While recent changes to rules governing condominium complex approvals by the Federal Housing Administration (FHA) will likely help the reverse mortgage industry to extend more loans to condo owners, new data concerning ways that condo borrowers are leveraging product features of proprietary reverse mortgages could indicate viable alternatives to more traditional Home Equity Conversion Mortgages (HECMs).
This is according to data shared by Reverse Mortgage Funding (RMF) during a webinar hosted this month by RMD.
Increase in proprietary use by condo owners
At the National Reverse Mortgage Lenders Association (NRMLA) Eastern Regional Meeting in New York this past May, RMF revealed that 18% of the company’s total proprietary base is made up of condo borrowers.
That figure has now risen to 22%, a 4% increase in just under four months. Additionally, the general lack of condominium complex approvals from FHA limited the scope of the reverse mortgage industry’s presence for condo owners.
“Based on the numbers we’ve seen so far, we are tapping into incremental business: be it condominiums that we just weren’t able to help through a HECM, borrowers with more equity, and borrowers who in a lot of cases could take out a HECM but just won’t pay the closing costs,” says Mark O’Neil, national wholesale and correspondent sales leader at RMF.
Proprietary condo approvals
“We have a proprietary condo project approval process, where we have about 156 condo projects approved throughout the country in those states that, obviously we’re licensed in that we can do [proprietary] loans,” says Craig Barnes, RMF’s head of training and education. “Of course we would always do a condo if it’s FHA- or Fannie Mae-approved as well, but we have 156 condos as of just a few minutes ago that are approved to do Equity Elite loans.”
Even with a revamped system on the front of the government-backed HECM product, Barnes contends that the process of getting approval on a condo project for RMF’s proprietary loan is much simpler and easier for a borrower to accomplish.
“It’s a process that’s much simpler than getting your condo approved, even [when talking] about the individual unit approval, I think our process is much simpler than doing that, and it’s also free,” Barnes says.
The condo approval process under RMF’s proprietary product offering is a process requiring 4-6 documents, with approval typically taking place in roughly 48 hours, Barnes describes.
3-4 times increase in condo business compared with HECM
In terms of comparing condo reverse mortgage originations between the HECM program and the proprietary offering, the business on the proprietary side has outstripped the same business on the HECM side by several times, O’Neil shares.
“The fact is that as a percentage, we’re writing 3-4 times as many of our [proprietary loans] on condos as we are on HECMs,” he says. “They’re just easier to qualify, and the program is working on a lot of those developments that HECMs were just not reaching.”
While the new single-unit approval process should be beneficial for reverse mortgage originators seeking more condo business, O’Neil is waiting to see what ultimately takes place when the new rules go into effect in mid-October.
“The jury’s still out on that,” O’Neil says of the new single-unit approval guidelines announced by FHA. “It sounds to us so far like Equity Elite is still going to be able to serve far more borrowers than you’re going to with the HECM program, even with these upcoming changes that are going into effect next month.”
Additionally, while the HECM program can only see reverse mortgages originated for condos that are FHA-approved, the proprietary side of the business allows for more approval standards, including one that is company-specific, in order to qualify.
“I will add that if you’ve got a development that’s already FHA or Fannie Mae approved, we will accept those in addition to our own RMF approval process,” Barnes said.