Why High Net Worth Retirees Are Using Jumbo Reverse Mortgages

In the past, reverse mortgages were usually used as a last resort option for retired homeowners who had exhausted most of their retirement funds, but with the implementation of proprietary products like jumbo reverse mortgages, these loans are now being used by higher net worth people as a means of retirement planning.

Historically, individuals with homes valued over the federal loan lending limit of $625,500 typically did not fit the profile of traditional reverse mortgage borrowers—lower-income borrowers using a reverse mortgage as a last resort lifeline to remain in their homes.

But now, stricter underwriting standards and the reemergence of proprietary jumbo products in recent years have increased the appeal of reverse mortgages among higher net worth homeowners who are looking for more sophisticated ways to leverage housing wealth in retirement planning.

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In recent years, the reverse mortgage industry has seen the introduction of a new era of jumbo products with the launch of Finance of America Reverse’s HomeSafe product in 2014 and the AAG Advantage jumbo from American Advisors Group in 2015. Prior to these products, Generation Mortgage Company offered a proprietary jumbo reverse mortgage.

Jumbo loans are slowly picking up interest, but similar to a standard Home Equity Conversion Mortgage (HECM), there needs to be more education to the public, explains Martin Lenoir, chief marketing officer at AAG.

“As we see more senior homeowners using the jumbo loan product, as they hear about their friends and family members who take out reverse mortgages and as we read about these stories in the media, perceptions will change and adoption will be on the increase,” he says.

AAG launched its proprietary jumbo product, the AAG Advantage, in September 2015, allowing seniors with homes valued up to $6 million to obtain a reverse mortgage. Through the product, qualified borrowers have the opportunity to borrow up to $3 million in loan proceeds.

These higher net worth clients who are seeking out jumbo reverse mortgages, because they are informed, know that home equity could benefit their overall comprehensive retirement planning strategy.

“The jumbo borrower has many planning options and may be tapping into home equity not because he or she has to, but because he or she wants to,” says Lenoir.

Because jumbo borrowers may not need the proceeds immediately, like many HECM borrowers do, or may not even be sold on the idea of a jumbo reverse mortgage, the sales cycle can be much longer, Lenoir explains.

“As compared with a needs-based buyer, this segment of homeowners doesn’t have an immediate urgency to apply for a loan,” he says.

People who are looking into jumbo reverse mortgage products are often aware of the benefits of the product, but there are many people out there who don’t know how much a jumbo reverse mortgage could help them to sustain their retirement.

Aside from sustaining longevity in retirement, jumbo reverse mortgages can be useful when the market is down and people don’t want to have to take money out of investments. Instead, as financial planning research has shown, they can leave their investments alone to grow over time and use the proceeds from a reverse mortgage to leverage their spending.

There is also the option of utilizing the proceeds from a jumbo reverse mortgage to defer drawing on Social Security until a later age and in turn, increasing monthly payments later in life, Lenoir explains.

“With savings, pensions and Social Security no longer providing enough to fund retirement longevity, it’s critical that home equity is a part of retirement planning,” he says.

To date, the AAG Advantage product is available via AAG’s retail channel in California, Connecticut, Florida, Illinois, Pennsylvania, Texas and Virginia. Last month, the company expanded the product to its wholesale division, though only in California.

Written by Alana Stramowski

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  • Good article Alana. We don’t hear a lot of talk about the Jumbo product these days. One of the problem is because of the actuary tables used for them. The gross “Principle Limits” come in way below the standard HECM. However, now that AAG has come out with their new program, allowing a borrower to take up to $3 Million on a value of $6 Million brings more attention to the product!

    FAR (Urban) as we all know also has their proprietary Jumbo, allowing the max gross principle limit to go to $2.5 Million. There are many reasons the affluent would be interested in a Jumbo reverse mortgage, it is a great hedging tool as Lenoir pointed out, especially in down turn markets.

    What about wanting to leverage one’s equity in their home for alternate investment’s that could yield the senior a greater return on what the interest & MIP would be on the reverse?

    What about the seniors as an example who own a home valued at $7 Million and have a low balance mortgage on their home, say $1 Million (Low, right)! Let us also assume these seniors want to buy an $800,000 Yacht and pay off a couple of their luxury Automobiles with balances of $350,000 owed on them. They can do all of this, wind up with 2 luxury Automobiles and a brand new $800,00 Yacht, owned, free and clear. To top this all out, they wind up not having to pay a penny of it back in monthly mortgage payments for the rest of their lives! Pretty good deal for these seniors, isn’t it.

    The nice thing about it is that their heirs will still most likely have equity left in the home when they both pass away!

    Now, would this be a good sales tool to use on trying to get a high value Boat dealer to do business with you? Just think, they can advertise:

    “Seniors 62 years of age an older, who own a home with a low balance mortgage may be able to purchase a Yacht of their dreams and never have to make a payment on it”

    Lot of potential in the market place with the Jumbo product!

    John A. Smaldone
    http://www.hanover-financial.com

  • Once again–helping people with money and forgetting about people like me. Senior citizen who owns a condo in a very nice middle income condo in NY, paid for but because it is a condo I cannot get a reverse mortgage. Help me!!! and others in the same perdicurement!!!!

  • Just heard a story about a rich man who got a jumbo reverse mortgage, he died, and because he had no will or relatives, the property is getting run down for 4 years. While they are looking for a relative. in the mean time the neighbors are cutting the grass and seeing the empty house fall apart.

    • Ms. Haggerty,

      The results would be the same whether there was a 30 year fully amortized mortgage or no mortgage at all. The issue is who now owns the property not what kind of debt is on the property.

      This type of situation is known as a decedent who has died intestate with no known legal heirs. It is more common than most people realize. The laws of the state where the property is located dealing with escheat pertaining to real property will just have to take their full and legal course. That normally takes a period of years.

      It is too bad the decedent did not will his property to charity or a friend if he had no family or no family he wanted to inherit his estate. This serves as an excellent reminder that if the topic of will or trusts comes up in an origination discussion and the prospect states she has none to remind her of the situation Ms. Haggerty brings up.

  • For over a decade we have been hearing that we do not sell, we educate. Yet Ms. Stramowski correctly states: “Historically, individuals with homes valued over the federal loan lending limit of $625,500 typically did not fit the profile of traditional reverse mortgage borrowers—lower-income borrowers using a reverse mortgage as a last resort lifeline to remain in their homes.”

    That quotation is not about education but sales and marketing targeting of seniors and gearing our sales pitches and marketing messaging to this one segment of seniors. This is exactly why we have NEVER penetrated any segment of seniors other than lower income seniors.

    I placed a number of so called jumbo reverse mortgages during 2007 and 2008. All of them were marketed with messages addressed to lower income seniors with higher value homes in and around West LA/Santa Monica/Venice. To the surprise of many, I got good response and even got one in the Compton area. Imagine how much better my sales would have been if I had revamped my marketing materials and sales pitch to reach those with slightly higher income.

    As someone who had dealt with higher income individuals for years, I still kick myself for not recognizing the error in marketing I made in those years. My mentor and owner later told me he had no idea how to reach them and was hoping to tell from my success but by then almost no proprietary jumbo reverse mortgages were being offered.

    This is why we need different originators to reach out to higher income segment of the senior population. It is hard to believe that the industry can retrain the thinking of so many originators since even many trainers have no idea how to successfully reach out to this segment of the senior population.

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