If you have been reading the articles about jumbo or proprietary reverse mortgages available, you may be wondering what is going on. A jumbo or proprietary reverse mortgage is any program that is not the FHA, government insured Home Equity Conversion Mortgage (HECM or "Hek-um") or the Federal National Mortgage Association HomeKeeper Program.
When first introduced, there were very few proprietary programs in the market place and they had very high interest rates. As they became more accepted and well-known, they were offered by most of the lenders offering reverse mortgage products and they began to come down in rates and margins and also to cover many more lending scenarios such as purchase transactions and second homes to name just two. The lenders worked with Wall Street Firms to securitize these loans which gave the lenders the liquidity to make more loans.
But then the credit crunch came that everyone has been reading about that tightened up market liquidity and made these proprietary loans less salable. What once was selling on Wall Street easily is now much more difficult for lenders to find investors willing to take the chance to buy.
Add to that the fact that many of these loans are secured by very high value homes and those values are declining rapidly in many markets and you have the proverbial double whammy to the senior borrowers who own them and wish to obtain a reverse mortgage. There are some insurance companies entering the market now and these companies may add additional liquidity to the market as the reverse mortgage product is, in many ways, very similar to life insurance products based on the way payments to the borrowers are calculated and the actuarial tables they utilize.
It may seem like a strange thing to some a senior borrower with a high value property looking for a reverse mortgage. However, it's not at all uncommon for seniors with high value properties to want to secure a permanent way to retire existing debt, assist them with much higher taxes and insurance, use the equity for investment strategies or any number of other reasons. All of these reasons make a reverse mortgage a very useful tool to seniors with high value properties as well.
But since they really can't get the same benefit from the FHA HECM loan, they are at the mercy of the liquidity issues for the proprietary products. What this all comes down to is what lenders are offering what proprietary products at what times and who has access to them. It is imperative that your reverse mortgage specialist is cognizant of the entire market and also has access to all sources. If one program is suspended or canceled completely, then it pays to work with a professional who has access to other products and can move the loan quickly to another lender who is still offering proprietary products.
Until the market is once again stable (both from the standpoint of property values and liquidity in the secondary market), it really does not make sense to work with anyone other than a specialist who really knows the entire market and can deliver to the best available product source!
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