Just as reverse mortgages are a sliver within the broader mortgage lending marketplace, proprietary jumbo reverse products are the niche-within-the-niche. Without an extensive track record of performance history for today’s newer jumbo products, the rollout has been conservative at best.
To date, just two lenders currently offer jumbo reverse mortgages. In September 2014, Finance of America Reverse (FAR) introduced its proprietary HomeSafe product. At the time, the HomeSafe was the newest jumbo reverse loan in the market since Generation Mortgage’s “Generation Plus” product. A year later, the jumbo market expanded with the launch of American Advisors Group’s “AAG Advantage” proprietary jumbo.
Compared to the earlier products, today’s jumbos are less flexible in their terms. Whereas the proprietary jumbos of the past were adjustable-rate products functioning like an open-ended line of credit, today’s products are fixed-rate, closed-end loans that require borrowers to take the entire available loan amount at closing.
“It was a more flexible product in its earliest incarnations back in the day,” said John Lunde, founder and president of Reverse Market Insight (RMI). “Today, it’s an easier product to understand for both consumers and investors. That’s not a bad thing, but it’s an early step towards the recovery of the jumbo market.”
During the peak origination years of 2006-2007, industry volume for proprietary reverse mortgages reached approximately $100 million per month, with more than 7,000 proprietary loans originated in that timeframe, according to data compiled by New View Advisors.
“The levels we’re seeing now are obviously lower than that,” Lunde said, acknowledging that the jumbos on the market today are relatively conservative compared to products that were being originated more than a decade ago.
Jumbos past vs. present
When the Generation Plus product launched in 2007, it was offered for homes appraised for a minimum of $200,000 and a maximum of $4 million. When it was reintroduced in 2010, the product was offered to borrowers with homes valued between $500,000 and $6 million.
Today, FAR’s HomeSafe allows borrowers the opportunity to borrow up to $2.25 million in loan proceeds; while AAG Advantage is available for homes valued at $6 million and allows borrowers to access up to $3 million in proceeds.
Earlier this summer, Moody’s Investors Service analyzed FAR’s jumbo reverse mortgage business. The report, which assessed FAR as an “average” originator of these loans, revealed that in the 18 months between October 2014 and March 2016, the company originated 154 HomeSafe loans with an aggregate original loan balance of $136.4 million. On average, this amounts to approximately 8-9 jumbos per month.
Compared to its initial projections, FAR says its current jumbo volume is in line of its expectations prior to launching the HomeSafe product.
“When we look at where we are now and the production done to date versus the initial projections that were done 90-100 days before the product launched, we’re pretty much right on target to what we expected,” FAR President Kristen Sieffert told RMD.
As the first proprietary jumbo to return to market in the last decade, HomeSafe emerged during a time when consumer profiles had undergone significant changes. The housing market crashed and millions of homeowners saw their home values plummet and since make their gradual climb back to pre-crisis levels.
A lot also changed for reverse mortgages. Big banks exited the space during that time, and the Home Equity Conversion Mortgage (HECM) program received a momentous makeover courtesy of the Department of Housing and Urban Development.
HomeSafe’s arrival in September 2014 preceded the implementation of the Financial Assessment, arguably the most profound change to reverse mortgages in the history of the HECM program. Although HUD had not yet released its formal guidelines for this impending rule, a challenge for FAR was anticipating what these guidelines would be so that it could include some component of financial assessment into the HomeSafe, so as to avoid “unnecessary exposure” to property taxes and insurance defaults, Sieffert said.
Once HUD did finally release the Financial Assessment guidelines for all HECM case numbers assigned on or after April 27, 2015, FAR was able to tweak the HomeSafe to mirror the formal regulations.
Within 12 months of HomeSafe’s launch, FAR increased the loan-to-value ratio on the product. Since its initial rollout, the proprietary jumbo has expanded its reach and is now available in at least 15 states, as of this writing.
Now two years into its introduction to the reverse market, Sieffert notes that investor interest in HomeSafe has grown since its inception, but the product is still challenged with having to adjust to the appetites of both investors and consumers, who may not have an immediate need for—or want to tap—their home equity taken as a fixed-rate, full draw.
A ‘fact-finding’ mission
Figuring out what consumers want is a fact-finding mission for lenders, especially when considering the relatively small sample size of higher net worth homeowners who might be eligible and benefit from a jumbo reverse mortgage.
“We need to make sure that we’re getting as much intel as we can in order to figure out what the secret sauce would be,” Sieffert said. “One we’re able to aggregate more production and really get some more feedback from investors, we’ll be able to look at what type of enhancements could possibly be made to this product that would make it more palatable to a larger subset of the population.”
While it’s still too early to tell if the pace of 8-9 jumbos per month is indicative of the industry’s expected production from here on out, the infancy of today’s proprietary products are primed for further tweaks as lenders continue to gather information and adapt their products in response to the demands and expectations of both investors and consumers.
“I think we’re likely to see some evolution on the product side,” Lunde said. “That, in conjunction with consumer behavior, will probably increase volume over time.”
This edition of the RMD Report is sponsored by national appraisal management company Landmark Network.
Written by Jason Oliva