What Kinds of Reverse Mortgage Loans Are Currently Available?

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

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) family of loans. These loans are created and insured by the federal government and managed by the Department of Housing and Urban Development (HUD).
The current relative absence of Jumbo Reverse Mortgages is largely due to the 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 can be risky for lenders to originate, especially if there are: 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 perceptions of risk regarding the solvency of private banking institutions – Jumbo Reverse Mortgages were proprietary products designed by private institutions and were not insured by the Federal government as the HECM is.
  • Limited secondary markets for these loans – Loans are often originated by one bank and then resold on a secondary market. Currently Wall Street has limited demand for these loans from banks that originate them.
In summary, as housing values have been recovering and the credit crunch has improved, Jumbo Reverse Mortgages may become available again.

Loan Limits and Jumbo Reverse Mortgages

The maximum loan amount on a traditional HECM Reverse Mortgage used to be as low as $200,000. In 2009, Congress passed legislation that increased Reverse Mortgage loan limits to $625,500. This loan limit increase on the HECM Reverse Mortgage has decreased the need for Jumbo Reverse Mortgage loans – since Jumbo Reverse Mortgages were originally only offered on high value homes.
For homeowners of high value homes – usually homes valued at $600,000 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.
Other options for high value homeowners seeking access to their home equity include: Home Equity Conversion, Downsizing and Home Equity Loans.

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