With all of the changes we are seeing to the HECM reverse mortgage product it leaves us wondering if there may be more proprietary products on the horizon. The HECM or Home Equity Conversion Mortgage is the government insured reverse mortgage program. The HECM is the most popular and most utilized reverse mortgage and the only one insured by the government versus being privately insured. This means there is mortgage insurance and in the case of the HECM it is charged annually in the form of a rate addition of 0.5% of the loan amount as well as a one-time upfront mortgage insurance premium of 2.0% of the value of the home (to $636,100). A privately insured reverse will not normally have MIP fees structured into the loan.
Currently the only proprietary products offered are jumbo loans designed for borrowers with a home value far exceeding the FHA lending limit ($636,100). If you are taking out a HECM reverse any property value in excess of $636,100 will not be considered. So if you have a million dollar home and the lender tells you they will loan you 45% of your value they mean 45% of $636,100. This leaves some wanting more especially if your home is worth over 2 million. I proprietary reverse mortgage may be the answer to unlocking that additional equity in higher valued homes and allowing the borrower more.
I feel that the proprietary product will be making a comeback and not just in its current iteration as a jumbo but as a traditional reverse mortgage. With the changes to the HECM government insured reverse I feel companies will take it upon themselves to come up with an attractive alternative. One lender has already mentioned their intentions to do just that. The HECM used to offer a larger LTV and a nice growth rate attached to the credit line. While those features all still attractive they are less so due to changes made on October 2nd 2017. On that date HUD lowered the amount people get from a HECM reverse by about 20% and also forced lenders to see a much lower rate to get the maximum cash out, a lower rate of interest accrued on the loan also means a lower rate attached to the credit line as a growth rate. For these reasons I feel lenders will come up with their own privately insured product to compete with the HECM. Many borrower may end up finding these proprietary products more attractive. Keep it tuned in here to the site for more as it becomes available. Thank you.