Big Pricing Change for Reverse Mortgage

Posted on January 16, 2009 @ 2:20 am
by Matt Vanrock

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.

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.

In fact the quote, if the customer went forward, would be good for 120 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.

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.

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.

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.

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.

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 not exactly a great pricing change for the average reverse mortgage customer.

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 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.







Leave a Reply