Jumbo Reverse Mortgages for High-Value Bay Area Homes

How Proprietary Reverse Mortgages Work in California

A homeowner may wonder whether a private loan follows any rules at all. It does. California's reverse mortgage law applies to these loans, but each lender writes its own terms, so they are not standardized the way HECM terms are.

Age. A HECM requires the youngest borrower to be 62 or older at closing, under 24 C.F.R. § 206.33. A proprietary lender sets its own minimum age, which may differ.

Home. A HECM requires the property to be each borrower's principal residence at closing, under 24 C.F.R. § 206.39. A private lender spells out its own occupancy terms in its loan documents.

What the loan may include. Civil Code section 1923.2 lets a California reverse mortgage carry a fixed or adjustable rate, including compound interest. It may also include lender costs and fees charged at closing, over time, or when the loan ends. The borrower can prepay at any time without penalty.

When it comes due. The same section lists the events that can make the loan due:

• the home is sold or title is otherwise transferred;
• all borrowers stop living in the home as a principal residence;
• a fixed maturity date agreed in the loan arrives;
• an event in the loan documents occurs that jeopardizes the lender's security.

Time away from home is partly protected. An absence of up to 60 consecutive days does not make the loan due. A longer absence of less than one year does not make it due either, as long as the borrower first took steps the lender accepts to secure and protect the home, as the loan documents specify.

Counseling and timing. Independent counseling comes first. A lender may not accept a final application, or charge fees, until seven days after the counseling date shown on the counseling certification. The other California protections are gathered in the consumer protections section below.

Why Your Home's Value Changes What Is Available to You

For a high-value home, the core question is whether the loan will count all of the home's value or only part of it. With a HECM, the figure used is the lesser of the appraised value, the sales price, or the HECM limit, as HUD describes. Value above the limit does not count.

A proprietary loan may use more of the home's appraised value, depending on that lender's terms. That is the appeal. It does not guarantee more money; the lender decides, based on its own terms.

This situation is often described as being house rich and cash poor: most of the household's wealth sits in the house, while income is fixed. A larger loan can ease that gap. It is still a loan, though, not free money and not a benefit. Every dollar borrowed, plus the interest and fees that build on it, reduces the equity left for later needs or for heirs. A homeowner who wants to see how the factors fit together can look at how reverse mortgage amounts are figured.

Eligibility Requirements for a Jumbo Reverse Mortgage

Each private lender sets its own entry rules, so this section describes the category rather than any one loan. Age, principal residence and counseling are covered in the California section above; the points below add what that section does not.

• Property type. HECM law covers a dwelling designed principally for one to four families in which the borrower lives in one unit, as stated in 12 U.S.C. § 1715z-20(d). Each private product handles condominiums and multi-unit buildings in its own way.
• Equity. The amount offered depends on factors including the home's appraised value, the youngest borrower's age, and interest rates, along with the lender's own terms.
• Ongoing obligations. Lenders look at whether the borrower can keep up the taxes, insurance and upkeep described at the top of this page. This review is a standard part of the process.
• Costs. A proprietary loan carries no FHA insurance, but Civil Code section 1923.2 allows lender costs and fees. For a HECM, federal rules limit the origination fee, which may be fully financed into the loan. Either way, the lender discloses the charges.
• Counseling. HECM borrowers must receive counseling from an independent third party under 12 U.S.C. § 1715z-20(d), and California's counseling rules apply to reverse mortgages generally.

A fuller side-by-side comparison appears in HECM versus proprietary reverse mortgages. The CFPB's consumer pages, cited throughout this page, cover both types.

Other Options Bay Area Homeowners Often Consider First

Any reverse mortgage sits among several other choices. HECM counseling itself must cover options other than a HECM, including property tax deferral, under 12 U.S.C. § 1715z-20(f).

• A budget and benefits check. Reviewing monthly costs and any public programs the household may be eligible for leaves the home's equity untouched.
• Property tax postponement. The San Francisco Treasurer & Tax Collector explains that the State Controller's Property Tax Postponement Program allows homeowners who are seniors, are blind, or have a disability to defer current-year property taxes if they meet certain criteria. Applications become available in September, and the program's number is (800) 952-5661.
• County tax relief. In San Francisco, an owner who lives in the home may be eligible for the homeowners' exemption. It takes up to $7,000 off the assessed value, which saves approximately $80 a year, and the deadline for the full exemption is February 15. Some school parcel taxes offer a senior exemption. The assessors in Alameda, Contra Costa, Marin, San Mateo and Santa Clara counties publish their own programs.
• Home equity loan or line of credit. These require monthly payments, and the home is collateral. Comparing a reverse mortgage and home equity loan shows the trade-off.
• Cash-out refinance. This replaces the current mortgage with a larger one and keeps monthly payments.
• Selling or downsizing. This frees the equity but means leaving the home. Owners 55 or older may be able to transfer their tax base to a replacement home anywhere in California, up to three times, if they buy within two years of selling. There is more on selling versus a reverse mortgage.
• Help from family. Informal help tends to work best when it is written down.

A reverse mortgage, jumbo or HECM, is one option among these, not the answer to every situation.

What Happens to the Home Later, and What Your Family Should Know

A spouse or an adult child often asks the same thing: what happens to the house? For a HECM, 24 C.F.R. § 206.27 says the balance becomes due when a borrower dies and the home is not the principal residence of a surviving borrower. It also becomes due when the last borrower conveys title. With HUD's approval, it can also come due if a borrower moves out, is away more than 12 consecutive months because of illness, or does not pay property charges or meet another loan obligation. In each case, no other borrower is living there.

Heirs then generally have three paths. They can repay the loan and keep the home. They can sell and repay it from the proceeds. Or, if the balance is more than the home is worth, they can let the home go. For a HECM, 12 U.S.C. § 1715z-20(d)(7) says the homeowner is not liable for any shortfall beyond the net sale proceeds or the insurance benefits. The federal Truth in Lending rule, 12 C.F.R. § 1026.33, describes a reverse mortgage as a "nonrecourse" loan, meaning it is repaid from the home rather than from other assets. Even so, a private loan's own documents govern.

For an Eligible Non-Borrowing Spouse, meaning a qualifying spouse who is not on the loan, a HECM must defer the due date under conditions set in the same regulation. Proprietary loans handle spouses in their own way, which makes this a question for the lender directly.

The house is often the largest asset in an estate, and the loan reduces what passes on. Families sometimes read the loan documents together with an independent attorney and talk the trade-off through. Read more on reverse mortgages and heirs.

If a spouse or adult child is part of this decision, reading the loan documents together with an independent attorney can bring real clarity.

California Consumer Protections and Where to Get Help

California adds its own steps before any reverse mortgage closes.

• A list of counselors. Under Civil Code section 1923.2, before accepting a final application, the lender must provide a list of at least 10 HUD-approved counseling agencies. Those agencies may not be paid by the lender or by sellers of annuities or other financial products.
• A written notice and worksheet. Civil Code section 1923.5 requires a plain-language notice in large type and a reverse mortgage worksheet guide to bring to counseling.
• No required annuity. The lender may not require the borrower to buy an annuity to get the loan.
• The waiting period. The seven-day rule after counseling is described in the California section above.
• The right to cancel. The CFPB says that with most reverse mortgages, a borrower may cancel within three business days after closing, for any reason, without penalty. The same page warns about scams, including false claims of approval by the Department of Veterans Affairs.

To find a counselor, HUD points to its HECM Counselor Roster and the number (800) 569-4287.

Because property taxes remain the homeowner's responsibility for the life of the loan, the local calendar matters. In San Francisco, the Treasurer & Tax Collector mails bills in October. The first installment is due December 10 and the second April 10. An unpaid bill becomes tax-defaulted on June 30, after which an additional 1.5% per month plus a redemption fee apply. The office's delinquent tax page describes a five-year installment plan for owners who are not in power-to-sell status. Property that stays tax-defaulted five or more years becomes subject to the Tax Collector's power to sell. The Office of the Assessor-Recorder handles exemptions, and the other Bay Area county assessors publish their own. California jumbo reverse mortgage rules are explained on this site as well.