March 4th, 2020 10:01 AM by Jackie A. Graves
The reverse mortgage market has been in a state of flux ever
since the U.S. government in 2017 reduced the amount borrowers age 62 and older
can draw from their home equity for its Home Equity Conversion Mortgage (HECM)
and raised that loan’s premiums. Now, a handful of reverse mortgage lenders are
rolling out proprietary products with fewer restrictions, lower upfront costs
and the ability to draw down more money.
They’re targeting homeowners with property values in the
$700,000+ range who weren’t prime candidates for reverse mortgages in the past.
The Federal Housing Administration (FHA) insures HECM reverse mortgages on
properties valued up to $726,525. The proprietary loans are jumbo reverse
mortgages, with loan amounts up to $2.25 million. Like HECMs, these new loans
don’t let homeowners owe more than the value of their home.
Why Some Financial Advisers Like
Increasingly, financial advisers are recommending reverse
mortgages for some retirees.
“If using the equity in your house will enable you to travel or
live where you want to live and not spend the whole retirement stressing about
running out of money, it’s really a wise use of the equity,” said Jeremy
Kisner, senior wealth adviser at Jeremy Kisner Wealth Management in Phoenix.
A reverse mortgage can help you pay down your existing mortgage
and free up cash each month. Or you could use the money to consolidate debt,
make home improvements or pay for necessary expenses such as long-term care.
Impetus for the New Reverse Mortgages
The government’s rule tightening for HECMs has opened a window
for the new proprietary reverse mortgages.
“Reverse mortgages are one of the top regulated products and
every time the government changes the rules, the lenders have to change how
they market it, who they sell it to and how they offer advice,” said Jamie
Hopkins, director of retirement research at Carson Group, a retirement advisory
group, in Bryn Mawr, Pa. “The HECM market is so sensitive to government
regulations. It is driving some of the proprietary market creation.”
One Reverse Mortgage, the San Diego unit of Quicken Loans,
launched its jumbo reverse mortgage (the Home Equity Loan Optimizer or HELO) in August, 2018,
to overcome the limitations of FHA reverse mortgages. A fixed-rate loan, it
gives borrowers with credit scores of at least 640 access to up to $4 million
of their equity. It’s now available in 20 states and expected to be available
in most of the country by April.
The HELO rate recently ranged between 6% and 7.375%. According
to a recent Wall
Street Journal story, fees average $3,000 to $5,000 in upfront costs for a $1
million loan on a home valued at $2 million.
In October, 2018, Finance of America Reverse, a Tulsa,
Okla.-based reverse mortgage lender, began offering the HomeSafe Select proprietary
reverse mortgage product in California, with additional states expected soon.
This non-FHA, adjustable rate reverse mortgage is available for
properties valued up to $10 million, with loan proceeds as high as $4 million.
There is no monthly or annual mortgage insurance with the nor are there any
prepayment penalties. With a HECM, borrowers must pay a mortgage insurance
premium which is 2% of the home value and annual mortgage insurance premium of
0.5% of the balance on the mortgage.
HomeSafe Select borrowers can draw down 25% of the loan proceeds
at closing, with the remainder of the funds available as a line of
credit. The lender charges origination fees from $2,500 to $8,000. The
fees are based on the maximum amount for the loan; 2% for the first $200,000
and 1% for the remaining amount over $200,000. Finance of America Reverse also
charges a $30 monthly loan servicing fee. Other fees may be charged by third
parties for such things as the title search, financial counseling and appraisal
and document preparations.
The interest rate on Finance of America’s proprietary reverse
mortgage is slightly higher than the HECM, but Kristen Sieffert, president of
Finance of America Reverse said the upfront fees are lower.
“The HomeSafe product is a very interesting product and it is
extremely encouraging to see the market finally start to innovate and
supplement the HECM,” said Hopkins. “While the HECM does meet the needs of most
borrowers, it leaves out a significant portion of the higher net worth market.”
Advice Before Getting a Jumbo Reverse
If you’re considering a proprietary reverse mortgage, bear in
mind that the offerings may differ dramatically. So you’ll want to compare
closing costs and interest rates, and determine whether you want the money as a
lump sum or a line of credit and how much you want to access.
“I would really compare any reverse mortgage to a traditional
mortgage. I think this is a good practice for anyone age 62 or over who is
looking to purchase a home or refinance,” said Hopkins.
Be sure you’re working with a reputable lender, too. Choose one
that is a member of the National Reverse Mortgage Lenders Association, the
trade group that develops best practices for the industry
Counseling isn’t mandatory on the proprietary loans, the way it
is for the HECM, so make sure you understand all the terms before borrowing. If
your lender can’t answer your questions, look for a different one.
As with any reverse mortgage, keep in mind that you will be
responsible for the taxes and the homeowner’s insurance on the new products.
And the loan will come due as soon as you move or die.
Experts believe the new proprietary reverse mortgages will fill
“Most companies in the space are seeing if they can create
something creative in a marketplace that has not seen much innovation in a long
time,” said Hopkins. “You will see a lot more reverse mortgage products that
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