Longbridge Lowers Minimum Home Value For Platinum Products

Reverse mortgage lender and servicer Longbridge Financial, which offers both Federal Housing Administration (FHA)-backed Home Equity Conversion Mortgage (HECM) loans as well as proprietary reverse mortgage products, announced that it has lowered the minimum home value for its fixed-rate proprietary products.

Previously, the proprietary product line — which Longbridge calls “Platinum” — had its minimum amount aligned with FHA lending limits, but it has instead shifted to allow for properties with a minimum appraised value of $450,000. Clients with current in-process HECM applications will be able to shift their application to a Platinum product if they choose, but it would require some application processes to be revisited.

A transition from HECM to Platinum would also require a new, Platinum-specific counseling session even if a client has already completed HECM counseling, according to Longbridge.

Reasons for the move

In an interview with HousingWire’s Reverse Mortgage Daily (RMD), Longbridge CEO Chris Mayer explained that adding an option like this is not designed to take away from the potential utility of the HECM product, which Mayer says remains an “amazing loan” product.

“When you look at the analytics, there are many cases [in which] borrowers could get 10% more proceeds on a proprietary loan than a HECM,” Mayer said. “That doesn’t mean that a HECM is a bad loan at all. In fact, I would tell every person who’s looking for a reverse mortgage that they should look to a HECM first, because a HECM has enormous advantages associated with it.”

Among these are the growing line of credit which would be a challenge to reproduce in the proprietary space, but there are use cases for reverse mortgage loan proceeds for some borrowers that may not be best addressed by a HECM, Mayer said.

“There are people who have loans where they have a mortgage and they’re short to close, and the only way they’re going to be able to close is getting enough proceeds,” Mayer explained.

“There are borrowers who want to draw more money for their own reasons, like wanting to buy a second home, or to fix up their home, and they can’t get enough proceeds out of a HECM to do that.”

Given where the proprietary market is at the moment, Longbridge has identified an opportunity for such borrowers to consider Platinum over a traditional HECM if their situation fits, Mayer said.

HECM value versus proprietary flexibility

Part of the opportunity stems from a lack of updates to the HECM program by FHA to “reflect the complete impact of interest rates on the HECM program,” he said. FHA lowers principal limits when interest rates go up, because the loan balance grows every month. But a lack of action on lowering the loan’s initial mortgage insurance premium (IMIP) has helped make HECMs more profitable for FHA, but also more expensive for consumers, he said.

“For most people, a HECM is still a better product, even with the higher IMIP, because the interest rates on proprietary loans are much higher than they are for a HECM and you should always give the borrower the best deal,” Mayer said.

But for the people who might not be best served by a HECM, Mayer credits “the combination of better execution on our securitizations for proprietary loans and the lack of changes by the FHA” to combine into proprietary products “likely [becoming] a more meaningful part of our business at Longbridge, but I also expect to be a more meaningful part of the production for the industry as a whole.”

Mayer is optimistic about what this change will mean for Longbridge’s proprietary offerings, but alluded to more details they’re developing for Platinum that will be revealed in time.

“I think this is going to substantially open up the credit box and volume for proprietary reverse and for our Platinum program, but it’s far from the last thing we have coming down the pike,” he said.

In addition to the lower minimum appraised value, Longbridge also says it has “streamlined” its underwriting process for Platinum loans under several different criteria. For instance, co-borrowers without credit scores are now permitted as long as one borrower has documented credit history; credit requirements have been simplified; condo eligibility has been expanded; and new retirement income considerations have been added.

Longbridge is currently engaged in a legal dispute with Mutual of Omaha Mortgage regarding marketing practices that Longbridge alleges are deceptive.

Look for more from Chris Mayer on HousingWire’s RMD soon.