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Is the future of the reverse mortgage market private?

Could proprietary products edge out FHA’s HECM?

There is pretty much one thing everyone is talking about in the reverse mortgage space right now, and it’s the proprietary market.

With program changes stifling loan volume for the standard FHA-insured reverse mortgage, it seems lenders have finally found the push they needed to delve into the realm of private reverse mortgages.

For years, the industry has discussed the possibility of the jumbo, non-agency reverse mortgage, one that was less restrictive and free from the stress brought on by HUD’s constant regulatory tweaks. Untethered to FHA loan limits, a private reverse mortgage could touch a sizable segment of consumers with higher home values, giving them access to more proceeds without a pricey bill for mortgage insurance every month.

But until recently, private offerings had trouble catching on. A few lenders came to market with products in 2014, but not until this year has the industry seen real momentum.

Much of that has to do with the success of Finance of America Reverse and its HomeSafe product. Designed for borrowers with home values as high as $4 million, HomeSafe offers a lump-sum draw and a fixed rate.

HomeSafe launched four years ago, but its success with investors last year was a major gamechanger, signaling a healthy appetite on the secondary market. The development allowed the lender to release a second iteration in June, the HomeSafe Flex, which gives borrowers access to 60% of the proceeds upfront and the ability to access the remaining 40% in monthly payments for a five-year term.

Now AAG, which operates the largest reverse mortgage call center in the country, has collaborated with FAR to offer HomeSafe to its clients, which will help get volume off the ground.

“As more retirees become savvy to the power of home equity as part of a comprehensive retirement plan, the benefits of reverse mortgage products that offer more flexibility than the traditional HECM are becoming increasingly clear,” FAR President Kristen Sieffert told HousingWire.

It appears other lenders are taking notes.

Reverse Mortgage Funding released its Equity Edge this summer. Unlike traditional reverse mortgages, which have a qualifying age of 62, RMF’s product is available to borrowers as young as 60 and targets those with properties in the $700,000 range.

Longbridge Financial is joining the ranks with the pending launch of its own product. Longbridge Platinum will be a single-draw, fixed-rate reverse designed to provide substantial proceeds with low origination costs.

Apparently, more are on the way. Sources say at least one other lender is actively laying the groundwork to release its own proprietary product in the coming year.

The reason for the sudden influx? Less-than-stellar loan-to-value ratios thanks to recent product changes and low interest rates, which have made the HECM less appealing for consumers – and less profitable for lenders.

“The HECM program has seen significant cutbacks on proceeds available for borrowers and higher upfront insurance costs. This has resulted in industry volume declines of 30% or more and left unmet needs in the market,” said LongBridge CEO Chris Mayer. “It is a healthy step for the industry to develop alternatives to the FHA-backed HECM loans.”

RMF President David Peskin said the move toward proprietary products has been a long time coming.

“Obviously, the numbers speak for themselves, volume in the industry is down, overall margins are down. I think that it’s important for us as an industry to look at the bigger broader opportunity,” Peskin said. “We’ve always thought that proprietary products would be important, but I don’t think we ever thought they would be required this fast.”

For its part, FHA said it welcomes additional products into the marketplace.

“I don’t think it was ever written or envisioned that FHA should be 100% of the reverse mortgage market,” FHA Commissioner Brian Montgomery said on a press call last month. “I think folks out of that industry would like to see more proprietary products expand.”


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