There has been a lot of talk about new jumbo products coming to the reverse mortgage market, but little action to date. Despite the near absent market for these proprietary products, a huge need remains.
While some products have fallen by the wayside, others have had their debuts long-heralded but with nothing to show for it, begging the question is there room in the market for jumbo reverse mortgages?
As it stands today, there is only one jumbo reverse mortgage in the market, Urban Financial of America’s proprietary HomeSafe product, which launched nearly a year ago in August 2014. It is also the first jumbo reverse the industry has seen since Generation Mortgage Company first began offering its Generation Plus product in 2007.
American Advisors Group, on the other hand, has been in the process of rolling out its own jumbo since August 2014, though the company has yet to formally launch the product.
The existence of Generation Plus gave Urban an indication that there was some demand for jumbo reverse mortgages, said Urban CEO Steve McClellan.
“We felt we could put different features in place,” McClellan told RMD. “So we did a slow launch of the product and it’s meeting our projections, but it’s still a small thread of the overall market.”
HomeSafe, which became available to borrower September 2, 2014, is a fixed-rate reverse mortgage that allows borrowers with high-value homes the opportunity to borrow up to $2.5 million in loan proceeds.
Since its launch, the product has expanded its availability to eight states, including Arizona, California, Colorado, Florida, Hawaii, Illinois, New Jersey and Texas.
Urban, however, is reluctant to disclose how many HomeSafe loans it has closed to date, though McClellan said the company has had “several hundred million dollars worth of analysis run” regarding inquiries about the product.
“We’re still slowly rolling the product out,” he said. “It’s a longer sales process than we had originally thought, but it’s still meeting our sales projections. We think this is a niche product—it’s not the dominant part of the market—but there’s definitely a place for this product.”
The place in the market for jumbo reverse mortgages may even be strengthened by the most recent changes to the Home Equity Conversion Mortgage (HECM) from the Department of Housing and Urban Development (HUD), notably the Financial Assessment. “With the restrictions being placed on the HECM borrowers, there is a real need for not only jumbo reverse mortgage programs, but also HECM alternative products,” said Mike Branson, CEO of All Reverse Mortgage Company.
While jumbo programs with a “reasonable” Principal Limit Factor would be start to serving more senior borrowers today, Branson said there is an even greater section of homeowners that could be served with a few proprietary programs at this time.
“HUD raised their maximum claim amount in 2008 and 2009, but while that move helped a lot of borrowers when the jumbo programs disappeared, that could be a ticking time bomb now,” he said.
HUD increased the maximum claim amount for HECMs from $417,000 to $625,500 in 2009. This, however, is only a temporary increase that continues to be extended year after year.
Should the max claim amount revert back to $417,000 any time in the near future, Branson indicates it would drop the benefit amount of borrowers by 33% for all borrowers with homes valued at $625,500 and above.
Furthermore, he notes there would be an effect on all borrowers with properties valued above $417,000, as borrowers with properties valued between $417,000 and $625,500 would also have their principal limits reduced even if it was not a full 33% cut.
Given the absence of viable, proprietary products like jumbo reverse mortgages in recent years and couple that with the changes and restrictions borrowers are facing today, the need for these types of products has never been greater.
“The market is prime for new programs to be introduced now, from both the originator’s standpoint and from that of the borrower who is being underserved at this time,” Branson said.
Written by Jason Oliva
