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.
“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.