Over the past couple of days, I have recieved several questions regarding HECM/HECL loans vs. proprietary bank Reverse Mortgages. Here's the deal on these:
HECM (Home Equity Conversion Mortgage) or also known as HECL (Home Equity Conversion Loan). These programs are backed by FHA, and typically have significantly high closing costs. These closing costs are standard to the industry (2% origination for FHA, and 2% origination for the bank). However, the HECM's/HECL's typically allow for a higher net benefit (overall cash proceeds) because there is less risk involved when FHA insures the loan. This means that you can use a higher LTV on these than the proprietary programs produced by banks.
However, there is an upside to the bank programs as well. There, typically are less closing costs associated with the loan since there is no 2% being paid to FHA. Along with this, you do not have to adhere to FHA loan limits. So, hypothetically, if you had a borrower in a $2mm home that needed a RM, you couldn't take it through a HECM unless the borrower didn't care about the total net proceeds. The better program for this would be a proprietary program that would yield a signifcantly higher net benefit to the client and therefore relieve a significant amount of financial stress!
Keep in mind that Reverse Mortgages are an educational process with each and every one of your clients! If you need help with any RM questions, please feel free to contact me at any point, and I will do all that I can to help you understand these great products!
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