Educational Module-5: Proprietary (Jumbo) Reverse Mortgages

As presented in prior Modules, HUD collects housing data and one of its uses is by the FHA to determine the annual limit for loans eligible for the FHA mortgage insurance (MIP).

In 2014 that limit was (only) $625,500 which was the nationwide limit for all HECM loans.

Many prospective Reverse Mortgage borrowers had homes with values well above the FHA lending limit and were thus reluctant to use the FHA insured HECM loan because they were not able to convert enough equity to address their financial needs (for example, paying off their current mortgage).

Otherwise, the loan process is the same with mandatory counseling and the same HECM-like loan file processing, underwriting and closing.

As lenders are always working to expand their marketplace, the need for converting a greater amount of equity inspired the creation of a "jumbo" reverse mortgage in 2014 with a loan limit of $4,000,000.

As HUD/FHA regulates the 1-to-4-unit residential lending and the Reverse Mortgage markets, these proprietary Reverse Mortgage loans also had to closely follow the HECM structure and features to be approved by HUD. These lenders also had to create a separate secondary market.

Because these new loans were not backed by the Government via FHA mortgage insurance (MIP), they had a bit higher risk for both the lenders and the secondary market, thus having a slightly higher interest rate. The interest rates use the same Index plus a Margin structure with the added cost factor to create the "non-recourse" feature (required and similar to the FHA MIP).

While the original jumbo Reverse Mortgage format was soon copies and offered by several other lenders, each lender has added their own unique sub-features or hybrid versions to gain some product and marketing advantage. This activity recast the product name from "jumbo" to "proprietary" Reverse Mortgages.

One of the significant features of the proprietary Reverse Mortgages is lowering the age to qualify to 55. However, both borrowers must be at least age 55 versus the HECM loan where one borrower must be 62 years of age. (Note: except for North Carolina and Texas where it is age 62 and in Massachusetts, New York and Washington where it is age 60).

Proprietary Reverse Mortgages features include:

• Loan amounts to $4,000,000 (which equates to a home value of approximately $9,000,000)
• For refinance or purchase
• Fixed and adjustable interest rates
• No monthly payments are required
• No cash-out use restrictions
• Non-recourse
• Lump-Sum or Line of Credit (LOC) options

Another innovative proprietary loan program is a stand-alone Reverse Mortgage second (2nd) behind their current low interest rate traditional first mortgage. Again, no monthly payments are required, and it has the now-standard Reverse Mortgage features. This option provides an alternative to a home-equity-line-of-credit (HELOC) or a traditional second mortgage with qualifying income requirements and ongoing monthly payments. This is intended for borrowers who have an existing 1st mortgage with a very advantageous low interest rate.

A lender is offering a hybrid Reverse Mortgage loan program that combines a traditional mortgage with a Reverse Mortgage

A lender is offering an Equity Line Of Credit (HELOC) for Seniors which provides traditional HELOC features combined with some Reverse Mortgage features.

Currently there are more than seven (7) lenders offering proprietary Reverse Mortgages