Jan-Feb2020

the traditional market in 2019 before lower interest rates pumped new life into HECMs in the latter half of the year. Still, Button says, his guess is that private loan products likely account for about a quarter of the dollar volume in the reverse market. “It is not a small player,” he says. Turning Point For much of this decade, there have been fewer HECM borrowers overall. But most people generally could get what they needed out of a traditional HECM. That changed in 2017 when the federal government tightened standards for borrowers. The changes shut out many of the people who saw HECMs as a financial lifeline. Borrowers who remained eligible and interested, meanwhile, faced higher upfront costs. While the changes sank the origination total for traditional HECMs, they opened the door for proprietary products, says Michael McCully, a partner with Naples, FL-based New View Advisors, which analyzes the reverse mortgage market. He notes proprietary products could make up more than half of the reverse lending market within 12 to 18 months. “This is what should be happening, and I think HUD welcomes it. The market seems to be embracing it, too, and the culture of the industry is going to be staked to moving away from the HUD program,” McCully says. “The proprietary product is competitive not in every scenario but in many scenarios. That’s all positive news for the growth of the non-agency market.” More news could be on the way. Lawmakers and regulators have been pondering a proposal to replace the national lending limit on HECMs with regional caps tailored to local markets. That could lead to lower available HECM proceeds in many areas. Borrowers seeking more than the caps allow could end up turning to proprietary products, McCully and lenders say. Lenders, meanwhile, are unlikely to see a dramatic turnaround in traditional HECMs, McCully says, noting that a stable housing market and historically low interest rates have done little to boost volume. “You can’t really imagine a better lending environment, and while there has been steady improvement in HECM volume throughout 2019, here we are talking about 30,000 units for the fiscal year,” he says, referring to the likely total of HECM endorsements for 2019. FHA endorsed 31,274 HECMs for FY 2019, which ended on Sept. 30. A Shift in Needs Headwinds for traditional HECMs do not translate automatically into a tailwind for proprietary products. Private products still have trouble competing directly against government-backed products, says Peter Neuwirth, a retirement expert in Berkeley, CA, who has written about reverse mortgages. Proprietary products also tend to require borrowers to take out lump sums, while many borrowers prefer a line of credit instead. Proprietary products, of course, could appeal to people locked out of the traditional HECM by tighter borrowing standards or to those with higher home values. But Neuwirth and others expect that Baby Boomers looking for fresh sources of retirement income still will look closely at the government-backed product, despite its limitations. They may appreciate its consumer protections, growing line of credit and government guarantee. “The HECM is not perfect by any stretch of the imagination, but it’s hard to beat in flexibility and appeal to all markets,” says Shelley Giordano, founder of the Academy for Home Equity in Financial Planning at the University of Illinois and head of enterprise integration at Mutual of Omaha. She is based in Washington, DC. Others are more bullish. They cite proprietary products that already are addressing many borrowers’ needs, including low upfront costs and flexible lines of credit. Some products also are extending beyond the jumbo borrowers with which proprietary products are most associated. That is the case for Reverse Mortgage Funding LLC, which is among the companies seeing growth in its proprietary products. Proprietary products make up about 30 percent of the company’s total reverse lending, says Eric Bursting continued on page 20 Shelley Giordano Peter Neuwirth REVERSE MORTGAGE / JANUARY-FEBRUARY 2020 19