HECM Problems That Can Be Solved With Proprietary Products

The increasing prevalence of proprietary reverse mortgages continues to evolve and expand, providing necessary service in under-served parts of the existing government-insured reverse mortgage program. The levels of proprietary origination should justify the consideration of folding them into more lenders’ product suites, despite lenders remaining mum on the number private of loans they are making.

This is according to industry professionals who work for proprietary product providers in a panel discussion that took place at the National Reverse Mortgage Lenders Association (NRMLA) Eastern Regional Meeting in New York last week.

By taking what are often considered the shortcomings associated with the Home Equity Conversion Mortgage (HECM) program and turning them into benefits for new proprietary products, representatives of Finance of America Reverse (FAR), Longbridge Financial and Reverse Mortgage Funding (RMF) made the case that embracing the expanding scope of proprietary products is a necessary element of expanding the reach of reverse mortgages.

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Many of the reasons behind the appeal for proprietary products stem from the idea that they are better able to serve specific segments of the reverse mortgage market that often go unserved.

Solving condominium issues

One of the prospective borrower segments the HECM marketplace does not serve well is condo owners. In the absence of spot approvals, which were previously permitted by the Department of Housing and Urban Development, involving the Federal Housing Administration (FHA) today often leads to a protracted process of seeking the agency’s approval for an entire building or development. Involvement of the building’s HOA can also complicate the process further.

The red tape involved in getting FHA approval for condos presents a unique opportunity for proprietary products.

“For our proprietary products, we wanted to keep in mind cost-sensitive borrowers, properties which are not FHA eligible, higher valued properties, younger borrowers, borrowers who want to consolidate debt, and to better accommodate purchase borrowers,” said Mark O’Neil, national sales leader at RMF. “Condos are a huge niche for us. The approval process typically takes two days, as opposed to taking up to three months with FHA.”

RMF also shared data about its proprietary clients, and 18 percent of the company’s total proprietary base is made up of condo borrowers.

“Condos make up a major part of our program,” added Peter Sciandra, VP and wholesale channel leader at Longbridge Financial. “All we need is the HOA to complete and submit a Fannie Mae limited review questionnaire. Condos constitute 25 percent of our program whereas in HECM, they’re about 5 percent. If you originate in a market where condos are present, you’re missing the boat by not offering a proprietary product.”

Why the industry should consider embracing more proprietary products

While the panelists declined to comment on their proprietary origination figures in comparison with HECMs, they all agreed that their internal figures should encourage more originators to offer more proprietary products.

“[Our proprietary origination figures] are significant and meaningful,” said O’Neil. “We’re not ready to share exactly what they are yet, but we hope to get there soon.”

There has also been growing proprietary traction in the reverse for purchase space.

“We’ve had some success, but our industry hasn’t done a good job focusing on purchase yet,” Sciandra said. “We are trying to educate our partners about the importance of purchase business in dealing with Realtors.”

In terms of where the proprietary side of the business could go next, the panel was tight-lipped about their individual plans but optimistic about the potential opportunities.

“We’re always looking to our next product,” said Jonathan Scarpati, VP of wholesale lending at FAR. “It all starts with [the reverse mortgage professionals] in this room. We want to hear it from the street. [The proprietary products] we’ve created had a lot to do with borrower and partner conversations, and we’d absolutely like to see more of that in the future.”

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