In the beginning of June, Generation Mortgage Company re-introduced its proprietary (i.e. not FHA-insured) reverse mortgage product, geared towards homes too expensive to qualify for HECM reverse mortgages. The news has been getting attention, and while I hate to give Generation (more) free publicity, in this case, the attention is warranted.

Since the collapse of the housing market, all national lenders abandoned their proprietary reverse mortgage product lines because the risks (of home decline and loan default) were suddenly too great to justify offering them. The FHA quickly – though somewhat unwittingly – filled the resulting void with ts HECM reverse mortgage, which has since come to represent more than 95% of new reverse mortgage originations.

In response to soaring losses, however, the FHA has begun to clamp down on lenders (by pressuring them to foreclose when justified) and borrowers (by raising insurance premiums and lowering maximum loan amounts). Thus, it would seem that there is now once again for a competitive proprietary product.

Enter Generation Mortgage Company. Its jumbo proprietary reverse mortgage can be used for homes valued between $500,000 and $6 million. Since the loan is not insured by the FHA, borrowers can expect to pay a higher interest rate to compensate the lender for the added risk. Still, even the FTC concedes that this might be the best option for those with expensive homes: “HECMs generally provide bigger loan advances at a lower total cost compared with proprietary loans. But if you own a higher-valued home, you may get a bigger loan advance from a proprietary reverse mortgage.”

It’s hard to say whether this will be the start of a new trend towards proprietary reverse mortgage lending, since for those with moderately priced homes, it seems the FHA HECM is still the most economical choice. However, if other lenders witness strong demand for Generation’s new mortgage and that Generation itself is able to turn a profit, it could lead to a spate of new proprietary reverse mortgage offerings.