Longbridge Financial is making a series of changes to its “Platinum” line of proprietary reverse mortgages which will affect all of its variations, including a new maximum lending limit, a new minimum home value, modified loan-to-value (LTV) ratios, and a new minimum FICO credit score. There are also changes being made specifically to the fixed-rate product and the Platinum Line of Credit (LOC) product.
This is according to information made available by Longbridge, and an interview with company CEO Chris Mayer with RMD. The changes being announced now are effective for all new Platinum applications dated on or after April 17, 2020. Original Platinum underwriting guidelines and LTVs can be honored for any loans that close by May 17, 2020, the company says.
Changes for all Platinum products
Among the changes being applied to the full Platinum product suite, all of the Platinum products will now have a maximum lending limit of $3 million. The minimum home value for all Platinum loans will be raised to $450,000. There will be new LTVs, and a minimum FICO credit score of 680 will be required, raised from 640.
The changes are primarily driven by making sure that Platinum products can be sustainable under current market conditions, according to Mayer.
“What we’re announcing now are really changes to try and rationalize the product to the current market conditions that are out there,” Mayer told RMD. “So this is driven as much by changes in the market as it is driven by what the securitization market looks like.”
Changes for fixed Platinum products
Among the changes to the fixed rate Platinum product, the current offerings will be consolidated into two variations: “Platinum A” with a rate of 5.99%, and “Platinum Max” with a rate of 6.99%.
“We’re actually slightly lowering maximum interest rates, in addition to lowering LTVs,” Mayer said. “And that is a more sustainable product from a lender perspective. One of the things I think people will understand is that it’s really important to have a sustainable product, not only from a lender perspective, but from a borrower perspective.”
Rather than the idea of someone attempting to get every last dollar until it no longer works, the idea is to have a product that works for both lenders and borrowers which allows both to stay in the market, Mayer says. These changes will help keep the product in the market by making it more sustainable.
“What we’re doing is making changes to make the product sustainable, focusing on slightly lower interest rates and slightly lower LTVs for those products,” he says. “We will have both a version of the product which covers closing costs, and a version of the product that doesn’t. The version that covers closing costs will have a slightly higher interest rate for it.”
Platinum LOC changes
For the Platinum LOC (PLOC) product, the first three states of availability – California, Florida and Colorado – have been bolstered by new availability in Washington, D.C. now with New Jersey, North Carolina, South Carolina and Oregon being available “in the coming days,” according to Longbridge. There will also be a new maximum initial draw of 70% of the principal limit.
PLOC is a relatively new addition to the Longbridge product catalog, and while available in a more limited selection of states when compared with the fixed Platinum product, PLOC has accounted for a great preponderance of the company’s proprietary volume, Mayer says.
“Despite the fact that our fixed product is in 24 states and our LOC product has been in three, we’ve seen the majority of our volume coming in from the LOC product,” he says. “It’s really not surprising because if you’re living in a $1.5-2 million home, do you really need $500,000-750,000 or more upfront to draw? The answer, for most people, is that the responsible thing to do is to take some, but not all of their equity out the same way they do now, and to use the remainder over time in the form of a line of credit.”
That has been a source of real growth for Longbridge, Mayer says, so that has translated into the company putting a lot of its resources into the LOC process. In terms of the new 70% maximum initial draw, that element has taken the lead from use patterns of customers on more traditional Home Equity Conversion Mortgages (HECMs), Mayer says.
“The thought process is really that this product is designed for people to use the money over time,” Mayer says. “That design is kind of mirroring what I think of as the success of the HECM. It is what we’ve found customers want, which is that virtually all of them are taking an LOC and they’re not taking a full draw.”
Additionally, from a lender perspective if there is a decline in property values, not having the full amount drawn at once provides some additional protections, Mayer says. But, the focus is on the desires of the consumer.
“So, we’re going to go out into another four states, and we will continue to roll out states in this product going forward. We’re really excited about growing the footprint for a line of credit product where consumers can use this as a way of sustaining the living in their home over time.”
Longbridge ‘remains committed’ to private reverse mortgages
The primary takeaway of these changes for Longbridge’s proprietary line is that the company remains committed to making its private-label reverse mortgages available, according to Mayer.
“The forward market has basically seen an almost evaporation of private label products,” Mayer says. “We have, at Longbridge, taken a different view than other people in terms of how we fund those products. So, rather than an originator-securitized model where you’re only as good as your next securitization – which puts a lot of risk in the product – Longbridge wants a different path. Ours is to a dedicated investor who used longer term capital for the business.”
By doing that, the company’s hopes were that this kind of path would allow Longbridge to maintain a commitment to the proprietary product landscape, even if there are significant swings in the capital market. Thankfully, this has been the case, Mayer says. Because of the general uncertainty afflicting the economy at this moment, it’s impossible to say if these product changes will be the last ones, but the commitment to remaining in the market is very strong.
“The way we are looking at this is that market conditions have changed, and they’re going to continue to change,” he says. “There’s a massive amount of uncertainty today. It’s not just that securitization has fundamentally changed, it’s that the world is different than it was before. There’s a lot more economic risk. So, when I highlight the importance of being in the market in this environment, I really think that is the headline for us as a company and for the reverse business, because that isn’t something that the forward market has been able to say for proprietary products.”
Remaining in the game in the midst of so many shifting realities is very important for Longbridge, and the company aims to send a message to the reverse mortgage industry by doing so.
“The headline for us is that we’re here, and that’s a big headline,” Mayer says. “The product that is sold, the product features are going to have to and will continue to adjust. As economic conditions evolve, we should expect that we’re going to learn more and products are going to have to adjust to the times. This is good news, because if we don’t have sustainable products, we don’t have a market.”