Big Pricing Change for Reverse Mortgage
The reverse mortgage industry is currently going through a big change. The powers that be (Fannie Mae) has changed the manner in which we, as reverse mortgage companies, price the loans to our customers.
Last week when someone called in for a quote, we would give them some competitive numbers and we could stick by them.
Furthermore, my quote was relatively etched in stone for up to 4 months.
Today we can throw this nice long lock period out. Now this industry is pricing its loans like traditional forward mortgages such that we now have varying short lock periods.
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.
Getting rid of the payment associated with the mortgage is their main goal.
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 interest rate affects the amount of money a lender will lend in the opposite way of its movement. If rates are up, the loan is less. If rates are down, the loan is more.
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".
Here is the worst case scenario. The customer goes through the process, gets counseling, application, even an appraisal and finally can lock in the loan. If rates take a turn for the worse during that period this loan is toast.
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.
We can see that a few of these borrowers will absolutely go through this in the coming months and years.
I believe this new pricing model, though negative in my example, should drum out a good number of the poor loan officers in this industry.
The strong loan officers will have a handle on how to present this to seniors and will win most of this business. Good for us.
Last week when someone called in for a quote, we would give them some competitive numbers and we could stick by them.
Furthermore, my quote was relatively etched in stone for up to 4 months.
Today we can throw this nice long lock period out. Now this industry is pricing its loans like traditional forward mortgages such that we now have varying short lock periods.
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.
Getting rid of the payment associated with the mortgage is their main goal.
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 interest rate affects the amount of money a lender will lend in the opposite way of its movement. If rates are up, the loan is less. If rates are down, the loan is more.
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".
Here is the worst case scenario. The customer goes through the process, gets counseling, application, even an appraisal and finally can lock in the loan. If rates take a turn for the worse during that period this loan is toast.
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.
We can see that a few of these borrowers will absolutely go through this in the coming months and years.
I believe this new pricing model, though negative in my example, should drum out a good number of the poor loan officers in this industry.
The strong loan officers will have a handle on how to present this to seniors and will win most of this business. Good for us.
posted by Credit Counseling at
12:35 AM
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