A proprietary reverse mortgage is a privately underwritten loan that uses home equity and does not require a monthly P&I coupon. It is not an FHA-insured HECM. It does not use HUD’s principal-limit tables from Mortgagee Letter 2017-12, and it does not charge FHA’s 2.00% initial MIP. Jay Zayer, a CRMP licensed in California and Arizona, originates the major proprietary programs — including HomeSafe, Longbridge Platinum, Finance of America, and Mutual of Omaha’s Secure Equity — when a HECM’s age floor or claim-amount cap is the wrong box.
You still occupy as a principal residence under the private note. You still pay taxes and insurance. Non-recourse language, if any, lives in that contract, not in 24 CFR 206.27(b)(8).
How is a proprietary reverse mortgage different from a HECM?
A HECM is authorized by National Housing Act section 255 and run under 24 CFR Part 206. FHA insures the lender. Maximum claim amount for 2026 is $1,249,125 (Mortgagee Letter 2025-22). Principal limits come from HUD factors that, at expected rates in the mid-to-upper 6% range, typically sit in the mid-30s to low-50s of that claim amount.
A proprietary loan can size to a higher appraised value when the lender’s guidelines allow it. That is why high-value California and Arizona homes often compare both. Origination fees, margins, and compounding methods are lender rules. They are not 24 CFR 206.31.
Counseling and California Civil Code section 1923.2 still matter for reverse mortgages offered in California, including a list of at least ten counselors (1923.2(j)) and seven days before a complete application (1923.2(k)). The session is not a HECM-only class just because the product later chosen is private. Confirm with the counselor that the worksheet includes the proprietary structure you are considering.
Who is a private program built for in California and Arizona?
Picture a 58-year-old in Concord whose home is free and clear and who will not be 62 for four years. A HECM cannot close (24 CFR 206.33). A California proprietary program that starts at 55 may. Arizona HECM origination still starts at 62. If an Arizona proprietary option exists for that file, it is a lender overlay, not a HUD overlay.
The other fit is a home well above the 2026 HECM cap. Equity between $1,249,125 and the private program’s ceiling is unreachable in a HECM principal limit. Jumbo reverse mortgages are the high-balance version of this conversation.
A surviving-spouse path, a line-of-credit growth formula, and assignment to an insurer are HECM features. Ask whether the proprietary note copies them. Do not assume FHA’s Eligible Non-Borrowing Spouse rules in 24 CFR 206.55 apply.
What protections do you lose when you leave FHA insurance?
You lose FHA mortgage insurance as the backstop on the lender’s deficiency. You lose HUD’s servicing regulations as the default rulebook, though federal consumer rules such as TILA and RESPA can still apply. You lose the HECM-to-HECM refinance statute in 24 CFR 206.53.
You may gain a larger principal limit, a younger eligible age in California, or a structure that a HECM will not allow. Compare the note, the margin, the origination cap, and whether unused funds grow. Price both against a HECM on the same house when you are 62 or older.
If the question is keeping a cheap first mortgage, a reverse second — proprietary or HECM second, depending on the lender — may beat replacing it. See Reverse Second. If age 62 is close, waiting for a HECM can be the cheaper insurance decision.
Proprietary origination is not capped by 24 CFR 206.31 unless the lender chooses to mirror it. Ask for the origination dollar, not a HECM-cap assumption. Ask whether unused funds grow at note rate plus a mortgage-insurance-like fee, or not at all.
A HECM remains the cleaner rulebook when you want FHA insurance, HUD servicing, and 24 CFR 206.27(b)(8) non-recourse. A proprietary file is the cleaner rulebook when age or the claim-amount cap is the blocker. Compare both when you are 62 or older and the house is near or above the 2026 cap.
Who should not import HUD rules into a private note?
A proprietary reverse mortgage is a private contract. HomeSafe, Longbridge Platinum, Finance of America, and Mutual of Omaha’s Secure Equity each draft compounding, surviving-spouse, and non-recourse language differently. 24 CFR 206.27(b)(8) does not automatically travel. 24 CFR 206.53 does not govern a private refinance.
This product does not help a 55-year-old in California who assumes FHA insurance came with the age exception. It did not. It does not help an Arizona 59-year-old who wants a HECM. Arizona HECM files stay at 62 under 24 CFR 206.33.
What can go wrong: unused funds do not grow, a surviving spouse has no deferral, and the family thought “reverse mortgage” meant Part 206. Read the note. Price a HECM on the same house on the calculator when you are 62 or older so the private premium is visible.