The mortgage business is ever evolving, with the great thinkers in the housing finance sector always trying to come up with a better mousetrap.
Most recently, at least four companies -- Finance of America, Longbridge Financial, One Reverse Mortgage and Reverse Mortgage Funding -- have rolled out proprietary home equity conversion mortgages to compete directly with reverse loans insured by the Federal Housing Administration.
In addition, Finance of America Mortgage and United Wholesale Mortgage have new, more favorable terms for locking down loan rates so they don’t climb beyond your limit before closing. Startup Remzy has a way to connect buyers with owners who don’t have their homes on the market yet. And HSH has new “decisioning” software that permits borrowers to easily compare the cost of low-down-payment FHA loans with similar conventional, privately insured mortgages.
Reverse mortgages, aka home equity conversion mortgages (HECM), allow homebuyers to withdraw 75 percent or so of the equity they have in their homes. There are no payments necessary until you move out for good or pass away. Then, lenders are repaid by selling the property on the open market.
Now, instead of being able to offer a single reverse mortgage product, lenders -- and their borrowers -- have choices.
The FHA HECM has some significant rules, such as limits on the amount or proceeds borrowers can withdraw, that the new entries seek to overcome. Each has different requirements, but provides more options for borrowers. For instance, all four of the new competitors offer borrowers access to up to $4 million of their homes’ equity, whereas the FHA loan limit is $679,650.
There are other differences, too. With its HomeSafe reverse product, Finance America allows borrowers to initially remove only 60 percent of their equity at closing. But they can take the remaining 40 percent in equal monthly payments over five years.
With most reverse mortgages, at least one of the borrowers must be at least 62 years old. But under Reverse Mortgage Funding’s Equity Edge loan, one borrower needs to be only 60 to qualify, and the company doesn’t charge an ordinarily expensive servicing fee to administer the loan.
HSH publishes mortgage and consumer loan information. Joining a complete suite of online calculators, HSH’s FHA calculator allows you to view the true cost of an FHA loan. Simply punch in some basic data -- interest rate, purchase price, down payment amount, fixed or adjustable rate, credit score etc. -- and the program will calculate all costs and compare them to those associated with a similar conventional loan.
Finance of America’s Lock and Live product ensures clients can lock in their quoted rate for a total of 90 days with a house address “to be determined.” While “lock-in” programs are not new, this version gives borrowers 60 days to shop for the house and then 30 more days to close on their loans.
The feature protects borrowers from paying a higher rate during periods when rates are rising. But should rates fall during the lock-in period, you can exercise a one-time “float down” option to grab the lower rate. You are protected either way.
A similar Lock and Shop option from United Wholesale Mortgage gives borrowers rate security for 60 or 90 days, their choice, and also protects them if rates should fall rather than rise.
Technology takes center stage with Remzy, a platform for agents to use with wannabe buyers who have spotted houses they like but that are not on the market. Remzy’s motto: Think outside the multiple listing service.
Once a potential residence is identified, the agent or the buyer starts the conversation by sending a “professional, yet personal” letter, via FedEx, to the owners telling them of your interest. When the owners receive the overnight package, they can enter a unique code online to view the offer’s details. If they accept or counter your offer, the conversation has begun, and further negotiations can proceed.
Finally, if you are tired of repeatedly losing houses to cash buyers, become one yourself. One outfit making that possible is FlyHomes, which operates in the Seattle area. When you are ready to bid on a house, you pay the company 5 percent of your bid and the company uses its credit lines to turn yours into an all-cash offer.
If yours is the winning bid, FlyHomes collects a 3 percent sales commission from the seller. It then sells the house to you whenever you obtain financing. And if that takes a while -- perhaps you still have to clean up your credit -- it will rent the house to you until you finally qualify.
At least two other startups, Ribbon and EasyKnock, offer similar programs. Ribbon charges buyers 1.95 percent of the purchase price, but the fee jumps to 2.95 for buyers who must rent their new homes until they find financing. Buyers can rent for up to a year.