High home values, a rapidly expanding aging population, and favorable legislation make Texas ideal for a wave of proprietary reverse mortgages, several industry experts say.
During the last year, the Home Equity Conversion Mortgage program’s lower principal limit factors have resulted in fewer qualified borrowers and waning origination volume. But the changes also sparked innovation in the private space, with a variety of new products — from Finance of America Reverse, Reverse Mortgage Funding, Longbridge Financial, and One Reverse Mortgage — entering the market over the past year. Currently, FAR’s HomeSafe products and One Reverse’s HELO are available in Texas, though lenders have plans to gradually expand their geographic footprints over time.
Texas, which boasts high-valued homes in some of its most populated areas, is in prime position to see an increase in private reverse mortgage origination, said Scott Norman, vice president of retail sales and government relations at Tulsa, Okla.-based FAR.
“There is an amazing amount of homes that are valued over $2 million,” he said, adding that “tween” homes that fall between the HECM lending limit of $679,650 and the multi-millions are also underserved. Overall, he said FAR’s success in the Lone Star State has been better than he ever anticipated.
Norman said that these higher valued homes are mostly located in the “Texas triangle” — as well as some other scattered spots across the state. The Texas triangle extends from San Antonio to Dallas, Dallas to Houston, and Houston back to San Antonio, and contains about 80% of the state’s population, he said.
“The triangle and other places are starving for this product,” Norman said.
Melinda Hipp, the branch manager for Open Mortgage LLC in San Antonio, said the she presents FAR’s HomeSafe option to residents with homes valued at about $750,000 or more.
“I recently did one of FAR’s jumbo products and the home value ended up coming in closer to HECM loan limits, but the FAR program’s PLF made more sense — and the no [mortgage insurance premium] makes a huge difference even though the rate is higher,” she said.
Of the new products on the market, she said she is especially interested in learning about the Equity Edge from Reverse Mortgage Funding because of its 60-year-old age minimum.
Experts have predicted similar trends for California, where a combination of sky-high home prices and favorable property tax laws make the products particularly appealing.
But along with home values, Texas’ 65-and-over population is expected to skyrocket over the next decades. Predictions show a 262.9% explosion in this demographic between 2010 and 2050, with a good chunk of that taking place in the Texas triangle, according to data from James P. Gaines, chief economist at the Real Estate Center at Texas A&M University. And U.S. Census Bureau numbers expect the state’s population over 60 to reach 12 million by 2050.
Unlike retirement destinations like Florida, Norman said that “family-based” Texans like to age in place.
Further, Norman said state legislature makes Texas a very “consumer-friendly reverse mortgage state,” adding that current laws safeguard the business as well as the borrower.
“I really give a lot of credit to our legislature,” Norman said. “Texas has had such a great track record of protecting the consumer and homeowner.”
Last year, Norman reported that Texas had gone 10 years without an enforcement action against reverse mortgage originators. Because reverse mortgages have only been options in the state since 1999, Norman thinks the availability of these new proprietary products will spark conversations about reverse loans that have never been had before. He said as financial planners and accountants are caught up to speed, private loans in areas like the triangle will take off.
Hipp agreed that the informed originators and lenders are going to have the most success when it comes to these products. While Hipp said there will be occasions where a proprietary product makes sense, she still predicts her business will continue to be HECM-based.
“I do not feel that jumbos will be the majority of the business here in Texas,” she said.
Written by Maggie Callahan