servicing changes in November 2023 including allowing mortgage servicers to contact borrowers by phone to verify occupancy for the program’s required annual occupancy certification, as well as allowing mortgage servicers to assign a HECM to the U.S. Department of Housing and Urban Development (HUD) after the servicer funded a cure on delinquent obligations.
FOA noted several impacts on its business stemming from these changes, including increasing the “velocity” of tail securitizations; a reduction in the need for third-party financing; and increased value for the company’s HMSRs.
Ginnie Mae’s potential new HMBS product, referred to by some in the industry as “HMBS 2.0,” has other notable potential for FOA’s reverse mortgage business, the company explained.
“HMBS 2.0 may allow FoA to collapse ~$630 million of securitized buyout [unpaid principal balance (UPB)] and reissue these as [Ginnie Mae] securitizations, improving liquidity and freeing operating capital,” the company said.
In its Q4 2023 earnings report last month, FOA said that it narrowed its quarterly loss to $20 million and posted an overall improvement in its earnings to $164.7 million in fourth-quarter 2023.
The fourth-quarter loss was down from the $25 million in losses posted in Q3 2023, touted its HMBS market share and addressed remaining challenges related to the integration of AAG and two notices it received from the New York Stock Exchange (NYSE) about its stock price being out of compliance with continued listing standards.
Last month, Northeast regional lender WSFS Mortgage released the results of a survey that measured reverse mortgage product sentiments. It found that more people seem to be aware of the potential value that a reverse mortgage could provide for older homeowners, including as a tool to age in place and to provide greater cash flow in retirement.
Despite the more regional focus of WSFS Mortgage’s reverse mortgage offerings — which offers the loans through its brokerage — the survey itself was conducted nationwide with a research company enlisting responses from 750 homeowners at or over the age of 60.
To get a better idea of what motivated the survey and its desire to learn more about reverse mortgages, RMD sat down with WSFS Mortgage President Jeffrey Ruben.
The education gap
The reverse mortgage industry has long made serious investments in educational programs, particularly when looking at the efforts of current and former major lenders in the space like Finance of America Reverse (FAR), American Advisors Group (AAG) and others. In terms of what motivated the company to conduct the survey, Ruben describes a perceived disconnect between the utility of the product category and its reputation.
“The ‘aha’ moment was really validating an assumption we had going into it, that there is this large education gap,” Ruben said. “Whenever there’s a chance to educate and let people know how this product works, [the industry] all about it, and that’s where we are as well. We feel that as a product, it suffers from a lack of information and a lot of misinformation. I think the survey bears that out.”
When asked if it is aiming to use the survey results to inform future plans with the reverse mortgage product, Ruben said that the company has a nearly 200-year old history and had been more involved in reverse mortgages in the past, but not since he joined the company roughly a decade ago.
Population trends
WSFS did in fact have a national reverse mortgage-focused subsidiary, 1st Reverse Financial Services, but elected to wind it down and shutter it in 2009. Since Ruben joined the organization, reverse mortgages have not been a major focus of the company, he said.
“Since I’ve been involved, I’ve stepped back and looked at our depositor base. We’re based in Wilmington, Delaware, we service the tri-state area of Pennsylvania, New Jersey, Delaware and some of Maryland,” he said. “And if you look at that population group, it’s an older group of Americans and our deposit base reflects that as well.”
However, Ruben describes being surprised at a generally low level of reverse mortgage activity he has seen since becoming involved, and thought about engaging in an exercise that would allow for a clearer understanding of whether or not reverse remained a viable business path for the company.
“We thought we weren’t successful in getting the word out about this product and how it can be used,” he said. “It’s not for everyone, but it definitely should be something that is in the offering, and that people can make an informed and educated decision about. Our motivation was to look at our population base, and to look at the values of homes. We have an aging population, and it just seems so ripe to make sure that our older Americans are aware of this option and this program.”
Maintaining a regional focus, program changes
Despite the results of the survey indicating more understanding of the utility of reverse mortgages, Ruben said the company has no immediate ambitions to progress beyond its regional focus brokering reverse mortgages to investors. But he didn’t completely shut the door on the prospect for the future.
“It sounds cliché, but we do like to walk before we run,” Ruben said. “We want to be able to learn how this product is going to be received. It is a much safer and financially less impactful decision to broker initially, but as we get more and more knowledge we do feel that it is a product that we could bring in-house at some point if the conditions are correct and we are comfortable with the program.”
The company will also keep an eye on the regulatory environment, and any potential changes that the U.S. Department of Housing and Urban Development (HUD) or the Federal Housing Administration (FHA) may choose to make to the Home Equity Conversion Mortgage (HECM) program, he said.
But the involvement of the HECM program’s stewards likely helps what could be a delayed process of recognition for the HECM product due to its age restriction, he said.
“When the government came in and started setting a real good guideline foundation for this product, I believe it caught and continues to catch interest,” he said. “It’s not fully adopted, but more and more financial advisors who are working with individuals in retirement planning are starting to recognize the value and the potential opportunity for a reverse mortgage to help with that retirement cash flow, which is usually the main goal of a successful retirement plan.”
A lack of product awareness is giving way to people who are starting to think in longer terms about their financial futures, Ruben has observed.
“I see even in our own bank, younger people today are really focused on a 30-year and 40-year plan for when they retire someday,” he said. “So, I think it will become a tool and a financial instrument that people will learn about earlier in their life, today and in the future.”