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Reverse mortgage industry leader Finance of America (FOA) announced updates on Thursday to the interest rate for HomeSafe Second, its proprietary second-lien reverse mortgage product. It will also be available in four new states, bringing the total to 10 with more planned for 2025. The new states are Arizona, Nevada, Oregon and Utah.
The interest rate on the loan has been lowered from 9.99% to 9.49%. Interest rates on second-lien loans tend to be higher when compared to first liens, reflecting the higher amount of risk to the lender.
The product also has a minimum age requirement of 55. This is in line with some other proprietary reverse mortgages and seven years lower than the age requirement for the Home Equity Conversion Mortgage (HECM) program offered by the Federal Housing Administration (FHA).
Product comparisons
In its announcement of the new rate and additional states, FOA said that its optimistic outlook for the product is fueled by the increased activity in the home equity lending space.
According to data from the Federal Reserve Bank of New York, roughly 750,000 home equity lines of credit (HELOCs) were issued to borrowers ages 55 or older in 2023. But FOA contends that HomeSafe Second represents a better value proposition than a traditional HELOC.
“Unlike other home equity loans, HomeSafe Second allows eligible homeowners to access up to $1 million, depending on their home’s value and outstanding mortgages, without the need to make monthly payments,” the company said.
“Loan qualification is based primarily on the homeowner’s age and home equity rather than annual income, and the loan balance is only due when the homeowner no longer uses the property as their primary residence or otherwise defaults on other terms and conditions.”
A company official also said that there’s rising interest in the product from forward mortgage lenders, reverse mortgage originators and consumers alike.
“Our wholesale partners are eager to find opportunities for growth after a few challenging years,” said Jonathan Scarpati, senior vice president of wholesale lending at FOA. “We’re speaking with a number of large lenders who are attracted to HomeSafe Second because it’s a way to reengage their servicing book and create a revenue stream from a dormant customer segment.”
Originators find it attractive for borrowers who don’t want to give up a low interest rate on a loan originated in the historically low-rate environment following the COVID-19 pandemic, he added.
FOA President Kristen Sieffert said the product allows the company to address gaps in the existing HELOC and traditional home equity loan market. It “empowers financially secure homeowners to tap into their home equity for meaningful pursuits — be it renovating their living space, funding a child’s education or buying a second home,” she said.
Borrower profile
When reached by HousingWire’s Reverse Mortgage Daily (RMD), Scarpati said that the focus on a different borrower profile than a traditional reverse mortgage helps to expand the pool of clientele that can be served.
“The HomeSafe Second borrower looks different from the profile of an average reverse mortgage, so originators and other professionals need to think differently about how to market this product when their target audience may be considering a HELOC or closed-end second,” he said.
“Demand for home equity solutions has grown, especially among older homeowners, and HomeSafe Second is an important offering in the toolkit for loan officers and financial advisers at a time when many homeowners have tons of home equity but are reluctant to touch their low-rate, first-lien mortgage.”
Scarpati said that demand has risen for the product, adding that a lower interest rate aims to further cement a value proposition alongside making it available in additional states. In the product announcement, FOA said that it aims to roll out HomeSafe Second to more states in 2025. But Scarpati did not elaborate on which states — or how many — the company is targeting for a future expansion.
Recent history
HomeSafe Second was first introduced in 2018, marking the industry’s first-ever second-lien reverse mortgage option. The product was suspended in 2020 due to economic volatility caused by the pandemic, but it marked its return with a minimum age reduction to 55 in February 2023.
In October 2023, FOA announced a rollout of HomeSafe Second to an expanded pool of direct retail loan officers and wholesale brokers. The company aimed to make the product more widely available to consumers with that move, and conversations with reverse mortgage originators at industry events has indicated a high level of interest among salespeople.
After the addition of the new states, HomeSafe Second is available in Arizona, California, Colorado, Connecticut, Florida, Nevada, Oregon, South Carolina, Texas and Utah.
