As the Federal Housing Administration’s reverse mortgage product continues to see its volume decline, some lenders are setting their sights on the non-agency proprietary reverses that have come to market as of late.
Unlike their federally insured HECM counterpart, proprietary reverse mortgages are not government insured, and therefore do not come with steep mortgage insurance premiums. And, as a private label product, proprietary reverses can accommodate borrowers with higher-value homes and those without FHA-approved condos, and they often have less restrictive underwriting standards.
Last year, the industry saw a wave of these products hit the market as lenders reacted to HUD’s HECM program changes with long-awaited innovation on the proprietary front. Now, there are seven different proprietary reverse mortgages for borrowers to choose from.
For some lenders operating in the HECM space, like New York-based Quontic Bank, this is where the real opportunity lies.
“With this downturn, we really had to reassess the market and figure out what the future holds,” said Quontic CEO and Chairman Steven Schnall. “We’re still working hard on originating a decent volume of HECMs, but I think the proprietary mortgage is the industry’s solution to the whipsawing around that HUD is causing with all the guideline changes.”
Schnall said Quontic, a small bank with about $400 million in assets, plans to focus intently on proprietary originations this year, hoping to reclaim some of the volume it lost in wake of the HECM program changes issued in October 2017.
Currently, Quontic ranks No. 17 on the Top 100 HECM Lenders list from Reverse Market Insight, its spot in the rankings falling as its volume slid, declining 17% year over year this December.
Schnall said he thinks the proprietary products will help recapture volume. Plus, as a federally chartered bank, Quontic may have a distinct competitive advantage over other lenders operating in its home state.
Currently, New York does not allow lenders to originate non-agency reverse mortgages, but Schnall said that Quontic is likely exempt from this state mandate.
“Federally charted banks are pre-empt from following the individual 50 state department requirements in instances where there is a contraction between the federal regulations and the state regulations,” Schnall explained. “We are not beholden to New York’s requirements to approve this product for their licensed mortgage lenders… As such, we’re planning to originate this product in New York, and to my knowledge, we’ll be the only one doing so.”
Currently, Quontic operates two reverse mortgage call centers, one that staffs about 20 in Indianapolis and a smaller operation that focuses on educating referral partners in Melville, New York.
In 2019, Schnall said both centers will focus on targeting areas rife with opportunity for proprietary reverses.
“The perfect candidate is the jumbo homeowners who have high equity and low income,” he said. “The market is pretty wide open for this, even though most of the big players have already launched into the space. It’s still very new.”
While Schnall said that while he believes there will always be a market for HECMs, he doesn’t envision the FHA’s product to completely recover the volume it lost after 2017’s program changes.
“With the reduced principal limit factors and increased mortgage premiums, I don’t know that the HECM rebounds meaningfully,” he said. “I think the rebound is going to be in the proprietary market – I really think that’s where the future of this product is. Keep the federal government out of it and let the free market do its thing.”