Proprietary reverse mortgages appear to be increasing in their overall prevalence within the larger market, according to data shared with RMD by both reverse mortgage originators and counseling participants.
While the Department of Housing and Urban Development (HUD) tracks Home Equity Conversion Mortgage activity month to month, the market for new jumbo products is less known. Yet originators and counselors are saying the interest is strong and rising, with some seeing volume increase from single digits to as much as almost 20 percent this year.
Christina Harmes, Assistant Manager at C2 Reverse in San Diego, Calif., shared some data with RMD regarding the amount of their business that constitutes proprietary reverse mortgages: they sit at a year-to-date total of 15.6 percent of the firm’s total closed reverse mortgages as of late November. This is especially surprising because of the full-year percentage of jumbos that C2 closed in 2017, Harmes says.
“For 2017 it was 2.25 percent,” she shared. “[That’s a] pretty big difference here and we feel it, too. We are quoting so many jumbos or even showing clients the HECM and the jumbo options, as many of the values in California are around $700,000- $900,000, and both can work offering different benefits.”
The decision can come down to the purpose of the loan for the borrower, or on the age of the borrower, to name a few reasons, Harmes says.
“It’s interesting: for a 62-year old, a proprietary doesn’t offer much more benefit,” Harmes explains. “If they’re 72, then it makes more sense. Age 82 and older makes a much bigger difference for the borrower.”
Still, though she said she expects the current 15.6 percent of total business being jumbo loans to go higher, Harmes has also encountered at least one eligible jumbo borrower to prefer a traditional Home Equity Conversion Mortgage (HECM) instead.
“We had a client with home value of $2 million, and he actually went with a HECM because the proprietary loan gave him too much money that he felt he didn’t need,” Harmes explained. “He just wanted a little extra spending money, and only really wanted a new car without using other accounts.”
In lieu of federal regulations concerning counseling requirements on proprietary reverse mortgages, the firms offering them as an option often have their own rules concerning a prospective borrower undergoing counseling before they can proceed to close a proprietary reverse mortgage loan.
“I have been tracking the percentage of proprietary reverse mortgage [counseling] sessions we complete,” said Jennifer Cosentini, Housing Director at Cambridge Credit Counseling Corporation in Agawam, Mass. “In 2017, only 1% of our counseling sessions were for proprietary [loans]. This year, the percentage continues to go up every month. In January 2018 we were at 2%, and by October we were at 18% of our sessions being conducted for proprietary.”
When asked about the fall-through rate on jumbo reverse mortgages versus more traditional offerings, Cosentini told RMD that it’s still too early to make a determination.
“We track outcomes in our client management system, but we can’t always reach the client to get that outcome,” she said. “With the HECM we can check FHA Connect to get a clear outcome even if we can’t reach the client. This isn’t the case with the proprietary [product].”
Kristen Sieffert, president of Finance of America Reverse, which rolled out its HomeSafe jumbo offering in 2014 and updated the product this year, is optimistic concerning the growing numbers of jumbo reverse mortgages being utilized.
“We’re glad to see proprietary products become an increasing presence in the overall reverse mortgage market, despite their relatively new existence,” she told RMD. “It’s encouraging to see the market responding positively to non-HECM reverse mortgage products and we’re taking that receptivity as a good sign that more product innovation would be welcomed.”
While Sieffert declined to comment on the amount of business that FAR is conducting in the proprietary arena, she did share that the company is encouraged by the trend they’re seeing internally.
“We’ve been very pleased with the growth in our proprietary HomeSafe reverse mortgage product.”
For some originators who have yet to conduct business with a proprietary offering, it’s clear that they would like to in the future. Mike Peerless, the Reverse Mortgage Director at Holland Financial Services in Ormond Beach, Fla., said that he had yet to conduct any proprietary business.
“[My business] is pretty much in the $200,000-$400,000 range,” he told RMD. “It’d be nice, though!”
Written by Chris Clow