Forbes: How Proprietary Reverse Mortgages Could Overtake HECMs in 2019

The future of the proprietary reverse mortgage market could be coming a lot sooner than some people think, since it’s entirely possible that the recent propagation of new, private alternatives to the federal government’s long-standing Home Equity Conversion Mortgage (HECM) program could be eclipsed by private alternatives as soon as this year. This is according to a new piece in Forbes written by Professor Jamie Hopkins, reverse mortgage industry expert and director of retirement research at Carson Group.

“By the end of 2018 the proprietary market was taking off and now in 2019 it is seriously in flight,” Hopkins writes. “After speaking with a number of loan officers and companies, the consensus appears to be that this is working. Some companies might even see the total volume of loan amounts in proprietary products eclipse the loan amounts they originate in HECM products in 2019. Looking back a few years this would have been almost unimaginable.”

This is a relatively recent development, Hopkins explains, since the development of proprietary reverse mortgage products seemed to pause industry-wide for several years after the onset of the Great Recession.

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“Historically, proprietary products have been what I have called ‘accounting dust,’” Hopkins says. “While they exist, and for some firms were important, as an overall player in the market they really didn’t have an impact. For the past few years the proprietary market has been a very small percentage of the overall market but that is starting to change.”

The current volume of closed proprietary loans is not yet ready to challenge the figures seen in the traditional HECM market. That will not be the case forever, Hopkins says, especially as more lenders are embracing private alternatives either instead of, or in addition to FHA-insured products.

“While volume of loans closed in the proprietary reverse mortgage market is not ready to challenge the HECM, the loan values of these proprietary can be so much greater, reaching millions of dollars per loan, which most HECMs are fairly small in comparison with just a few hundred thousand dollars,” he says.

Previously, proprietary options were limited, offered by only a handful of lenders and resembled “jumbo HECMs” more than anything else, Hopkins says. Clearly, though, things began to change.

“Products on the market now include a proprietary line of credit, which didn’t exist until recently,” Hopkins says of one major change. “Products have also attempted to compete with the HECM by offering cheaper loans, but with lower loan to home value options. By offering less access to home equity, the lenders feel they can manage the risk of the loan better and don’t need to use the HECM which requires borrowers to pay into the mortgage insurance premium (MIP) fund because of the risk of the loan going underwater at some point.”

At the end of the day, the influx of new proprietary reverse mortgage options will allow retirees to have more options in funding their retirements, Hopkins says, and more options in retirement funding are always preferable to less options.

“What all this means for retirees is more options, flexibility, and innovation,” Hopkins says. “Innovation and competition is good for the market, it drives companies to develop new products to meet current market needs and to try and solve problems. The reality is that the HECM has only reached a small portion of the overall senior housing market that could benefit from tapping into home equity. Perhaps increase product development and growth in the proprietary market can take smart home equity solutions both up-stream and down-stream.”

Read the full article by Hopkins at Forbes.

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  • Jamie Hopkins wrote a good article, it is a fact that the proprietary products are offering more flexibility than ever! I also agree the gates are opening wider with more lenders coming into the market with these products, which is a good thing!

    However, I don’t know if I entirely agree with Jamie that the proprietary products will over take the HECM in 2019!

    I would not sell the HECM to short yet. Proprietary products are limited geographically, this in itself is a problem. I will say if they were available nationwide, this would put the HECM in jeopardy big time!

    No doubt about it, wherever the propitiatory products are available, they are gaining priority over the HECM.

    I hope companies and originators don’t give up on the HECM, there are still many advantages with them. Open mortgage is a good example, they are expanding at a good pace, the HECM is still very much alive in their tool box!

    John A. Smaldone
    http://www.hanover-financial.com

  • During late 2006, 2007, and early 2008, the industry saw this kind of optimism and more as to proprietary products but back then, we had so called jumbos being offered by over half a dozen companies with a number of them not offering other types of reverse mortgages. We also had the Fannie Mae HomeKeeper which competed with HECMs and also provided reverse mortgages on property types that HECMs could not; it was around several fiscal years before fiscal 2006. It seems Jamie Hopkins, John Smaldone, and Chris Clow do not realize the size of the proprietary reverse mortgage market before October 1, 2008.

    Fiscal 2006 had a HECM endorsement increase of 77% when compared to the HECM endorsement total of fiscal 2005. Fiscal 2007 had a 40.9% increase in HECM endorsements over fiscal 2006 and for the first time, fiscal year 2007 had endorsements exceeding 100,000. The following two fiscal years also had total HECM endorsements of over 100,000 but the percentage increases in HECM endorsements was only 4.27% for fiscal 2008 and 2.26% for fiscal 2009.

    As HECM endorsements this fiscal year are very likely to see an over 32% drop when compared to total endorsements for fiscal 2018 and there is no strong conviction based on recent endorsement trends to reach the conclusion that fiscal year HECM endorsement totals will rise soon, it is easy to talk about proprietary reverse mortgage closings becoming very significant to the industry. Without empirical and verified evidence, this is more of a “feel good” description of the state of the current proprietary reverse mortgage market than fact.

    During the “go, go years” of fiscal 2006 through fiscal 2009, there were grounds to stir up the “troops” toward better days even though the offering of the HomeKeeper ended before 2009; however, that does not mean that those days were without their problems, particularly, with at least one challenge made by at least industry one leader to Commissioner Montgomery in a meeting attended by well over 100 industry participants, questioning the importance of HECMs to our industry following 2010.

    What I am NOT saying is that some of the predictions that Jamie makes are wrong. Right now they are anecdotal rather than verifiable published fact or more importantly verifiable trend. With the HECM endorsement volume for fiscal 2019 likely to come in at under 33,000 endorsements, it is much easier to talk about the relative value of proprietary reverse mortgages to the industry than it has been in the last almost eleven years. There was a viable proprietary reverse mortgage market 11 to 12 years ago but the mortgage bust of 2006 and 2007 took its toll by the middle of fiscal 2008 as did the lending limit changes that started with the Housing and Economic Recovery Act enacted July 30, 2008.

    I would not call the proprietary reverse mortgage market of today flourishing but there are some anecdotes telling us that a proprietary reverse mortgage is returning in a big way. Please forgive my skeptical reality check as to how soon that segment of our market will be thriving. Optimistic anecdotes about volume have always been off, in some cases terribly off as seen in H4P projections back in 2008 and 2009 showing that product quickly becoming 50% of total HECM endorsement production by fiscal 2011. After HERA but before fiscal 2011, there was far too much unwarranted attention paid to that product; it has yet to show that is little more than a small volume but useful addition to the HECM product line.

    • My dear friend Jim,

      Yes I do remember and I realize the size of the proprietary reverse mortgage market before October 1, 2008. I got into the reverse mortgage space in 1996.

      However, we are in a completely different environment today than we were back 12 years ago. The political scenario is completely different and the make up of our population as well as the complexity of the reverse mortgage of today.

      2015 changed many things about the HECM, 2017 was a drastic change that effected everyone from the borrower to the originators. We are still feeling the effects of those two major changes to the HECM.

      I stand by my comment Jim! I am not doubting your past statistics, you are usually right on target with those, but we are now talking about future predictions. Mine is only an opinion, so was Jamie’s an opinion as well as Chris’s. Who really knows what the future will bring?

      John A. Smaldone
      http://www.hanover-financial.com

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