Jumbo & Proprietary Reverse Mortgages in California

How These Loans Actually Work: No Monthly Payment, but a Growing Balance

The basic idea matches any reverse mortgage. The homeowner borrows against the house, keeps the title, and makes no monthly mortgage payment. In the CFPB's words for HECMs, "Interest and fees are added to the loan balance each month and the balance grows." A proprietary loan works the same way, so the amount owed rises the longer the loan stays open.

The homeowner still carries duties. The borrower must keep living in the home as a principal residence, meaning the home where they actually live. The borrower must also pay the property taxes and homeowners insurance and keep the house in good repair. The CFPB's reverse mortgage explainer lists these same duties. If a borrower falls behind on them, the loan can come due.

Proprietary programs pay out in different ways, depending on the lender. Payout categories include a single lump sum, a line of credit to draw on as needed, and periodic draws. Not every program offers every one. The loan papers state which ones apply.

The loan generally comes due when the last borrower dies, sells the home, or moves out for good. California law lists the events that may make a reverse mortgage loan due in the rules section below.

When the loan comes due, heirs generally have choices. They can pay the balance from other money, refinance it, or sell the home and repay the loan from the sale. If the home sells for more than the balance, the remaining equity goes to the estate.

Non-recourse means the lender can collect only from the home's value, not from the borrower's or heirs' other assets. The Federal Trade Commission explains that with this clause, "you, or your estate, can't owe more than the value of your home when the loan becomes due and the home is sold," and suggests checking for it before agreeing. Because a proprietary loan is not FHA-insured, the exact reach of this protection depends on its contract.

These questions come up often in the San Francisco Bay Area, Los Angeles, Orange County, San Diego and other coastal areas. There, a home's value can sit above the HECM limit, which is a common reason owners look at proprietary products.

HECM vs. Proprietary Reverse Mortgage: Key Differences

The difference comes down to who sets the rules and who stands behind the loan.

Insurance. A HECM is insured by FHA, a part of HUD. A proprietary loan has no federal insurance behind it.

Age. For a HECM, 24 C.F.R. § 206.33 states: "The youngest borrower shall be 62 years of age or older at the time of loan closing." A proprietary lender sets its own minimum age. Some programs set one lower than 62.

Counseling. Under 12 U.S.C. § 1715z-20(d), a HECM borrower must receive counseling from an independent third party. The counselor may not be tied to or paid by the people originating the loan, funding it, or selling annuities or other financial products. That federal rule is written for HECMs. California's own counseling rules, covered below, apply to reverse mortgage loans made in the state. The FTC also notes that "some lenders offering proprietary reverse mortgages also require counseling."

Loan limits. A HECM counts home value only up to HUD's maximum claim amount. Proprietary products can be built for higher home values, with no federal ceiling.

Costs. A HECM carries FHA mortgage insurance premiums. The federal statute lets HUD impose these premium charges. Proprietary loans carry no FHA premium, but they have their own fees, which differ by program.

Payment options. For a HECM, 12 U.S.C. § 1715z-20(d)(9) lets the borrower choose among these methods:

• a line of credit;
• monthly payments over a set term;
• monthly payments over a set term, plus a line of credit;
• monthly payments for as long as the borrower lives in the home as a principal residence (called tenure);
• tenure payments plus a line of credit;
• any other basis HUD considers appropriate.

Each one describes what a lender may pay under the loan's terms. A proprietary lender decides which of these choices its own program offers.

Protections. HECM protections are written into federal law and rules. Proprietary protections come from the loan contract and from state law, including California's Civil Code.

Is This Kind of Loan Designed for Your Situation?

A homeowner reading this may simply be trying to tell whether this whole category has anything to do with them. A few common factual profiles help with that.

A high-value home. One profile is a homeowner whose home is appraised well above the HECM limit and who has a large amount of equity. For this owner, the HECM's ceiling leaves part of the home's value uncounted.

A younger homeowner. Another is a homeowner not yet 62, the HECM minimum. Because some proprietary programs set a lower minimum age, they can apply to younger seniors who would not yet be eligible for a HECM.

A condominium. A third is a homeowner in a condominium that does not meet FHA approval requirements for a HECM. Some proprietary programs may consider such a unit, depending on the lender.

These are descriptions, not recommendations. They show whom the product is designed for. A lender decides who qualifies, under its own program.

California is the context here. The state has a large number of high-value homes, especially in the Bay Area, Los Angeles and Orange counties, and San Diego County. That is why proprietary products come up more often in California than in lower-cost markets. Riverside County homeowners meet the same question when a home's value nears or passes the limit.

A home's value alone does not settle the matter, though. Age, the amount still owed, plans for the house, and the needs of anyone else living there all affect whether a reverse mortgage of any kind fits. The reverse mortgage eligibility explainer walks through the HECM side of those questions.

Eligibility Basics: What Lenders Generally Look At

Before anyone talks about amounts, it helps to know what a proprietary lender generally reviews. Each lender writes its own rules, so what follows is a general outline, not a set of fixed requirements.

Age. The lender sets the minimum age. It varies by program, and some programs set it below the HECM's age of 62.

Equity. Lenders look for substantial equity in the home. The amount available depends on the home's appraised value, the borrower's age and the lender's program terms. For a HECM, HUD lists three factors: the youngest borrower's or eligible non-borrowing spouse's age, the current interest rate, and the lesser of the appraised value, the HECM limit or the sales price. The guide to how much a reverse mortgage provides explains those factors.

Property type. Single-family homes are the usual case. Some programs also include condominiums, planned unit developments and certain multi-unit properties, depending on the lender.

Primary residence. The home must be the borrower's principal residence. For a HECM, 24 C.F.R. § 206.39 requires the property to be "the principal residence of each borrower, and if applicable, Eligible Non-Borrowing Spouse, at closing." Proprietary programs carry a similar residence requirement.

Ability to keep up the home. Lenders typically look at whether the borrower can keep paying property taxes, insurance and upkeep. Those duties continue for the life of the loan.

Credit and income. Proprietary lenders do their own underwriting, which is the lender's review of a borrower's finances. Standards vary by program.

Existing debt. For a HECM, the CFPB says any remaining mortgage must be paid off at closing, either with the borrower's own funds or with money from the reverse mortgage. A proprietary program states its own rule.

Meeting the general outline does not mean a lender will approve a loan or offer any amount. That decision belongs to the lender alone.

California Rules That Apply to Reverse Mortgages

California has its own reverse mortgage law, and it applies to reverse mortgage loans in the state, whether federal or private. That matters most for proprietary loans, because state law supplies protections that FHA insurance supplies for a HECM.

Counseling and timing. Before a lender accepts a final application, Civil Code section 1923.2(j) requires it to give the borrower a list of at least 10 HUD-approved counseling agencies. The counseling agency may not be paid by the lender or anyone selling annuities or other financial products. Under section 1923.2(k), the lender may not accept a final application or charge the applicant fees until seven days have passed since counseling. The lender must also have a signed certificate showing the counseling took place. Counseling is in person unless the applicant chose another manner.

Written notice. Civil Code section 1923.5 requires a printed notice before counseling. It begins: "A REVERSE MORTGAGE IS A COMPLEX FINANCIAL TRANSACTION." The lender, or the counseling agency in some cases, must also give the borrower a worksheet to complete and bring to the session.

When the loan may come due. Under section 1923.2(f), the loan may become due when:

• the home is sold, or its title is transferred;
• all borrowers stop living in the home as a principal residence;
• a fixed maturity date agreed by lender and borrower arrives;
• an event named in the loan papers occurs that puts the lender's security at risk.

Absences of up to 60 days in a row do not make the loan due. An absence longer than 60 days but under one year also does not make it due if the borrower first took steps to secure the home in a way that satisfies the lender, as the loan papers specify.

Other protections. Section 1923.2 also allows prepayment without penalty. It bars requiring an annuity purchase as a condition of the loan. And the deed of trust must state on its first page: "This deed of trust secures a reverse mortgage loan."

Lender licensing. The Department of Financial Protection and Innovation explains that anyone in the business of making or servicing residential mortgage loans in California must do so under a state license, unless an exemption applies. Exempt groups include banks and licensed real estate brokers. A family can ask the DFPI about a company's license.

Spouses. California's community property rules can affect how a married couple's home is titled and who signs the loan. An attorney can explain how those rules apply to a particular title.

Property tax relief. California has property tax relief programs for older homeowners, including postponement and exemptions. These are separate from reverse mortgages. A county tax office can describe them.

What You Pay Up Front and What Grows Over Time

The cost question is really two questions: what the loan costs on day one, and what it costs as the years pass.

Up-front and ongoing charges. A proprietary loan carries no FHA mortgage insurance premium, but the lender charges its own fees. The categories include origination fees, closing costs and servicing fees. Civil Code section 1923.2(c) allows a reverse mortgage to include fees charged at the start, from time to time, or when the loan ends. On a HECM, federal rules limit the origination fee, it may be financed into the loan, and the lender discloses it. The page on reverse mortgage costs and fees describes those charges.

Interest. Rates on proprietary products can be fixed or adjustable, depending on the program. Section 1923.2(b) allows either one, or a mix. If a loan pays periodic advances, section 1923.2(d) says a rate change cannot shrink those advances.

How the balance grows. No monthly payment is made, so each month's interest is added to the amount owed. The next month, interest is charged on that larger balance. Here is a hypothetical illustration, not an estimate: a balance that starts small keeps climbing year after year, even if the borrower takes no new money. The FTC puts it plainly: "Your debt keeps going up (and your equity keeps going down)," which "can use up much – or even all ─ of your equity."

The trade-off. As the balance rises, the owner's equity shrinks. That is the central trade of any reverse mortgage. Cash now comes out of the value left in the house later.

The appraisal. A lender establishes the home's value, typically through an independent appraisal, before setting how much the program may lend.

After the loan ends. Section 1923.2(g)(4) requires the lender to disclose clearly any interest or fees it will charge between the date the loan comes due and the date it is fully repaid. Because the balance grows until then, the longer the loan runs, the less equity is left for heirs when the last borrower dies, sells or moves out.

Other Ways to Reach Your Home's Equity

A homeowner with a valuable house has several roads to cash. Each one trades something different.

Selling or downsizing. This turns equity into cash without any new debt, but it means leaving the home and paying the costs of selling and moving.

A home equity loan or HELOC. A home equity loan pays a lump sum. A home equity line of credit, or HELOC, lets the owner draw money as needed. Both require monthly payments, so they depend on steady income. The comparison of reverse mortgage vs HELOC shows how the balances move in opposite directions.

A cash-out refinance. This replaces the current mortgage with a larger one and pays out the difference. It also brings a monthly payment.

A standard HECM. If the home's value is close to the HUD limit, a HECM may reach much of the same equity, with FHA insurance and federal protections.

Property tax relief. Postponement or exemption programs may ease one of the largest yearly costs without borrowing against the home.

Help from family. A relative's support, a shared-housing plan or a family loan keeps outside lenders out of it, but it depends on that family's means and on clear agreements.

A proprietary reverse mortgage. It can open up equity in a high-value home without a sale and without monthly payments. But the balance grows, the loan must eventually be repaid, and the borrower must keep living there and keep paying taxes, insurance and upkeep. It is a loan secured by the house. It is not free money, a government benefit or income.

This product is not a fit for every owner of a valuable home. A homeowner who plans to move soon, who wants to leave as much equity as possible to heirs, or who can meet their needs another way may find another option better suited. Federal counseling rules for a HECM require the counselor to discuss alternatives, including "other housing, social service, health, and financial options," and, for HECMs, possible tax consequences, effects on eligibility for federal and state programs, and the impact on heirs.

Questions to Ask Before Moving Forward

Gathering questions is a calm, useful step for a homeowner or a family helping one. These are questions a homeowner can bring to a lender or to a counselor:

• What is the total cost of this loan over time, including every fee?
• How does the balance grow, and roughly what would be owed after 10 or 20 years in the home?
• Is the rate fixed or adjustable, and how would a change affect the balance?
• What happens if a move to a care facility becomes necessary?
• What are the ongoing duties, and what happens if one is missed?
• Does the contract include a non-recourse clause, and how far does it reach?
• What options will the heirs have when the loan comes due?
• Will anyone else living in the home be affected?

Counseling is the natural place to raise these questions. Under the state counseling rule described above, the counselor must be independent of the lender. The HECM counselor's federal duties, under 12 U.S.C. § 1715z-20(f), include explaining the loan's "financial implications" and options other than a reverse mortgage. A counselor can talk through both a HECM and a proprietary loan.

HUD keeps the list of approved counselors. Its HECM program page points readers to the HECM Counselor Roster or the phone number (800) 569-4287.

One more caution helps. The California Department of Real Estate warns seniors about reverse mortgage schemes "with misleading terms or fees." It advises never to sign a home loan agreement "that you do not understand or have not read, or which contains blank spaces." For the basics of the product itself, how a reverse mortgage works is a plain starting point.