Jumbo Reverse Mortgage and Proprietary Reverse Mortgage Loans

Jumbo Reverse Mortgages Are No Longer Available – But There is Some Good News for Owners of High Equity Homes

Jumbo Reverse Mortgages – also known as Proprietary Reverse Mortgages were loans designed and offered by financial institutions that enabled owners of high value homes to access greater amounts of their home equity than was available from the government insured HECM Reverse Mortgage.

What Kinds of Reverse Mortgage Loans Are Currently Available?

Currently, the only kind of Reverse Mortgage that is widely available is the Home Equity Conversion Mortgage (HECM). This loan is created and insured by the federal government and managed by the Department of Housing and Urban Affairs (HUD).

The current absence of Jumbo Reverse Mortgages is largely due to the current credit crunch that is being experienced world wide. A credit crunch is generally defined as a decrease in the availability of loans. Jumbo Reverse Mortgages are at particular risk during this time for a variety of reasons, including:

• Declining house values – The home is the collateral on the Reverse Mortgage loan, if the home’s value declines, it is a much riskier loan for the lender to issue.
• General perception of risk regarding the solvency of private banking institutions -- Jumbo Reverse Mortgages were proprietary products designed by private institutions and were not backed by the Federal government as the HECM is.
• Limited secondary market for these loans – Loans are often originated by one bank and then resold on a secondary market. Currently Wall Street is not buying these loans from banks that originate them, so banks aren’t originating them.

In summary, as housing values have been declining and the credit crunch has impacted a bank’s ability to resell mortgages, Jumbo Reverse Mortgages have become too risky for most lenders to offer.

The Good News - HECM Reverse Mortgage Products to Allow Higher Loan Amounts

Designed to help seniors access more of their home equity to fund retirement expenses during this economic crisis, Congress passed legislation in early 2009 that increases Reverse Mortgage loan limits to $625,500. The new loan limit is effective for loans in 2009 and will remain in effect until December 31, 2009.

Reverse Mortgage loan limits were as low as $200,160 last year so this is a huge increase which could significantly improve your financial situation. While $625,500 is the maximum for 2009, this loan limit may be extended or returned to the previous limit of $417,000 for most areas of the country.

Your HUD-approved lender will determine your actual loan amount by using the current loan limit, the value of your home, prevailing interest rates, the amount of any outstanding loans against your house and your age.

Why the HECM Loan Limit Increase is Good News for Owners of High Value Homes

The HECM has always been the most popular Reverse Mortgage because it offers the highest amount of money to homeowners of average-valued houses, it is a government backed loan with relatively low interest and regulated fees.

For homeowners of high value homes – usually homes valued at $400,000 or more – a Jumbo Reverse Mortgage usually offered significantly higher amounts of money to the homeowner. The HECM product could not offer higher loan amounts because they were legislated with loan limits – they could not lend more than pre-specified amounts. In fact, the HECM product was originally designed specifically for low and medium value properties.

However, the recent increases in loan limits diminishes limits the need for Jumbo Reverse Mortgage products.

Other options for high value homeowners seeking access to their home equity include: Home Equity Conversion, Downsizing and Home Equity Loans.

What Was a Jumbo Reverse Mortgage or Proprietary Reverse Mortgage?

Jumbo Reverse Mortgages – also known as Proprietary Reverse Mortgages – were Reverse Mortgages that were structured and backed by private companies. (The HECM, by contrast is structured and insured by the federal government.)

Any broker licensed by the Federal Housing Administration (FHA) can offer the HECM and any broker licensed by the private company that structured a proprietary reverse mortgage could offer that product.

How Did a Jumbo Reverse Mortgage Differ From Other Reverse Mortgages?

A Jumbo Reverse Mortgage was a Reverse Mortgage product designed for high value homes – typically homes valued above the $400,000 to $500,000 level although the specifics of the loan would depend on the borrower’s age and location. (Homes of more average values were eligible for a Jumbo Reverse Mortgage, but you would have wanted to compare the benefits of the Jumbo vs. the HECM and Fannie Mae products.)

So, the main difference is simply that it was possible to get more money out of a high value home with a Jumbo Reverse Mortgage than from other Reverse Mortgage products.

Who Offered a Jumbo Reverse Mortgage? What Were the Different Kinds of Jumbo Reverse Mortgages?

Jumbo Reverse Mortgages were Reverse Mortgage loans structured by private firms. Like the HECM and Fannie Mae product, they were heavily regulated, but they were proprietary products offered directly by private institutions.

Most of the following products are not currently available. Although they may be reintroduced as the housing and credit markets stabilize to meet the evolving needs of senior homeowners:

• Financial Freedom: Financial Freedom structured the first proprietary Jumbo Reverse Mortgage program, the Financial Freedom Cash Account Advantage. The Cash Account Advantage program was available from Financial Freedom as well as other lenders.
• Wells Fargo: Wells Fargo was licensed to broker the Financial Freedom Cash Account Advantage product.
• Generation Mortgage: Generation Mortgage offered a jumbo Reverse Mortgage product called, "Generation Plus."
• Bank of America: Bank of America offered The Independence Plan, a Jumbo Reverse Mortgage originally created by Reverse Mortgage of America which is now owned and operated by Bank of America.
• Countrywide: Countrywide offered a Jumbo Reverse Mortgage product called Simple Equity. This Jumbo product represented a large percentage of Countrywide’s Reverse Mortgage loans.
• BNY Mortgage/Everbank: BNY Mortgage offered two versions of a Jumbo Reverse Mortgage product: the Prime Advantage Fixed Rate Reverse Mortgage and the Prime Advantage Adjustable Rate Mortgage.

Click here if you would like to connect with one of these Reverse Mortgage lenders.

What Are the Downsides of a Jumbo Loan or a HECM Reverse Mortgage With a High Loan Amount?

The obvious downside is the same as the upside… with a Jumbo Loan – or a HECM Reverse Mortgage with a high loan amount -- you are simply borrowing more money. And, if you take out that money in cash then you will be paying more interest.

However, many high value homeowners choose to take their loans as a line of credit where you only pay interest on the sum you actually use. And, as with all Reverse Mortgages, you don’t have interest payments nor will you ever owe more than the value of the home at the time the contract is ended. And, so long as you reside in the home, you will always retain ownership.

Further good news is the fact that the HECM typically has charged a lower interest rate than the Jumbo Reverse Mortgage products.

Were There Limits on How to Spend a Jumbo Reverse Mortgage? Are There Limits on How to Spend HECM Reverse Mortgage Loan Amounts on High Value Homes?

No.

There were absolutely no limits on how you could spend your Jumbo Reverse Mortgage. Nor are there any with a HECM. However, you must pay off any liens against your home, including any balance on your mortgage – which was true of the Jumbo products as well.

Retirees have used Reverse Mortgages to fund:

• Travel
• Additional insurance
• Long Term Care
• Medical Procedures
• Vacation Homes
• Anything and Everything

To connect with a prescreened HUD-approved Reverse Mortgage lender, continue here.