Proprietary reverse mortgages gain traction despite challenges

"We have a pretty significant decline coming at a time when you would expect the opposite, because we have an aging population and more home equity. Through a recent request for information, HUD along with the Federal Housing Administration (FHA) and Ginnie Mae are assessing potential regulatory and administrative changes to strengthen the HECM program, remove entry barriers for lenders and gauge investor demand. Comments are due by Dec. 1."

"Tim Wilkinson, vice president of capital markets at Longbridge Financial, said HUD's questions touch on the government's role as proprietary reverse mortgage products are gaining ground. But, he added, the argument is not that there's no role for the HECM program. The HECM program obviously there's criticism is very well defined. It's an intelligent solution, very low cost in some ways, Wilkinson said. Still, there are pain points, including upfront mortgage insurance premiums that require borrowers to pay 2% of their property value, he added."

"Jeremy Prahm, chief investment officer at Finance of America, added that while the HECM program is critical to the industry, proprietary products can expand liquidity and access to home equity. These products allow increased flexibility on draws and ability to access that over time more efficiently. Although proprietary loans can lower upfront costs and origination fees, they remain unavailable in certain states due to local restrictions or lengthy approval processes, executives noted."

HECM endorsements declined 69% since 2022 despite an aging population and increasing home equity. HUD, FHA and Ginnie Mae issued a request for information to evaluate regulatory and administrative changes to strengthen the HECM program, remove lender entry barriers and gauge investor demand; comments are due by Dec. 1. Industry participants describe the HECM program as well defined and relatively low cost but note pain points, including a 2% upfront mortgage insurance premium. Proprietary reverse mortgage products are expanding liquidity, offering more draw flexibility and lower upfront costs, though availability varies by state and programmatic HECM changes can be slow and complex.

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