New Rules for Reverse Mortgage Interest Rate Pricing
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.
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.
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.
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.
The borrower has the choice now of paying the difference between what the reverse mortgage company will lend, now much less than before, and his forward mortgage in cash.
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 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.
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.
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.
The borrower has the choice now of paying the difference between what the reverse mortgage company will lend, now much less than before, and his forward mortgage in cash.
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 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
12:14 AM
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