As new proprietary reverse mortgage products are teased and released, California sits as a prime potential market for borrowers looking for home equity-tapping options outside of the federal program. Favorable tax laws, high property values, and a large retiree population are a few reasons why jumbos could be poised to take off in the state.
This past year has seen a groundswell of proprietary products hitting the market as lenders adapt to a space with lower principal limits available through the traditional reverse mortgage. Aside from the Home Equity Conversion Mortgage, homeowners currently can shop among four jumbo products: Finance of America Reverse’s HomeSafe product, Longbridge Financial’s Platinum product, the Equity Edge from Reverse Mortgage Funding, and the HELO from One Reverse.
Because jumbo reverse mortgages cater to seniors with higher valued homes, California’s high property values incentivize borrowers to look beyond the HECM, which has a current limit of $679,650. The California Association of Realtors in June reported that the median home price in the state was $600,860 — more than double the national figure.
The Mahwah, N.J.-based Longbridge Financial launched their Platinum mortgage program in early August, starting first with Golden State homeowners. Melissa Macerato, executive vice president for sales and marketing with Longbridge, said California was chosen for their launch because it’s “one of the states with the greatest opportunities for success.”
“The home values are higher and there is a large portion of retirees in California,” she said.
As opposed to some other states, California’s older population has generally been settled as longtime homeowners, noted John Lunde, the president of the Dana Point, Calif.-based data analytics firm Reverse Market Insight, Inc.
“There is more of a long-term owner segment in place here among the age-eligible population as opposed to more retiree-focused states like Florida,” he said.
California also has tax laws in place that make it beneficial to age in place. Proposition 13, which was passed in 1978, set tax rates at 1% of the property’s sale price and limited annual increases to no more than 2%. Proposition 90, meanwhile, allows homeowners 55 and older to move their original tax rate to a new residence in another participating county; under Proposition 60, Californians can execute that tax transfer between residences in the same county.
With these laws in place, a California homeowner who paid $100,000 for her home 30 years ago could sell now for $1,000,000, buy an equal or lesser valued home, but keep the property tax for the home just sold, said All Reverse president Cliff Auerswald.
“Couple that scenario with a reverse mortgage home purchase — HECM and now jumbo — and this prospect can achieve their move, keep their low tax rate and raise additional cash from the reverse mortgage all in one transaction,” Auerswald said.
Lunde agrees that the special tax laws make these reverse mortgages appealing choices for older homeowners.
“It makes sense to use a reverse mortgage to leverage equity instead of selling and renting or other options,” Lunde said.
So far, Macerato said Longbridge’s Platinum product has been greeted with positivity in the state.
“We have received favorable receptivity from both our retail sales channel and clients, as well as our wholesale partners,” she said.
Written by Maggie Callahan