Tennessee has enacted a new state law that opens up originations for proprietary reverse products.
Approved in both state chambers this spring, the Tennessee Reverse Mortgage Innovation Act was signed into law in late May by Gov. Bill Lee. The act effectively changes language found in previous legislation, which restricted reverse lending to Home Equity Conversion Mortgages offered by the Federal Housing Administration or a long-discontinued Fannie Mae product.
The new law, instead, revises the definition of a "reverse mortgage," removing references to HUD and Fannie Mae, with any state-approved lender now eligible to originate the loans.
"A reverse mortgage loan may, but need not, be insured or guaranteed by a state or federal agency. Proprietary reverse mortgage loans that are not FHA insured are authorized," House Bill 2382 stated.
The proposal's intent was modernization of the financial tools available to senior homeowners "to provide maximum flexibility while maintaining strong consumer protections, thereby positioning this state as a national leader in retirement innovation and flexibility," the act also said.
While previous attempts to revise the rules had been put forth over several years, efforts ramped up again in 2024, coinciding with an
It also creates a pipeline of opportunity for reverse market professionals licensed in the state.
"I knew that it was important to have something else outside of a government-backed loan for us. I'm already seeing opportunities where I can help clients that the FHA loan could not," said Nathan Guerrero, a HECM specialist and president of Chattanooga-based Mortgage South, a longtime reverse lending leader in Tennessee. He noted higher lending limits and a wider range of properties that his company could now work with.
Rules requiring loan counseling remain in place, but borrowers are allowed to consult any approved consumer-education professional or entity in the Volunteer State rather than those specifically approved by HUD. Diverging from past policy, counseling can now also be completed after applying, but before closing.
"Prior to this law being changed, we could not take an application and lock an interest rate until the reverse mortgage counseling had been completed, which in a fast-changing rate environment, can be detrimental to your client," Guerrero said. "Now we're able to take an application, lock the rate."
The new legislation became effective on May 26.
The law likely comes as welcome news to reverse lenders, as many continue to diversify their product lines. It also corresponds to recent growth in proprietary reverse originations, with
Other areas where lenders would like to see changes
Until last month, Tennessee remained one of a few states where existing laws either prohibited proprietary reverse products or restrictions limited availability. Some of the other states where reverse mortgage leaders would welcome rule changes are Maryland, Minnesota and New York,
While the expansion of proprietary lending is a favorable development, the market and consumers would also be well served with adjustments to the federal HECM program, such as the reduction of fees in response to this decade's rate surge.
"I think the FHA program really hasn't recovered from changes that they made in 2017 and 2018, which substantially raised the upfront cost of taking out a reverse mortgage," the Longbridge CEO added.
"The proprietary market has adjusted, and it would be great if the FHA market were to adjust also, because there are many borrowers for whom a HECM really is a better opportunity," Mayer said.
