Mahwah, N.J.-based Longbridge Financial is introducing a new proprietary reverse mortgage product to its existing “Platinum” branded product line, constituting a proprietary reverse mortgage that comes with a line of credit (LOC) feature. This new Platinum LOC loan allows qualified borrowers aged 62 and older to access an open-ended line of credit that grows at 1.5% per year for up to 7 years, and features a 10-year draw period.
The features in the new product are designed to be advantageous for older borrowers, and include no required monthly mortgage payments; rates which are “comparable” to many HELOCs according to Longbridge; low upfront costs featuring no prepayment penalties or mortgage insurance premiums; a non-recourse feature if the mortgage balance exceeds the home’s value; and more relaxed income qualification than HELOCs, which typically require full repayment.
The identified product need
Longbridge identified a need for a product like this in the proprietary reverse mortgage market due to both the poor fit that HELOCs can be for older borrowers, and the 2017 principal limit factor changes to the Home Equity Conversion Mortgage (HECM) program according to CEO Chris Mayer. The new Platinum variation can help provide the best of both worlds, he says.
“Our new Platinum Line of Credit product is designed specifically to provide seniors the same flexibility, interest rates, and relatively low cost origination that comes with a HELOC, but has reverse mortgage benefits that are more aligned with a borrower’s financial needs during their retirement years,” Mayer told RMD. “For example, borrowers do not have required monthly mortgage payments. Of course, borrowers can choose to make monthly interest payments if they want, maybe to get a tax deduction or to keep the balance from growing. And there is no big increase in payments as comes with a HELOC after 10 years.”
Additionally, the Platinum LOC contains protections that are not traditionally found with HELOCs, he adds.
“[These include] non-recourse provisions, meaning that they’ll never owe more than the value of the house,” he says. “We believe that once the features and low cost of our product is compared to a HELOC or other financing sources, seniors will start to see the many compelling benefits.”
The commonality of traditional HELOCs
HELOC loans are still used more than 10 times as often as reverse mortgages, according to data from the Urban Institute, which can potentially be attributed to their generally wide availability online and in banks, along with low upfront costs, Mayer says. The aim for Platinum LOC is to work with a wealth of different financial professionals in order to adequately explain why this could be a better choice for someone in close proximity to retirement.
“Our goal is to use differentiated marketing to explain our new product, but also to work with forward mortgage companies and wholesale clients to ensure that borrowers see this product as a choice when they are looking to use their home equity,” Mayer says. “This product will also be attractive to many borrowers when compared to a full draw fixed proprietary reverse mortgage or even a HECM.”
Key to getting this information across will be the educational efforts that the company will engage in, which will be necessary to adequately inform seniors about their options in comparison with more traditional products, Mayer added.
“We intend to do as much as we can to help educate seniors about the key differences between our Platinum LOC and traditional HELOCs, and to point out how our program is designed specifically for their lifestyles and retirement needs,” he said.
The type of borrower that will be best suited for the features of Platinum LOC include those who typically have higher home values, Mayer said, as the minimum home value for the product is $400,000.
“Many borrowers with higher value homes came to us looking for a product with low costs, needed more cash than a HECM and did not want to take all their funds in one lump sum payment,” he says. “It was important that we provide our customers with another product option that was affordable and flexible. That’s why we believe that Platinum LOC will appeal to people that typically pursue a HELOC because they can’t find anything else more appropriate in the market.”
For the LOC product, borrowers must take at least 25% of the available proceeds at closing, according to a Longbridge press release. The loan balance can be repaid at any time without penalty as with other reverse mortgage products, and retains many of the same features for borrowers including no mortgage insurance premium and non-recourse protection.
As compared to the FHA-insured HECM program, Longbridge Platinum features a unique approval process along with less restrictive requirements for homeowners of condominiums, according to a company spokesperson.
The future of Platinum
The new Platinum Line of Credit launches in California as of November 18, with Longbridge stating that availability in more states will follow “soon afterwards.” To date, the original Platinum fixed product is currently available in 24 states, but Longbridge looks forward to adding as many states as possible, according to Mayer.
“[The list of states in which Platinum is available] is constantly growing. It’s our intention to offer our new LOC program as broadly as possible,” he says. “We are aggressively pursuing several other states and are focused on rolling these out as quickly as possible so we can serve a greater part of the market.”
Longbridge is actively exploring possibilities in terms of future potential variations on the Platinum product line, Mayer added.
“We’ll continue to study and work towards understanding the financing needs of seniors during their retirement years, and with that, we fully intend to develop more products and features that will help to better meet those needs,” Mayer said. “As the population in general continues to age, and the economic environment shifts, there will surely be a demand for change and development of new products.”
Longbridge Financial ranks as the eighth largest reverse mortgage lender by volume as of October 2019, according to data from Reverse Market Insight (RMI). Over the course of the last year, the company has increased its total reverse mortgage market share from 1.9% in 2018 to 2.1% in 2019.