More Private Reverse Mortgage Products on Deck, Just in Case

If the government makes any sudden moves in the reverse mortgage market, lenders have private products in development that could fill some of the void.

People familiar with their development say there are at least a few products that could come off the shelf within several months should the government decide to lower HECM loan limits.

The Department of Housing and Urban Development has said it will keep the current loan limits in place until December 31, 2011, but from there on out, it’s anybody’s guess as to where they go.

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If they return to pre-recession levels, some feel the potential looks to be in place, but not without a few hurdles. First, there need to be investors interested in the product or some company willing to place the loans on its balance sheet.

Lenders also need to be able to originate a certain level of critical mass to pique investor interest—another challenge, should market conditions improve.

“Actual core development of the product is part of the process, then you have to educate the sales force,” says Mike McCully, partner at New View Advisors, which has helped in the development of past private products.

The development process could take a matter of months, he says, but finding the investor is the critical step. “If you originate it, someone has to buy [the loans],” McCully says.

Jumbo reverse mortgages are not new to the industry. When the financial markets collapsed, the government stepped in to raise HECM loan limits to $625,500 in 2009 and the private products—once offered by Financial Freedom, Bank of America and others—disappeared overnight.

A return of the private market seemed inevitable when Generation Mortgage released a jumbo product in 2010, the first since the subprime crisis. Today, there might be a market for the product, but it’s a different level compared with before.

“We’ve been writing them pretty consistently, but nothing like the old days when the factors were higher,” says Jeff Lewis, chairman of Generation.

“When jumbos were en vogue, houses were worth a lot more and loan limits were much higher.” The average home value for a jumbo during the boom time was around $900,000, Lewis notes. Today, that same home, now worth $600,000, qualifies for the government-insured HECM.

Without values upwards of $1.5 million, he says, there’s not much chance for the loans to compete with traditional HECMs.

Despite only one product on the market, some feel the investor interest is there, and could be realized as soon as today.

“Investors would like to see something, but haven’t seen anything yet,” says Jeff Traister, managing director for Cantor Fitzgerald. “If it’s priced correctly, there’s always money available, even if there are only five [loans].”

With home prices at their current levels and government projections of sustained losses and a painfully slow recovery, the outlook is not great, McCully says, but secondary market interest is a good sign.

“I think if you do get that bullish investor, it would be very good for the industry,” he says.

Written by Elizabeth Ecker

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  • If lending limits are lowered it will hurt a segment of the market originators must go after in order to compensate for the drop in home values. I feel this is a bad time to be tampering with loan limits. It seems every time we try and embrace the changes that have occurred, new one’s come out. Our seniors and those that are in the business serving our seniors are becoming frustrated and discouraged with what our regulators and agencies are doing to the reverse mortgage industry. It also appears the agencies are confused as to what direction to go in and really don’t not know how to treat the product any more, especially from a risk standpoint. Because of the indecisiveness of the way the product is being handled, the markets are also in a confused state. As far as the product sitting on the shelf, here again, this will only serve a certain sector of the market and not the most needed core of the senior population sector that is in dire need of a reverse mortgage. John A. Smaldone

  • Elizabeth,
     
    How soon we forget. 
     
    You may not have been in the industry then but RMD did a great job back in 2008 reporting on the decline of the proprietary market.  By the summer of 2008, almost all proprietary products had dried up.  By February 2009 when the lending limit was raised to $625,500, all proprietary products had been gone for months.
     
    Negative growth in values killed the proprietary market, not HERA, lending limits, or anything else.  Nonetheless, the $625,500 lending limit is one of SEVERAL roadblocks standing in the way of proprietary products returning.  But in today’s market, there will be NO creditable move to restore the pre 2008 proprietary products. 

    There might be some proprietary products coming in if the $625,500 lending limit terminated but their structure and qualifications might expand the proprietary market but in comparison to what would be lost by the end of the higher HECM lending limit, there is little question what is more beneficial for the market, lenders (even the ones who would introduce proprietary products), and most importantly seniors.  

    We need the higher lending limit to stay in place indefinitely.
     

  • >>all proprietary products had been gone for months

    Not all of them.  Bank of America’s Simple Equity program, from Countrywide, continued – and Bank of America’s Platinum program was available too.  So those two programs were always available during the referenced period of time.

    Unfortunately, only the retail RMLO’s were able to offer them.  On the wholesale side, we went without proprietary products for  several years, until June 1, 2010.

    • Raymond,

      And Latin and Sanskrit are still spoken in Universities.  Those two products had far less impact than two long dead languages.

      But literally you are correct.  I stand corrected.

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