Like reverse mortgages, the use of alternative equity faces educational hurdles
A reverse mortgage allows seniors to access the equity they have accumulated in their home in order to access additional cash to achieve certain goals. Whether it’s making ends meet in their post-work years, financing a home improvement project, paying for care, or tapping into a more stable resource in a declining stock market, the mortgage inverted can provide a necessary degree of flexibility for those who qualify.
This fact is critical, however: not everyone looking for a reverse mortgage can benefit from it, whether it’s an FHA-sponsored home equity conversion mortgage (HECM) or the ever-expanding range private reverse mortgages made available by lenders. For those who cannot or may not want to engage in a reverse mortgage transaction, alternative equity operating companies can present a viable alternative in the form of products such as sale-leasebacks or investments. in shared shares.
However, similar to the kinds of hurdles faced by reverse mortgage companies that often have to deal with widespread misunderstanding of the product category, alternative equity mining products are largely a niche market still deeper than reverse mortgages and come with their own levels of misunderstanding.
Similar barriers to understanding
For equity investment firm Point, product training is a major investment and aligns with one of the company’s core values of transparency. That’s according to Michaela Gifford, business operations manager at Point.
“We require homeowners to have a comprehensive understanding of what home equity investments (HEIs) are and their associated costs,” Gifford told RMD. “Although HEIs are new to some owners, it is a very intuitive product category. Fractions are one of the first math tools we all learn in elementary school, so fractional sharing of home equity and appreciation is easy for homeowners to understand.
For senior customers who are typically already familiar with reverse mortgages, Point’s HEI product split-sharing arrangement offers an “easy-to-understand alternative to complicated negative amortization schedules,” says Gifford.
QuantmRE, which also offers a shared equity investment product, tends to focus on offering an alternative to debt-based loans in its client appeals. This helps facilitate better understanding according to Matthew Sullivan, founder and CEO of QuantmRE.
“In each case where the homeowner is looking to unlock equity, they are looking for a cash sum that they can use for specific purposes – for example, paying off high-cost credit cards, renovating their home, etc.”, says Sullivan. “In our case, we offer an alternative equity-based solution that gives the same result the owner expects from a loan, i.e. a cash lump sum. Our challenge is to explain how it is possible for us to provide this lump sum without the added burden that comes with a debt-based product.
Facing major challenges for product education, QuantmRE’s biggest problems stem from their confusion for a lending entity due to explanations surrounding a lack of interest, monthly payments, and debt. The company also faces claims about the cost of such an arrangement and suspicions from senior citizens that it is some sort of ploy to confiscate their homes.
“These types of reactions are understandable because the product is relatively new and solves such a huge problem for so many owners,” Sullivan says. “In order to combat these (erroneous) initial assumptions, it is important that all of our communications with potential customers are fully open and transparent. My view is that all companies in this industry (QuantmRE, Unison, Point, Noah, Hometap) are working towards the same goal. I believe that all businesses in this industry understand the importance of building trust with potential customers every step of the way. »
Comparison with reverse mortgages
When it comes to comparing the ubiquity of capitalization alternative products, alternative products have a notable advantage due to their relative simplicity compared to reverse mortgage products. That’s according to Jarred Kessler, CEO and co-founder of leaseback company EasyKnock.
“I think [a sale leaseback] is a much easier product to understand,” Kessler told RMD. “We buy your house, you pay us this rent, and that’s what you get in the end. So it’s not that complicated, it’s pretty simple to understand. But brand awareness and trust factor is more difficult because people may never have heard of it before. »
Yet EasyKnock has engaged with the reverse mortgage industry in the past to facilitate solutions for borrowers who may not qualify for this product, and this acceptance has only increased due to current events. , says Kessler.
“We’ve seen accelerated acceptance of our product,” says Kessler. “[We’ve even seen] reverse mortgage agents expressing interest in finding more arrows in the quiver to sell because either they can’t sell the reverse mortgage or more people need other options.
In the case of Point, the comparison with a reverse mortgage to facilitate a better understanding is not described as a key element since it has an advisory apparatus to ensure optimal understanding of the arrangement by customers. It is during this counseling process that reverse mortgages may present themselves as an alternative option for them.
“To ensure that older clients have a thorough understanding of the financial implications of our product, we require our clients aged 62 and over to a) complete a one-hour financial counseling session with an independent, purpose-driven financial advisor HUD-certified nonprofit, or b) that their heirs, as interested parties, review and agree to the HEI agreement,” says Gifford. “During financial counseling, options other than an HEI that may be available to clients are discussed, including reverse mortgages, alternative accommodations, social services, health and financial options.”
The ability to compare and contrast different options is usually helpful for customers to make a decision, Gifford shares.
“Customers 62+ definitely appreciate the ability to compare products as there can be a lack of familiarity with Point’s HEI and there can be false assumptions about solutions like reverse mortgages,” says- she. “It’s better for everyone if we strive to find the best solutions rather than just promoting the product we offer.”
At QuantmRE, potential borrowers sometimes assume on their own that the shared equity investment it offers is itself a reverse mortgage, Sullivan says.
“With many of our potential clients, we have found that there is a natural assumption that our home equity agreements are a form of reverse mortgage, as there are no monthly payments,” says Sullivan. “In terms of the reverse mortgage comparison, we try to explain early in the sales process that our agreements are not a loan, they’re not a line of credit, and they’re not a reverse mortgage. .”
Even in comparison to reverse mortgages, shared equity investments and sale-leaseback products are not as well-known as the concept of reverse mortgages. This presents a unique difficulty for alternative capitalization companies to overcome, which is decidedly different from the general public perception of reverse mortgages.
“For us, the biggest challenge is around awareness,” says Jeffrey Glass, CEO of Hometap. “We’re offering something that hasn’t really existed (at least not on a large scale) for homeowners. It can be very confusing for homeowners to understand the difference between an equity investment in their home and something like a home equity loan.
Reverse mortgages don’t often appear in Hometap’s educational processes, as most of its clients are exploring an alternative to other types of home solutions, Glass shares.
“Reverse mortgages don’t come up often in our conversations because most of our landlords view us over cash-out refinances, HELOCs, and other second-mortgage products,” he says.