The emergence of new, proprietary offerings in the reverse mortgage market has been seen by originators and business observers as a general boon to the larger industry. Certain firms recently shared with RMD that, in the case of proprietary “jumbo” loans that are outside the purview of Federal Housing Administration (FHA) oversight, they’ve seen a sharp uptick in interest in both proprietary interest and business.
Still, as popular as the jumbo proprietary products appear, originators still say they would like to see more private products emerge in the future, particularly more offerings that can compete directly with the existing Home Equity Conversion Mortgages (HECMs).
“Anything we can do to provide additional options to the HECM is productive, and good for the borrowers,” says Scott Harmes, national manager at C2 Reverse Mortgage in San Diego, Calif. “We’ve got to have a product that the lenders want to offer, that originators want to originate, and that borrowers want to utilize.”
“If you’re going to have a non-jumbo proprietary, there has to be a clear-cut advantage for the borrower, but it would also have to be competitive for the originator and the loan officer to compete with HECM offerings,” he continued.
Others have ideas for how their ideal scenario would play out for a new proprietary offering that could compete with a traditional HECM.
“One would be private lender administration with another government-sponsored enterprise (GSE) involved in offering lenders mortgage insurance (MI) guaranteeing their investors that the ending home value will cover the debt,” offers Mac Tennant, president and co-founder of Access Reverse Mortgage Corporation in Clearwater, Fla.
“The non-recourse aspect of reverse mortgages represents a significant investor risk. Some sort of GSE or private MI covering that risk should drop interest rates demanded by investors into the range we see on HECMs,” he said.
“I think a non-jumbo proprietary is hugely important,” said Rich Pinnell, an originator with the Vitek Mortgage Group in Redding, Calif. He also notes, though, that future proprietary offerings should be tailored to fit underserved localities.
“The jumbo product has really helped the metropolitan areas. Those are great products that’ll help some people, but the issue is that they use a much smaller principal limit factor (PLF) in that range. The real problem is for other areas of the country, like more rural areas. I would love to see a proprietary product that mirrors a HECM product, and eliminates the areas that the HECM falls short on,” he said. “If we could somehow get back to a proprietary product that mirrors a HECM including MI and the PLFs, then you’d see originations jump through the roof.”
Others don’t believe that proprietary products will be inevitably competing with HECM offerings in the near future.
“It would be great if there was a private label product for all potential borrowers, especially on the lower end housing values,” said Mike Peerless, Reverse Mortgage Director at Holland Financial Services in Ormond Beach, Fla.
“But, I don’t think that will happen any time soon. I think the non-jumbos fall more into a shared equity type product as there seems to be too much lender risk. Without such increased incentive the PLF would be way too low to make the loan worthwhile, in my opinion. I think the HECM will remain dominant in the non-jumbo sector, only time will tell,” he said.
Another outstanding question concerning the increasing prevalence of proprietary products, particularly at business levels more closely tied to the HECM, is whether or not there are enough incentives for potential borrowers to see a private offering as a superior alternative to the government-sponsored product.
“For the proprietary to be competitive with the HECM, I think they need to be more innovative with the line of credit,” said Michael Mazursky, owner of iReverse Home Loans based in Southern California. “I would think that would be the number one focus if I were able to do anything. So, hopefully they can expand the line of credit option on the proprietary to make it more competitive.”
This edition of the RMD Report is sponsored by national appraisal management company Class Valuation.