New Rules for Reverse Mortgage Interest Rate Pricing
Fannie Mae and the powers behind her, last week, changed the manner in which us little reverse mortgage companies can price our loans to consumers. This is a big change.
If someone were to contact me under the former pricing policy, I could instantly quote and be almost 100% sure I could stand by my numbers.
Furthermore, my quote was relatively etched in stone for up to 4 months.
The 120 lock period is no longer available. Rather, the new pricing structure has much shorter interest rate lock periods. This likens itself to the forward mortgage market.
A high percentage of borrowers are looking to the reverse mortgage as a savior to pay off their current forward mortgage. Some of these folks are in for a rude awakening.
These folks need extra money and eliminating that payment associated with the mortgage is just the ticket.
Where I can see a problem is that interest rates play a major role in how much money a borrower can receive for the reverse mortgage. Too often the reverse mortgage is just enough to pay off the forward mortgage.
The amount of money a borrower receives is inversely associated with the interest rate. For instance, when rates are low, the borrower gets more money. Conversely when they go up, the borrower gets less.
Since some buyers are right on the cusp, they will be quoted one day. The lender will say, "good news, looks like you'll be able to pay off your mortgage".
Two weeks later, after the market sends the rate up a point or so, when they go to lock they may no longer be able to pay that mortgage off.
Now the borrower is stuck either waiting for rates to come down or is left with the choice of coming in with cash to pay off the mortgage.
This is the down side. The up side for the borrower is it will force lenders to be competitive in their pricing.
The new pricing should offer a better experience for customers such that it should, because of its complexity, sift out some of the weak reverse mortgage loan officers.
The reverse mortgage loan officers with knowledge and experience would understand how to properly present this to customers. My guess is they will win more customers.
If someone were to contact me under the former pricing policy, I could instantly quote and be almost 100% sure I could stand by my numbers.
Furthermore, my quote was relatively etched in stone for up to 4 months.
The 120 lock period is no longer available. Rather, the new pricing structure has much shorter interest rate lock periods. This likens itself to the forward mortgage market.
A high percentage of borrowers are looking to the reverse mortgage as a savior to pay off their current forward mortgage. Some of these folks are in for a rude awakening.
These folks need extra money and eliminating that payment associated with the mortgage is just the ticket.
Where I can see a problem is that interest rates play a major role in how much money a borrower can receive for the reverse mortgage. Too often the reverse mortgage is just enough to pay off the forward mortgage.
The amount of money a borrower receives is inversely associated with the interest rate. For instance, when rates are low, the borrower gets more money. Conversely when they go up, the borrower gets less.
Since some buyers are right on the cusp, they will be quoted one day. The lender will say, "good news, looks like you'll be able to pay off your mortgage".
Two weeks later, after the market sends the rate up a point or so, when they go to lock they may no longer be able to pay that mortgage off.
Now the borrower is stuck either waiting for rates to come down or is left with the choice of coming in with cash to pay off the mortgage.
This is the down side. The up side for the borrower is it will force lenders to be competitive in their pricing.
The new pricing should offer a better experience for customers such that it should, because of its complexity, sift out some of the weak reverse mortgage loan officers.
The reverse mortgage loan officers with knowledge and experience would understand how to properly present this to customers. My guess is they will win more customers.
posted by Credit Counseling at
11:56 PM
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