HECM Originators Detail ‘Dream’ Proprietary Reverse Mortgage Product

Faced with lower principal limit factors for the Home Equity Conversion Mortgage, brokers are enthusiastic about the potential of new proprietary reverse mortgages entering the market.

These possible products came up during a CEO panel at the National Reverse Mortgage Lenders Association’s annual conference in San Francisco last month, where executives challenged the industry to think beyond the HECM and come up with alternatives.

Tim Linger, broker and owner of HECM Senior Home Financing in Orlando, said he would welcome a new product similar to the pre-Oct. 2 HECM. Following those recent changes, he predicts that his HECM sales will reduce by half without more aggressive lead generation.

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If a HECM-competitive product were to be introduced, it would have to address principal limit factors and closing costs, Linger said, with a lower initial mortgage insurance premium and a lower origination fee.

“That’s what most people want to know: How much can I get and what is the closing cost?” he said.

Beginning to test the waters for greater proprietary demand Finance of America Reverse recently revealed improvements, including a higher principal limit, to its HomeSafe jumbo product.

Laurie MacNaughton, a reverse mortgage specialist with Atlantic Coast Mortgage, LLC in the Washington, D.C. area, said FAR’s new product looks impressive. She works with many clients with high-value properties, but her clients typically opt for the HECM over proprietary mortgages.

“In almost every case people opt for the HECM mostly because they look at the interest rate [of the jumbo] and balance due on death or departure of the home, and go with the HECM,” she said. “The typical hesitancy is that high interest rate, and as it becomes less of factor, it will be more attractive.”

Aside from a product with a lower interest rate, MacNaughton said if the sky was the limit she would love to see a product on the market for properties valued at $700,000 to $950,000, in which the homeowner has 60% equity.

“This may not be feasible, but it would be my dream product,” MacNaughton said.

Even if new products make it to the market, Brett Kirkpatrick, a partner at Harbor Mortgage Solutions, Inc. in Braintree, Mass., said that he still thinks that the HECM will be the product of choice for the average borrower.

“While I think brokers would love to have alternatives, I don’t think any proprietary product is going to or ever will be able to compete with a government-sponsored program in the sweet spot that the government wants to fill,” he said.

Written by Maggie Callahan

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  • I would think the door is open for a proprietary tenure-only product that competes with a HECM, but does so with drastically lower closing costs. It has less crossover risk compared to a payment plan that is completely unrestrained after twelve months, so that would allow it to compete with FHA on the LTV. I’m guessing the major downside would be secondary market appeal, but that’s not a market I’m plugged into. The interest from borrowers would be significant, particularly if you could do it with no MIP (that’s a given) and a limited origination fee.

    • Given that HECM borrowers choose tenure-only plans only about 5% of the time, I suspect that the consumer interest in such a product would be limited. Maybe the “drastically lower closing costs” would be sufficient enticement, but I kind of doubt it. It would be interesting to see.

      • The product would have to have compensation tied to principal limit or something else (it would have a known draw schedule for lenders to sell tails). I think you would be surprised by how many folks would chose tenure or modified tenure if broker compensation in this industry wasn’t based on UPB.

    • Matt,

      Who would insure such a product? In the context of a HECM, tenure payouts can continue even when the balance due exceeds the principal limit. What lender would want to guarantee that situation, investors would not?

  • Quote from the article:
    “Aside from a product with a lower interest rate, MacNaughton said if the sky was the limit she would love to see a product on the market for properties valued at $700,000 to $950,000, in which the homeowner has 60% equity.”

    That’s what it would take, combined with the fact that HECMs aren’t available for HUD-appraised-home-values that are over $636,000 (except a little higher for select, affluent counties).

    In other words, to attract would-be borrowers away from the security of the government-backed non-recourse loan (HECM): the new proprietary loan product would have to greatly exceed the HECM in “loan-to-value-ratio” cash availability to make it worth the risk; and to give-up a certain amount of peace-of-mind that “goes with” the HECM loan.

    It’s doubtful whether borrowers consider interest rates charged to a loan anywhere near as much as cash availability. And I still believe that that the value of the LIne-

  • As far as proprietary products go, I tend to agree with Matt Neumeyer. However, programs like the HomeSafe Jumbo with FAR open up a lot of opportunities.

    It would be great to see the HomeSafe Jumbo expand into more states than they are in presently.

    What would be a dream for the industry is for HUD/FHA to re-evaluate the PLF imposed on the industry on October 2nd of this year. Even if they would split the difference and come back up by 50% would be not only a major help to our seniors but the psychological effect it would have on us industry players would be tremendous!

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

    • I agree, and was going to suggest lobbying to reverse the “October 2, changes” as the best solution. But if the best solution is the least likely to work, then…

      On the other hand, if all the leading voices/influences in the industry went straight to “the new HUD,” who knows, it might work. Also, possibly directly contacting a select member(s) of congress to “champion” a “seniors’ issue” like this may bring some attention to the problem.

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