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.
Formerly I could give a customer hard numbers immediately. In other words I could tell them which interest rate and how much money they qualify to receive right off the bat.
Additionally, my numbers would be locked in for up to one hundred twenty days.
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.
Since most reverse mortgages take longer than the lock periods some customers will get burned. Quite a few senior borrowers are banking on the reverse mortgage to come in and pay off their forward mortgage.
These folks need extra money and eliminating that payment associated with the mortgage is just the ticket.
Here is where they can get in trouble. Often the loan amount, offered by a reverse mortgage lender, is just enough to pay off the mortgage. A big factor determining how much the borrower gets is the interest rate.
How much a lender lends is inversely related to rates. When they go up, the borrower gets less, and vice versa.
Where our group of customers may be in trouble is they will call in for a quote. Rates will be good that day and the lender will verbally green light the transaction.
Envision this.. Fourteen days later, when the borrower can finally lock in the rate, what if rates are up one percent or so. This borrower will be out of luck in as far as paying off that mortgage.
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 stronger, more knowledgeable LOs will see this as old hat, know how to explain it, and probably garner more of the business.
Formerly I could give a customer hard numbers immediately. In other words I could tell them which interest rate and how much money they qualify to receive right off the bat.
Additionally, my numbers would be locked in for up to one hundred twenty days.
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.
Since most reverse mortgages take longer than the lock periods some customers will get burned. Quite a few senior borrowers are banking on the reverse mortgage to come in and pay off their forward mortgage.
These folks need extra money and eliminating that payment associated with the mortgage is just the ticket.
Here is where they can get in trouble. Often the loan amount, offered by a reverse mortgage lender, is just enough to pay off the mortgage. A big factor determining how much the borrower gets is the interest rate.
How much a lender lends is inversely related to rates. When they go up, the borrower gets less, and vice versa.
Where our group of customers may be in trouble is they will call in for a quote. Rates will be good that day and the lender will verbally green light the transaction.
Envision this.. Fourteen days later, when the borrower can finally lock in the rate, what if rates are up one percent or so. This borrower will be out of luck in as far as paying off that mortgage.
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 stronger, more knowledgeable LOs will see this as old hat, know how to explain it, and probably garner more of the business.
posted by Credit Counseling at
12:50 AM
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