RMF Launches New Private Equity Edge Reverse Mortgage

Reverse Mortgage Funding on Monday will join the proprietary reverse mortgage loan market, announcing the Equity Edge Reverse Mortgage for borrowers aged 60 and up.

The new product, which will officially become available to borrowers June 1, is specifically targeted at homeowners with properties valued at $700,000 or more — as well as those with non-Federal Housing Administration-approved condos.

The goal, according to RMF president David Peskin, is to help fill several voids created when the Department of Housing and Urban Development lowered principal limit factors and changed the mortgage insurance premium structure last fall. Before that decision, RMF identified competition with the home equity line of credit option as a major area of growth, given the Home Equity Conversion Mortgage’s relatively lower upfront costs.

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But the October 2 changes hamstrung that opportunity, Peskin said, and RMF accelerated plans to tap into the jumbo reverse mortgage market.

“We were always going to introduce our own proprietary product, but it kind of had us shift gears a little bit faster than we thought we would,” Peskin told RMD.

In particular, those changes hurt higher-value homeowners who might not be interested in tapping the full value of their homes, Peskin said. He gave the example of a California homeowner with a house worth $800,000: In order to access $200,000 of that value with a Home Equity Conversion Mortgage, the owner might end up paying $16,000 to $18,000 in fees, including mortgage insurance premiums.

The Equity Edge loan, meanwhile, doesn’t come with an upfront origination fee or any mortgage insurance premiums, with borrowers on the hook for title and appraisal costs of around $4,000, Peskin said.

Offering the product to borrowers aged 60 and older — as opposed to the 62-and-older restriction in the federally backed HECM program — was an attempt to break into the growing 55-and-over housing marketplace.

“You also have people thinking about retirement and planning for that at an earlier stage, whether it be through financial advisors or themselves, and why not start the process as soon as you can?” Peskin said.

RMF joins Finance of America Reverse in the jumbo loan market; FAR last year introduced several upgrades to its HomeSafe product, including a lower interest rate and a higher principal limit, and also partnered with American Advisors Group to begin offering the proprietary loan through AAG’s correspondent channel.

The Bloomfield, N.J.-based RMF will begin offering the products on a retail basis to borrowers in California, Florida, New Jersey, Oregon, and Virginia — states specifically selected due to their higher-than-average home values, Peskin said. Third-party originator access will begin July 1, and RMF has a goal of adding five to eight states per quarter going forward.

In addition to condo dwellers and those with high-valued homes, RMF will also target borrowers who need to pay off existing debts in order to qualify for a traditional reverse mortgage, or who might be considering a refinance into a fixed-rate mortgage.

“They’re calling the banks, and the rates are rising right now,” Peskin said. “It gives us a competitive advantage.”

Written by Alex Spanko

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  • If PLFs have to be lowered once again on 10/1/2018 as expected by some in the industry, the new proprietary products should grow in usefulness. If this story is correct, we may be at the tipping point where proprietary reverse mortgages will be the first time in a decade that proprietary reverse mortgages will once again be in vogue.

    Now will the falsehood that HECMs are nonrecourse because they are insured by FHA catch up with the industry? Proprietary reverse mortgages are nonrecourse despite not having FHA insurance. Federal law requires that all reverse mortgage transactions be nonrecourse. See 15 USC 1702(cc).

    • Does it really matter in the long run whether it’s legally mandated or by product design? Customers ask why they are paying MIP, upfront and ongoing, some care more about one vs. the other. The easy answer that most originators take is that the MIP covers any potential losses in the future. When they say the loans are nonrecourse because of the MIP, they probably should be saying that PLFs would be drastically lower without it. We’ve seen what the private market PLF is for a reverse mortgage without MIP and it’s not anywhere close to a HECM.

      • Mr. Neumeyer,

        It matters in the sense that we have falsely told borrowers that MIP alone makes HECMs nonrecourse. What is at stake here is the trust relationship with the senior community and the borrower, in particular.

        Since the originator common claim that MIP makes HECMs nonrecourse is false, what else is there about HECMs most originators claim that is also false?

        So if trust between originator and borrower means nothing, then the assertion made within the question in your first sentence is valid. If all that was said was your claim that most originators simply say that MIP covers losses, that is both misleading and very accurate. The problem is MIP covers the losses of lenders, not borrowers.

      • >> MIP covers the losses of lenders, not borrowers

        Yes … but, indirectly, it also covers losses associated with the Estate. Many Older American’s primary concern is “not” leaving debt to their Estate, and the MIP covers them for that – at least as far as their Reverse Mortgage is concerned.

      • Mr. Denton,

        I am sorry but that makes no sense.

        Both HECMs and proprietary reverse mortgages are nonrecourse. MIP has absolutely nothing to do with that. Nonrecourse is a federal legal requirement for ALL reverse mortgages, HECMs or not.

        As to the decedent borrower, MIP does not cover the HECM loss of any borrower’s estate. All HECMs are nonrecourse even if the HECM is not assigned to HUD at the crossover point.

        FHA MIP only pays lenders for the losses on HECMs, not all reverse mortgages. The reason why HECMs are insured by the federal government is so that lenders will offer extremely risky mortgages to seniors at relatively high PLFs and lower interest rates.

      • Re proprietary loans: Who covers a shortfall if the lender is out of biz in 10-20 years?

      • The MIP has nothing to do with non-recourse. I don’t know anyone that has ever said otherwise. The MIP protects losses for the lender/investor but also protects the borrowers funds if the lender/servicer ceased to exist. The PL is protected for the borrower. Imagine a proprietary reverse where the lender ends up going bankrupt or out of business. Without the MIP, that will be a complete disaster.

      • ravens9111,

        As to the pervasive reasoning that MIP is charged so that a HECM is nonrecourse, see Mr. Neumeyer’s replies above. He and I know of many originators who say FHA insurance is charged so that the HECM is nonrecourse. That has been said on many, many occasions on the RMD website as well. Some have websites with articles stating the MIP is to make a HECM nonrecourse.

        As to proprietary reverse mortgages not having MIP, it is wrong to conclude that the foreclosure of the lender will create any problems for the borrower or the lender as to those loans. The notes that have a positive value will generally be sold perhaps even at a premium. Those with a negative value will be sold to investors as well but at a discount. So in most cases the borrower will be OK and if the note was properly discounted, its buyer should be OK as well. It is the party that owns the note at the time of sale that will have problems if any.

        The situation of the investor is much different with proprietary reverse mortgages than with the holder of an interest in a HMBS. If you do not understand that, please see your mentor.

        So where is the disaster you speak of? If the terms of the loan are unfavorable to a new lender it will generally be reflected in the value that the potential purchasing market puts on it. It seems you are making a lot of assumptions in your description of such situations as a “complete disaster.”

  • Is the non FHA approved condo guideline going to have a minimum value requirement? FAR’s 500k limit is too restrictive. RMF would do well in that market if they didn’t have the same limitation.

    • Mr. McSherry,

      I am not sure what a “value-to-loan” is or gives you but as once true in the past decade when proprietary reverse mortgages were at their peak, based solely on memory, the ratio of available proceeds to the value of the home was about 32% for a widow in her mid 70s. (In the mortgage world we talk about LTVs, not VTLs but then if you want to know the VTL it was 3.125 — you know the customer is always right and all of that.)

      I did a loan for that woman with a home worth a little less than $2.5 million where she got $750,000 or so in proceeds. The lending limit for HECMs back then in her area was $368,790. So with a HECM she would have received net of upfront costs about $251,000.

      I will not bore you with Home Keepers and what they were used for when we had HECMs. and other proprietary products.

  • I am glad to hear the announcement made by David Peskin. I feel RMF is going in the right direction with their Equity Edge loan!

    Yes, we don’t have all the details as of yet and yes, we don’t know how the PLF’s will be calculated. However, so far the features mentioned in this article make it exciting, such as the costs, the $700,000 benchmark ETC.

    We must assume RMF will have to be equal or better than their competition with their PLF calculations! Time will tell but this I know, proprietary products being introduced in the market place at this time, sure can’t hurt us in the industry or our moral of having products like this to offer our seniors!

    I am looking forward to the full details but so far, I am optimistic about it!

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

    • Hello Raymond,

      I was informed that it was released on the retail side but not the wholesale side as of yet. I did not get a date of when that will happen but hopefully it will be soon.

  • Sorry about that. I tried to obtain the guidelines but I was informed that they are not available to us at this time, only to retail. Thank you.

  • Received word this is not available too wholesale after inquiry today. Only available too retail contrary to this announcement date of July 1 rollout to 5 states. It may be available in several weeks via wholesale, but no exact date yet.

  • Received word this product was not rolled out on July 1 too wholesale partners. Possibly will be rolled out in several weeks with no exact date.

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