Last week I attended the National Reverse Mortgage Lenders Association (NRMLA) convention in Nashville, TN. I find these meetings very informative and valuable and I always learn something.
This year there was a lot of discussion about “proprietary” reverse mortgages. I will be discussing more of the details throughout this article, but I want to first give a shout out to my friend and fellow reverse mortgage professional, John Luddy, SVP of Reverse Mortgage Lending at Norcom Mortgage.
John is an “old school” type of salesman and has a lot of experience and great tips. One such tip I picked up from him at this year’s event is to change the way we look at “proprietary” reverse mortgages, beginning with the name. He suggests that we change the name to “Portfolio” reverse mortgages.
A lot of people have portfolios with their financial advisors and some have portfolio loans from their forward mortgage lenders. A portfolio reverse mortgage is a natural progression.
In short, a portfolio reverse mortgage is a loan that has guidelines established by one individual lender, not a big government sponsored enterprise (GSE), like Fannie Mae or Freddie Mac. The rules are set by the people actually making the lending decisions.
These loans can be used in a variety of situations:
- For higher priced homes that are valued above the FHA lending limit (currently $726,525)
- Non-FHA approved condos (Even FHA approved condos)
- Closing-cost-sensitive people (portfolio reverse mortgages have much lower closing costs)
- People that do not qualify for FHA loans due to being delinquent on federal debt (student loans)
Portfolio reverse mortgages are not FHA insured reverse mortgages, which is a good thing. The FHA reverse mortgage program, called Home Equity Conversion Mortgage, (HECM) is a very good program and certainly has its place, but the more portfolio loan programs available, the better.
One big reason this is so good is that portfolio loans typically have much lower closing costs (in some cases almost zero closing costs). The big fee most people complain about with FHA insured reverse mortgages is mortgage insurance. Since portfolio loans are NOT FHA insured, they do not have mortgage insurance.
For the last decade, reverse mortgage lenders, and their customers, have been at the mercy of FHA and the decisions that they have made about what they think is best. With the growth of portfolio reverse mortgages, the industry can now offer more option to homeowners.
Currently in Colorado, homeowners only have one option for drawing funds from portfolio reverse mortgages, as a fixed interest rate, lump sum. However, there are many interest rate options and more are becoming available every month. I was also told by three different lenders that in the next 2-6 months, we will have a line of credit option available that will allow a lot of flexibility for homeowners. Stay tuned to my posts and e-mails so you can stay up to date on the latest changes.
Colorado has a very strong real estate market and quite a few reverse mortgage lenders are interested in bringing their portfolio reverse mortgage programs to our market. Working with a local lender who understands what these innovative programs are and how they work is extremely important. I can compare the HECM reverse mortgage to different portfolio programs and we can talk about what would work best for your situation.