Private reverse mortgages that do not involve the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) program used to be used primarily for those with very high value homes. However, those products have evolved to encompass more utility for homes of lower values, particularly as rules governing HECM proceeds have changed. This is according to a new “council” post at Forbes written by Michael Branson, CEO of All Reverse Mortgage, Inc.
“At the time the programs were first introduced, the U.S. Department of Housing and Urban Development (HUD) was much more generous on the amount of money the program would allow as a percentage of the home’s value,” Branson writes. “This meant the property really had to be well above the HUD maximum lending limit for the jumbo or private program to make sense for most borrowers.”
One of the realities of the private reverse mortgage market was its near-disappearance in the wake of the 2008 financial crisis, Branson says.
“After the secondary market for mortgage products began to severely dry up in 2008, the investor appetite for private market reverse mortgages vanished entirely in 2009 leaving only the HUD home equity conversion mortgage (HECM) loan available to borrowers of all property values,” he writes.
That ended in 2014 when private reverse mortgages began to reappear, but even when private products began to trickle back into the market, that was only the beginning of the process for private reverse mortgages to serve as a viable alternative to a traditional HECM.
“Borrower acceptance and origination of the product was slow at first,” Branson says. “The program was extremely conservative with low loan amounts as compared to value and conservative underwriting guidelines.”
That early groundwork paid off, and has resulted in a more robust, reflexive private reverse mortgage market as borrowers with high-value homes began to see reverse mortgages as a viable path to solving some kind of financial dilemma.
“Then approximately 18–24 months later, as additional programs began to emerge, the competition for this product began to push investors to make the programs more aggressive,” Branson says. “More investors meant program innovations and new products available. Rates have come down, and new programs and more favorable parameters are now available, as well as more and better choices for borrowers with homes of all values.”
Ultimately the results have been good for borrowers, with changes handed down to the HECM program by HUD also serving a role in the innovation of more private reverse mortgages, he says.
Read the column at Forbes.