Reverse Mortgage Looking Pricing Loans Like Forward Market
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.
Last week when someone called in for a quote, we would give them some competitive numbers and we could stick by them.
Additionally, my numbers would be locked in for up to one hundred twenty days.
This is no longer the case. Today reverse mortgage feel more like forward mortgages in that interest rate pricing is done with varying lock periods. And pricing can change day to day prior to locking rates.
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.
Their goal is to eliminate the burden of that payment.
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.
How much a lender lends is inversely related to rates. When they go up, the borrower gets less, and vice versa.
For the folks who need as much money as possible, this could be tricky. The interest rates may be favorable when they start the process. It initially looks like they can pay off the mortgage.
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.
At this point what are the choices for this customer? He can either wait for interest rates to drop back down or pay the difference in cash.
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 stronger, more knowledgeable LOs will see this as old hat, know how to explain it, and probably garner more of the business.
Last week when someone called in for a quote, we would give them some competitive numbers and we could stick by them.
Additionally, my numbers would be locked in for up to one hundred twenty days.
This is no longer the case. Today reverse mortgage feel more like forward mortgages in that interest rate pricing is done with varying lock periods. And pricing can change day to day prior to locking rates.
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.
Their goal is to eliminate the burden of that payment.
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.
How much a lender lends is inversely related to rates. When they go up, the borrower gets less, and vice versa.
For the folks who need as much money as possible, this could be tricky. The interest rates may be favorable when they start the process. It initially looks like they can pay off the mortgage.
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.
At this point what are the choices for this customer? He can either wait for interest rates to drop back down or pay the difference in cash.
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 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
9:57 PM
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