What is a Proprietary Reverse Mortgage?

On Friday, December 14th, we saw The U.S. Department of Housing and Urban Development (HUD) raise the 2019 limits for FHA’s reverse mortgage product – the Home Equity Conversion Mortgage (HECM). This means that homes valued above $726,525 are capped at that figure when calculating principal limits.

This is an increase of nearly $47,000 from 2018 and comes at a time when more non-government “proprietary” jumbo reverse mortgage products are making the opposite move – appeal to more lower value homes.

The end result is that more consumers are finding more options for accessing their housing wealth as part of a comprehensive retirement plan. Because of this shift, I have updated my book for 2019 to include the new HECM lending limits as well as a new chapter titled, “What are Proprietary Reverse Mortgages.” The following is a preview of the new chapter:

HECM or Proprietary Reverse Mortgage?

The federally insured HECM has been the dominant reverse mortgage product for the last three decades. That’s changing, however, as innovative mortgage lenders have found that certain restrictive HECM guidelines have opened the door for non-agency reverse mortgage products.

These “proprietary” reverse mortgage options still maintain many of the consumer protections of the HECM program. Reverse mortgages, FHA-insured or not, must be non-recourse loans. But, of course, these proprietary products do not charge the initial MIP (2%) or annual MIP (0.5%). So, while the rates may be slightly higher, you might find the up-front charges to be significantly reduced.

NOT JUST A JUMBO OPTION ANYMORE

For the last few years, the phrase “jumbo reverse mortgage” was used to describe these options, as lenders were able to better serve borrowers who owned higher-priced homes.

However, these new products solve other problems that HECMs currently do not. Here are a few:

  • HECMs require condominium complexes to be FHA approved before units can be eligible for HECM financing. Proprietary products may finance units within non-approved condo projects.
  • HECMs have initial disbursement limits that often prevent borrowers from accessing more than 60% of their principal limit within the first year. Proprietary products have no such restrictions.
  • HECMs require all existing liens to be paid off a closing. One proprietary product now allows the reverse mortgage to be in second lien position.
  • HECMs do not currently allow the payoff of unsecured debt at closing. Proprietary products may allow the payoff of personal debt and other items at closing.
  • HECMs require most liens to be seasoned for 12 months before closing. Proprietary products often have no seasoning requirement.
  • HECMs require all borrowers to be age 62 or older. One proprietary product offers financing for borrowers as young as age 60.

Some are offered as first liens. Some are structured with a growing line of credit that mimics the HECM ARM. Still, others allow the loan to remain in a second-lien position in cases where the first mortgage has an attractive low rate.

For more information on all forms of reverse mortgage product offerings, subscribe to this blog and consider buying the reverse mortgage resource consumers and finance professionals use – Understanding Reverse.