“We’ve hopefully turned a corner with our market, and we’re going to start seeing more originations across the board,” he says. Proprietary reverse mortgages have long been seen as a reliable option for homeowners who aren’t a good fit for the government-backed HECM. Owners of highvalue homes, for example, can often access more equity through a proprietary reverse than through a HECM. Owners of condos and other non-Federal Housing Administration-approved properties also can benefit from proprietary loans. Ziegler recounts the example of a borrower who opted for a $2 million proprietary reverse for a purchase, allowing the borrower to put down less cash at closing. “After net proceeds from their home sale, they only had to bring about $100,000 out of pocket; whereas, if they would’ve looked at a HECM, they would have had to bring about $800,000,” he says. However, when interest rates were low in the early 2020s, the market for proprietary loans took something of a backseat to the boom in HECM-to-HECM refinancings. Since then, rising rates have chilled interest in refinancing. And because higher rates eat into the principal limit factor governing what HECM borrowers can take out from their loans, lenders see growing potential for proprietary reverses, particularly for higher-value homes. “I’m very optimistic about the year, and we’re already seeing an uptick in our volume,” he says. Learning What Works As long as inflation remains under control and the economy holds up, the Federal Reserve is widely expected to start considering interest rate cuts toward the end of 2024. But lenders aren’t banking on rate cuts alone to drive interest in proprietary reverse mortgages. Innovation and market expansion also have been keys to growth. Early in 2023, for example, Finance of America Reverse (FAR) brought back its HomeSafe Second product with new features. The company also expanded the distribution network for the loan, which allows homeowners to tap into their home equity without disrupting their first mortgage. The company is now distributing the product through its direct-to-consumer division, American Advisors Group, whose advertising reaches more than 20 million consumers each year. In addition, the product is available to FAR’s wholesale partners. HomeSafe Second is expected to appeal to homeowners who have low-rate first mortgages but want to draw on their equity. Such borrowers have been reluctant to refinance and let go of their low rates. HomeSafe Second allows them to keep the first loan and avoid payments on a second loan, says Scott Norman, vice president of field retail and government operations at FAR, which is based in Tulsa, OK. Even if mortgage rates start to fall this year, rates aren’t likely to return to previous lows, Norman says. “So, I think that gives us plenty of room to grow and develop and evolve the HomeSafe Second product.” After they learn about HomeSafe Second, some borrowers take out FAR’s HomeSafe Standard reverse loan, which replaces their first mortgage. “When they start thinking about making those monthly payments and they realize how much more cash flow they would have if they were able to extinguish their first mortgage, I think that begins to open their eyes a little bit and has them starting to ask additional questions,” says Jonathan Scarpati, vice president of wholesale for FAR. Proprietary Reverse Mortgages continued from page 17 “I’m very optimistic about the year, and we’re already seeing an uptick in our volume.” —Doug Ziegler, national reverse mortgage sales manager for University Bank Scott Norman Jonathan Scarpati 18 REVERSE MORTGAGE / MARCH-APRIL 2024
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