Quick Answer
The HECM application process includes mandatory HUD counseling, FHA appraisal, and FHA underwriting — while a proprietary reverse mortgage may have different counseling requirements, uses a private appraisal rather than FHA appraisal, and is underwritten by the private lender against their own (not HUD's) guidelines.
- HECM: requires HUD counseling (mandatory). Proprietary: counseling requirements vary.
- HECM: FHA appraisal process. Proprietary: lender-ordered appraisal, may differ.
- HECM: federally regulated FHA underwriting. Proprietary: private lender underwriting.
- HECM: federal non-recourse guarantee backed by FHA MIP. Proprietary: lender-backed non-recourse.
- HECM: $6,000 origination fee cap. Proprietary: no fee cap — compare carefully.
- Both have right of rescission and similar closing processes.
Key Facts
| Topic | Key Fact |
|---|---|
| HUD counseling | HECM: mandatory. Proprietary: may vary by program and state. |
| Appraisal | HECM: FHA-certified appraiser through AMC. Proprietary: lender-ordered appraisal. |
| Underwriting | HECM: HUD guidelines. Proprietary: lender-specific guidelines. |
| Origination fee cap | HECM: $6,000. Proprietary: none — market-driven. |
| Non-recourse guarantee | HECM: FHA insurance fund. Proprietary: lender's own guarantee. |
| MIP | HECM: 2.0% upfront + 0.5% annual. Proprietary: no MIP — may have other fees. |
| California cooling-off | Applies to HECM. May apply to proprietary — confirm with lender. |
| Typical timeline | HECM: 45 to 60 days in CA. Proprietary: similar or slightly shorter. |
Detailed Explanation
The HECM application process is a federally standardized procedure because the HECM is an FHA-insured program — all lenders follow the same HUD guidelines, use the same FHA appraisal standards, and submit their loans through FHA's TOTAL Scorecard for initial underwriting review. This standardization means the process is predictable and well-documented regardless of which FHA-approved lender the borrower chooses.
A proprietary reverse mortgage is a private-market product — each lender has their own underwriting guidelines, appraisal standards, and process requirements. Finance of America's HomeSafe programs, for example, have specific qualification criteria, appraisal requirements, and underwriting standards that differ from HUD's HECM guidelines. The absence of FHA standardization means the proprietary process can vary meaningfully between lenders.
The most significant process difference in California is the counseling requirement. HECM counseling is federally mandated. Some California proprietary programs may also require counseling — but from different approved counselors or through a different process than the HUD-approved HECM counseling program. Some proprietary lenders provide their own educational component. California's 7-day cooling-off period may apply to proprietary programs as well — confirm with the specific lender.
The origination fee difference is the most financially significant process consideration. The HECM's $6,000 federal cap protects borrowers from excessive fees regardless of which FHA lender they choose. Proprietary programs have no such cap — fees vary by lender and can range from competitive with the HECM to significantly higher. The case of the California homeowner who was quoted $42,000 in proprietary origination fees (before calling Jay for a second opinion) illustrates the stakes of not comparing proprietary program fees.
Jay Zayer, CRMP — 18 Years Experience
The side-by-side comparison of HECM and proprietary processes is a standard part of every California consultation where both are relevant. I walk through the key differences: the HUD counseling requirement, the appraisal process, the fee structure (HECM cap vs proprietary market rate), and the non-recourse protection mechanism. In most cases, one program is clearly better for the specific situation. In some cases, both deserve serious consideration and the borrower makes a values-based choice — more proceeds now (proprietary) vs stronger federal consumer protections (HECM).
Who This Is Right For
This may be a good fit if:
- California borrowers with home values near or above the HECM lending limit who are considering both HECM and proprietary programs
This may NOT be the right fit if:
- Borrowers whose home value is well within the HECM limit and for whom proprietary programs offer no meaningful benefit
Common Misconception
Myth: The proprietary reverse mortgage process is much simpler than the HECM.
Fact: Proprietary reverse mortgage processes vary by lender and can be comparable in complexity to the HECM process. The key differences are the fee structure (no cap), the appraisal process (non-FHA), and the underwriting guidelines (lender-specific).
Source: Finance of America HomeSafe program guidelines; HUD HECM guidelines
Authoritative Sources
- HUD: HECM program guidelines — hud.gov
- Finance of America: HomeSafe program — financeofamerica.com
- CFPB: Proprietary reverse mortgages — consumerfinance.gov
People Also Ask
Does a proprietary reverse mortgage require HUD counseling?
It depends on the program and lender. Some proprietary programs require counseling; others do not. Confirm with the specific lender.
How does the fee structure differ between HECM and proprietary?
HECM origination fees are capped at $6,000 by federal law. Proprietary programs have no cap — fees vary by lender and can be significantly higher. Always compare total costs.
Which process is faster — HECM or proprietary?
Timelines are generally similar. The proprietary process eliminates FHA collateral risk assessment and second appraisal requirements, which can speed the process in California's higher-value markets.