Generation Mortgage’s decision to release the first jumbo reverse mortgage product in years is a big step for the industry and a closer look at the product guidelines provides some insight into where proprietary products are heading.
Signaling the future of reverse mortgages will include some sort of a credit underwrite, the Plus products requires a minimum FICO score of 700, a first for the industry.
“Eventually we will see credit underwriting in all reverse mortgage products,” said Jeff Lewis, Chairman of Generation Mortgage in an email to RMD. “It is better for the guarantor/investor when the borrower has the means to stay current on their other obligations and maintain the home properly.” Since the PLUS product is private, Generation was able to make a change it cannot impose on the government’s product unilaterally he said.
Targeted at borrowers whose home values higher than $1 million, the program is offered at two different rates, 7.875% and 8.875%. The higher rate provides the borrower more money upfront. “The proceeds difference is about 10% on average between the two coupons,” said Lewis. Compensation for each rate is the same, so there is no benefit for the lender to steer a consumer into the higher rate unless they’re looking for additional proceeds.
The product also provides borrowers and their estates with an extra benefit through its Gen Plus Estate Guard. “The benefit is that despite the non-recourse nature of the loan, borrowers and heirs are potentially exposed to significant tax liability if the future home value is not sufficient to cover the accrued loan balance,” said the company in materials provided to correspondents. “By having the ability to monitor the home value versus the loan balance, they can potentially help keep the loan from becoming grossly upside down.”
Essentially, the feature allows borrowers to order a new appraisal after the loan has been originated and if it indicates the value of the Property is less than 80% of the outstanding balance of the note, the mortgage amount due will cease to accrue interest.
However, Generation has the right to order a subsequent appraisals at its discretion and if the appraisal finds the value of the property is more than 90% of the outstanding balance of the note at the time of the subsequent appraisal, interest will start to accrue again.