Where Have the Jumbos Gone?

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Where Are the Jumbo Reverse Mortgages

The time is ripe for jumbo reverse mortgages but where are they?

reverse mortgage newsThe Home Equity Conversion Mortgage market has weathered the storms of the housing crash and numerous product changes yet the emergence of a strong jumbo loan market has yet to appear.

A recent article in Reverse Mortgage Daily by columnist Jason Oliva says despite the talk of jumbo products returning they are nearly absent despite a substantial need. First let’s define what a jumbo loan is. A jumbo loan is a mortage with a loan amount which exceeds the loan limits established by federal lending agencies which are privately guaranteed. Today there is only one jumbo reverse mortgage loan product in the marketplace, the…

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9 comments

Carol Hurst July 13, 2015 at 4:08 am

A MUCH NEEDED addition to the product mix.

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dm July 13, 2015 at 5:41 am

The jumbo Program for the reverse mortgage market place , now is limited to those what may only utilize $625,000.of there homes value. In escence this will displace all home owners with a substantial amout of equity or value over the pre-determined amount. Many american , even in that home value range, are in a position of like others with their life expectancy savings exhausted due to the fact they are living longer, need in home care , want to upgrade the existing home for various reasons. Are all in the same position. They are able to utilize $625,00. This also brings into the position that the financially educated homeowners may in turn place the money they are sitting on and move it into the economy to strengthen some areas that may be in need of financial increase. This could be a win , win situation for both. The government receives and interest charge, the home owner either gains in home value or places the funds into the stock market.

Reply
The_Critic July 13, 2015 at 8:52 am

dm,

Your comment is so difficult to follow that it lacks clarity and rationality. Bringing in the government blurs the picture and advocating leveraged financing using reverse mortgage proceeds is irresponsible.

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don mccue July 13, 2015 at 10:53 am

No way government will get into the jumbo arena thankfully. In the past we had many private products of all sorts including jumbos when it made sense to the “market” and its investors. In time if things truly stabilize but I would not make a jumbo loan as an investor in this sketchy global climate.

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The_Critic July 14, 2015 at 12:52 pm

Don,

In the heyday of jumbo reverse mortgages (jumbos), homes with values of over $500,000 were considered prime properties for jumbos. Home values are now just recovering to the values of what they were in that era yet our HECMs now include homes with values of $625,500. Yes, principal limit factors are lower with HECMs but the same (that is total available cash to value of home) is true with today’s only jumbo.

So while I agree with you, we can call the lending limit of today, jumbo creep.

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The_Cynic July 13, 2015 at 11:10 am

Is this another false start for jumbo proprietary reverse mortgages (JPRMs)? Over the last seven years we have seen several. By now many of us are carrying egg on our faces due to telling our prospects about this alleged new offering or that. Only two have turned out true and one is already gone.

No doubt AAG is working diligently to get their version of a JPRM out soon but time will tell and it will also tell if this will be a captive retail product or one that will also be offered to other lenders.

With a history of projected losses from home price declines, the only JPRMs we will see for some time are those with relatively low available proceeds and high interest rates offered in selected states concentrated near the two coasts with some exceptions. Without these measures it is very hard to justify the risk.

Some have suggested insurance like FHA HECM insurance for JPRMs but that is difficult. Since taxpayers pay for all HUD/FHA operating and administrating costs, none of that is passed along in the price of FHA insurance. Further FHA is not required to make a profit so no profit is included in the price of FHA insurance. While actual losses and projected losses are supposed to be recovered through the cost of FHA insurance, much of it is not. To recover such losses of the HECM program in the MMI Fund not only has HUD increased the forward and ongoing costs of its insurance on the current Saver product but it has also taken cumulative profits from forward mortgage programs in the MMI Fund of $5.8 billion (net) and transferred them into the HECM portion of that fund. Also as permitted, the other programs are covering over $1.2 billion in cumulative losses in the HECM portion of that fund despite the previously mentioned $5.8 billion in transfers from other MMI Fund forward mortgage programs and $1.7 billion from the US Treasury which was the first time in its 50 year history HUD ever took money out of the Treasury to cover a program loss.

So while the addition of new JPRMs sound great, I will reserve my opinion about them until they have been with us for more than one year. While it is good we have at least one now, it is not as generous in proceeds as needed to successfully penetrate on a relatively large scale the almost affluent and affluent senior home owning markets. Let us hope that the AAG product will offer a higher percentage of proceeds to value of the home, with a higher cap on home values, an adjustable rate option, and all its JPRMs are offered at substantially lower interest rates. I can hear the executive management at AAG replying, dream on and be happy for offering what we can, if and when we can.

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Observer July 16, 2015 at 1:22 pm

Urban’s Jumbo is close but the higher interest rate is not justified. This market has other opportunities so tapping into this Jumbo Market isn’t likely.
Agree totally that we need private competition to the HECM. At their low borrowing limits the risk has been diminished to the point that the cost of FHA Insurance (MIP) isn’t justified. So, the market for proprietary, Negative Amortization, mortgages is ripe. These will be much more acceptable to Financial Planners and they won’t have as much concern with FinRA..

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The_Critic July 17, 2015 at 4:03 pm

Observer,

Other than concerns over income tax deductions, ongoing MIP should be thought of as an additional component of HECM interest making the total, the total accrued cost rate of a HECM (TACRH); thus the TACRH can be compared to the interest rates charged on other types of negatively amortized mortgages.

While not fully agreeing with your perspective, it is certainly interesting. For example, IMO It is highly unlikely we will see any proprietary reverse mortgage that is competitive with a HECM.

Have a great weekend!

The_Critic 7/17/2015

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Chris C. January 12, 2016 at 12:27 pm

Hello All,

Does anyone know of a Jumbo Reverse product that has a max claim amount upwards of $10,000,000 ? Thanks in advance.

Reply

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