The Impacts of Proprietary Products on Reverse Mortgage Volume

In areas of the United States that have a prevalence of highly valued properties, jumbo proprietary reverse mortgages are increasingly becoming attractive options for lenders as the larger reverse mortgage industry observes generally reduced volume of government-insured Home Equity Conversion Mortgages (HECMs).

For those companies that are active in both the jumbo proprietary business and the HECM space, analyzing the dividing line between the levels of each kind of business could help to illustrate how successful jumbo origination is in making up a shortfall of reduced HECM volume.

“We are doing a lot more jumbos and proprietary reverse mortgages,” says Christina Harmes, assistant manager of the C2 Reverse Mortgage division of C2 Financial Corp in San Diego, Calif. in an email to RMD. “In 2017, non-FHA HECMs accounted for only 2 percent of our reverse mortgages. That figure has risen to 21 percent for 2018.”

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That level of increased proprietary activity comes from a couple of directions, Harmes explains, including on what loan officers are putting more of their time into generating.

The yields of focus

“I believe what you focus on multiplies; loan officers at C2 Reverse are focusing more on the jumbo reverse market, especially since jumbo reverse is a good fit for home values in our market footprint,” she says. “Because it is getting harder these days for a loan officer to survive professionally doing only HECMs, loan officers in our markets where there are higher value homes are focusing more of their efforts on the jumbo reverse programs.”

There are some customers, however, who are still preferring to go with a government-insured reverse mortgage option even if they may qualify for higher proceeds via a jumbo loan of some kind.

“Many of my clients own higher-valued properties that are jumbo-appropriate; however, so far most are still choosing HECM credit lines or tenured payments,” shares Laurie MacNaughton, a consultant and originator for Atlantic Coast Mortgage in Virginia. “This is largely due to the fact much of my business comes through financial planners and attorneys, and the reverse mortgage is being established as part of a long-range financial plan.”

Still, the reality of potentially higher monetary yield for jumbo reverse mortgage originations compared with HECMs further motivates loan officers to focus on the product that will come with a greater level of benefit to their business, Harmes explains. Focusing on HECM products results in more work for less compensation, she says.

“A loan officer doing only HECMs must do two-to-three times the volume today just to make the same amount that one HECM would pay back in 2016,” Harmes says. “Meanwhile, the workload hasn’t gotten any easier. These are still complex loans, and senior borrowers require a higher level of service and more hand-holding to get through the process than other types of loans.  HECMs in some cases are more complex and present a lengthier time of sale than the jumbos.”

The potential for jumbo origination

Although MacNaughton has clients who are preferring to go with HECM products even if they qualify for a jumbo loan based on their home’s high level of value, she still expects jumbo origination to ultimately pick up in the fullness of time.

“Once a jumbo credit line makes its way here I anticipate seeing a big shift in product selection,” MacNaughton said. “To date, the jumbos I have done were the product of choice because large forward mortgages needed paying off.”

In the end, it just comes down to where a loan officer can focus the time that he or she has in order to generate as much business as is feasibly possible, Harmes says.

“If a loan officer only has 50 hours in a week, with a fixed overhead and employees to pay, some are finding they have no choice but to focus on the jumbo market,” she says.

In terms of where this reduced level of opportunity in the HECM space comes from, Harmes describes a culprit that the reverse mortgage industry has been forced to become all too familiar with over the last 18 months.

“Since October 2, 2017, the HECM opportunity has shrunk,” she says. “Now when you introduce the idea of a possible second appraisal, that uncertainty adds another level of skepticism of the hassle on the part of the borrower. With the HECM principal limit factors (PLFs) lowered, more borrowers are being told they need to bring cash into close. Even when that makes sense to them, they may or may not have that cash available to bring in.”

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