A number of key guidelines were recently modified for HomeSafe, the proprietary reverse mortgage product suite from Finance of America Reverse (FAR). This included a change to the principal limit and the removal of an allowance that offered more first-year proceeds compared to the Federal Housing Administration (FHA)-sponsored Home Equity Conversion Mortgage (HECM) product, according to a partner alert.
Sources who spoke with RMD about the changes had mixed feelings on the move. One originator said he had advised people in his company to be wary of proprietary products in general right now while another characterized the changes as indicative of the current market.
These changes are designed to prompt consumers to consider all reverse mortgage options — including HECMs, according to a statement from FAR.
These changes will “ensure the HomeSafe product is a benefit over the HECM product,” a wholesale bulletin states.
The changes shift the minimum principal limit to $300,000 for any loan that had its application printed on or after January 21. For loans with applications printed on or before January 20, the loan must close by March 15 to remain qualified for the prior principal limit.
The company described the changes as necessary to continue its value proposition and to give borrowers an incentive to consider all reverse mortgage options, according to Britany Luth, SVP of business optimization at FAR.
“FAR recently made guideline changes to our proprietary HomeSafe reverse product to ensure that borrowers initially consider the safety and soundness of the government-insured HECM program amid ongoing market volatility,” Luth said. “We believe that borrowers who can qualify for a HECM loan should consider that route first — unless there is a material benefit to choosing a proprietary loan.”
FAR also aims to ensure the ongoing availability of the HomeSafe product suite for those who can benefit from lower upfront costs or are unable to qualify for a HECM, Luth said.
“This is a delicate balance,” Luth said. “As such, we’re considering further streamlining our borrowing guidelines in the near future to accomplish these goals without being overly stringent. Ultimately, this will enable our customers to choose the reverse mortgage product that best fits their needs and provides them with more financing options to thrive in retirement.”
Reactions to the changes
One originator, who requested anonymity to speak candidly, said that he is advising reverse mortgage professionals at his company to remain wary of proprietary products because of recent volatility in the market.
For another industry professional who often deals in private-label products, National Manager of the C2 Reverse division of C2 Financial Scott Harmes says the value proposition for HomeSafe is still present — but it all comes back to what’s best for the borrower.
“The way the comp is structured on this, an originator will not be motivated to go into the proprietary program with that principal limit,” Harmes said. “If it’s what’s best for the client then go for it, but given the lower rates for the HECM right now, anything with that little principal limit is likely to be a better fit for a HECM anyway. We really don’t even start looking at the jumbo or the proprietary programs until we get above the FHA lending limit.”
Adding to the pressure on the proprietary side for HomeSafe and similar products is a higher HECM limit of $1,089,300 for 2023.
“That made a big difference,” he said. “I think it gives us a much bigger swath and proportion of the market where the HECM is applicable. Side-by-side, if you lay out a HECM and a proprietary product, I think the HECM is going to be better for the client on a long-term basis — especially if they’re younger. The younger a client is, the less important high closing costs are, and the more important a lower rate is.”
While a panel of industry leaders expressed optimism about the proprietary reverse mortgage market at an industry event last May, the remainder of the year proved challenging for private-label reverse mortgages.
In June 2022, three private-label providers, including RMF, FAR and Longbridge Financial, implemented a series of product changes in reaction to the market volatility caused by historic levels of inflation and economic volatility.
By late September, another round of economic volatility pushed Longbridge and Liberty Reverse Mortgage to make changes to their proprietary products. Liberty moved to suspend applications at that time, while Longbridge made changes to its products’ loan-to-value ratios (LTVs).
Additional developments in the proprietary market began to emerge later in 2022. Industry-leading lender American Advisors Group (AAG), which had offered FAR’s HomeSafe product under a correspondent partnership, announced that it would suspend the partnership and would stop offering HomeSafe under its own branding in October.
Additional pressures emerged in November when RMF ceased originations before ultimately filing for bankruptcy, which took its Equity Elite product off the board. In December, the FHA announced a new HECM limit of $1,089,300, pushing it to seven figures for the first time in program history.
While most private-label reverse mortgages maintain limits of up to $4 million, a higher HECM limit has the chance to cut into that business for all but those with very high value homes.