For years, 95% of the reverse mortgage market has been dominated by the Federal Housing Administration’s HECM offering.
This past year saw a wave of proprietary reverse mortgage loans hit the market as the HECM struggled in the wake of program changes that limited the amount of proceeds and the number of people who could qualify for the loan.
The HECM’s problems appeared to be the push lenders needed to invest their resources into the long-talked-about proprietary market, which until now was dominated by just one fixed-rate, full-draw product that had limited uptake.
The major appeal of proprietary reverses is that they are not restricted by FHA loan limits, which are now capped at $726,525, meaning they can accommodate borrowers with high-value homes.
Now, borrowers can take a reverse mortgage on a higher-priced home and choose from a selection of products with a number of interesting features offered by five different reverse mortgage lenders.
Finance of America Reverse has been a major force leading this charge.
FAR, which is backed by Blackstone Group, has offered its HomeSafe loan since 2014 and until this year, it was the only non-agency reverse on the market.
FAR President Kristen Sieffert said the HomeSafe variations released this year have been well received thus far, although she declined to share specifics.
“Proprietary products are a growing share of our business, and we’ve been pleased with the reception of the varieties of HomeSafe we’re receiving from borrowers,” Sieffert said.
Leading reverse mortgage lender American Advisors Group, which originates FAR’s HomeSafe loan under the name AAG Advantage, also reported an uptick in proprietary interest.
“Products like our Advantage jumbo reverse mortgage line have emerged as a popular choice for older, high-wealth seniors who want to invest in different areas of their life,” said an AAG spokesperson.
While AAG also declined to provide origination numbers, the spokesperson said it is seeing the biggest uptake in California, followed by Florida and Hawaii.
Sieffert added that FAR has noticed more HomeSafe borrowers taking the loan as part of an overall financial plan for retirement.
“Aside from the fact that proprietary products generally make more sense for borrowers with higher-valued homes, we’re seeing more of our HomeSafe borrowers evaluate the product earlier in their retirement planning process,” she said.
One Reverse Mortgage, a subsidiary of Quicken Loans, also came out with a proprietary reverse mortgage this year.
The Home Equity Loan Optimizer, or HELO, gives borrowers access to up to $4 million of their equity in a lump sum and comes with less restrictive property and transaction requirements.
ORM CEO Gregg Smith said the HECM’s limitations inspired the company to introduce something that had more flexibility and that more closely resembled a traditional mortgage loan.
“It’s providing the options that haven’t been in the marketplace,” Smith said. “It’s the structure that’s been the problem, not the product. The demand is there, it just hasn’t been activated because of the limitations of what’s been offered in the past.”
Smith said the response to the HELO, which was introduced in August, has been
“Right out of the gate, folks were very receptive and wanted to transact, and that has continued, so were very excited about it,” Smith said.
But despite the positive consumer response, Smith said he doesn’t think that proprietary reverse will overtake FHA’s offering.
“I think the proprietary program will create volume alongside HECM. I don’t see prop displacing the HECM transactions, I see prop supplementing the HECM production,” he said. “I think everybody would applaud more consumer options.”
It appears more options are likely to come.
“This is just version 1.0,” Smith said. “We have really big plans for evolving our product and our offering, and we see it really starting to build traction for us.”
Sieffert also alluded to more HomeSafe iterations on the horizon.
“It’s encouraging to see the market responding positively to non-HECM reverse mortgage products,” Sieffert said. “We’re taking that receptivity as a good sign that more product innovation would be welcomed.”