In the early part of my career, there was only FHA’s Reverse Mortgage Loan (or HECM) and 1 Private Jumbo Loan offered by a lender that is no longer in the business. Now there are several private or proprietary reverse mortgages (not HECM) that are offered by the largest reverse mortgage lenders, and some of them allow for the youngest borrower to be at least 55 years old. They also are no longer only for “Jumbo” Reverse Mortgage clients as some allow for loan amounts as low as $100,000. A Jumbo is the term for a mortgage product that is larger than the standard loan limits set forth annually.
It was very interesting to see this massive shift in the reverse mortgage industry. I started in 2008, when the first reverse mortgage I wrote was for my own grandparents in 2008. I learned at that time that the reverse mortgage is highly misunderstood, so I began to make educating the masses about reverse mortgages a huge part of my career. The jumbo reverse mortgage loan was not very popular in Florida, but then around the middle of the 2010 decade we saw a couple other reverse mortgage lenders roll out their version of the jumbo reverse mortgage.
The real catalyst was in 2017, when FHA changed the way the reverse mortgage “Principal Limit” (PL) was calculated. The PL is the equivalent to the “Loan To Value” (LTV) in “forward” mortgages and was solely based on the age of the youngest borrower and appraised value of the property. After the 2017 rule change, the “expected rate” became the 3rd factor to play into the calculation of the PL. Well, actually, it was always a factor, but it was essentially fixed, and the PL rarely, if ever, changed because of the expected rate. So, when FHA changed the “expected rate floor” in 2017, those PLs began to drop. This is what caused me to go from offering soley reverse mortgages to going back to offering all types of mortgages to my clients.
OK, but what does this have to do with the jumbo or proprietary reverse mortgage loans? The lenders offering these private products saw that there would be less demand for the FHA HECM if the PL’s would drop considerably, and the demand for a non FHA reverse mortgage loan would go up if it was available at levels that were lower than the jumbo reverse mortgages. So one lender after another started to modify their guidelines to allow for lower loan amounts, lower appraised values, easier underwriting, lower borrower ages, and more.
Today, we have an extensive cheat sheet with each pro and con of each lender offering these programs. If you go directly to one lender, then you will only have that 1 lender’s offering at your disposal. A broker can shop the right program for a reverse mortgage borrower by going to all lenders with their private reverse mortgage offerings.
Written by Phil Stevenson, CRMP
Owner & Principal MLO of PS Mortgage Lending, 1 of less than 200 Certified Reverse Mortgage Professionals (CRMP). Phil was interviewed and featured in Forbes 3 times since 2015 and has been offering reverse mortgage loans since writing one for his grandparents in 2008.