Israeli startup seeks to fill reverse mortgage market gap
A recent Jerusalem Post column announces the entry of a Tel-Aviv-based equity release company that plans to expand its operations in the U.S. “Almost 80% of the seniors in the United States own the property they live in — this is an unprecedented number,” explained SixtyFive co-founder and COO Eyal Stern. According to their website SixtyFive-com, the company is “a multidisciplinary team of experts with a background in technology, law, finance, longevity, and real estate”. Their objective is to provide a unique financial offering that …
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gives homeowners increased flexibility and confidence when entering their senior years. The company launched its overseas operations in Florida and has plans to expand to other states.
While SixtyFive does see an opportunity for equity-release solutions in the U.S. market they also note the reverse mortgage’s soft spot- a lack of market penetration. “When CEO Tali Gross, CTO Ron Livornik, and I took a look at the reverse mortgage space, we saw that it wasn’t functioning. Usage rates were below 2% of the potential market. That’s more or less where the journey of SixtyFive started.”
Need and a generally untapped market were the driving forces behind SixtyFive’s launch in the States for the 60+ market. The company explains its product as “different in that they don’t charge origination fees, require monthly repayments or prepayment penalties. Their program instead has monthly service and management fees that are not required to be paid until the agreement is terminated. Approved applicants add SixtyFive to the property title with a sub-trust agreement while the homeowners continue to hold the title as the primary beneficiary. Enrolled participants are then sent a pre-paid debit card which they can use as they see fit to access funds when needed.
SixtyFive’s calculator is based on the home’s present equity. A 70-year-old homeowner with $425,000 in equity could potentially receive $1,538 in funds each month. After three years of taking the full monthly withdrawal the outstanding balance would be $61,000 and assumes a four-percent appreciation rate leaving $416,000 in equity.
SixtyFive is seeking to expand by partnering with domestic mortgage lenders and other financial service providers.
What can we draw from this story? First, the entry of SixtyFive into the U.S. reverse mortgage market points to the need for equity-release alternatives with lower upfront costs. While the Home Equity Conversion Mortgage provides a suite of benefits such as non-recourse protections, FHA backing, and flexible payout options, the two-percent upfront FHA premiums pose a significant barrier to entry and product acceptance. Second, the untapped equity release market points to both a growing need among retirees and a tremendous opportunity.
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7 Comments
Great to see that smart business people can provide an alternative and needed solution for seniors entering or already in retirement. Anytime we can eliminate barriers to entry, we are doing a great service for the RM space as a needed and welcome alternative for senior homeowners.
Consumers, like all such agreements, make sure that you have received appropriate, competent, and independent legal and other advice before entering into this agreement. Since it is not a mortgage (as cited in the company’s summary of the agreement), its terms would typically be unfamiliar to most consumers.
Some may not feel comfortable about this product. Here are just a few of the possible reasons why. The quotations are taken from small and lighter type on the company’s landing page at https://sixtyfive.com/
1) The senior must retitle the property in the name of a trust that the company holds an interest in. “Assuming your home qualifies, you will need to transfer your home to a trust to initiate the program…. Under the trust, we are automatically allocated units of value.”
2) There are two fees. The first is the management fee. It is accrued monthly. This fee is calculated by multiplying the balance due from the prior month plus the current amount paid for the month (before reduction for the servicing fee) times a variable rate interest element. That rate is Prime plus 400 bps (i.e., Prime plus 4%). Unfortunately “Prime” is not defined on that webpage. “The management fee will vary based on market conditions (Prime+400 bps).”
3) The other fee is a so called “servicing fee.” It is a fixed amount and REDUCES the monthly payment to the participant. “The servicing fee is a fixed amount that is withheld from each month’s funds made available to you.”
4) This was a rather interesting statement: “However, your total fees will not exceed 18% on an annual basis.”
5) “SixtyFive will re-assess your eligibility for the program every three (3) years.” This implies that the company can cancel the agreement after the first three years and if does not do so, it has the right to do so once every three years thereafter until the agreement terminates.
6) This was a rather interesting statement: “However, your total fees will not exceed 18% on an annual basis.”
7) Still wondering if the amount due to the company is interest, just read the following from the so called “Tax Disclosure” section: “Please note that SixtyFive’s product is not a mortgage loan. Due to the unique nature of SixtyFive’s program, the tax benefits associated with interest payments on a traditional mortgage will not be available to you. To understand the tax consequences of using SixtyFive’s product fully, you will need to contact a tax professional. SixtyFive is unable to provide tax related advice to you.”
This is no HECM or even an equivalent. One wonders if the company is sufficiently funded to make the required payments timely or at all?
Who is the regulator over this product? We know HUD certainly is not. What federal agency is? If regulated by the state only, does that regulator have the staff who are capable of truly overseeing these products?
I have only cited a few of the company’s summarized terms of this agreement and may have missed terms that are essential to any decision making about this product.
Consumers beware.
Excellent analysis. I will include your points in a recap on a future episode.
I forgot to mention one thing. There is no appraisal. The estimate of value is allegedly computed using an AVM (Automated Valuation Models). Homeowner, check that value carefully as AVMs do not necessarily reflect current market values of homes.
Good point!
“Under the trust, we are automatically allocated units of value.”…..
Sounds like an equity-share model.
Dave
This is not equity sharing but joint ownership through a trust. Title change as does ownership over time through the trust. Worse one must requalify every three years.
Or perhaps your definition of equity sharing is that broad. As a licensed California real estate broker, equity sharing is much different than having an interest in the entire home.
In some states the transfer of ownership could trigger a reevaluation of the home for property tax purposes or the loss of a homestead exemption. In real estate the details matter