This is an interesting development; we are not used to seeing such a disjointed lender response to changes announced from above.

It looks like some lenders are behind the curve for FNMA’s switch to live daily pricing. None of the lenders we are contracted with besides Generation has even mentioned it, much less rolled out rate sheets or the infrastructure to handle pricing locks.

What I have noticed is that a few other lenders have yanked their lower margin HECMs off the market.

I’m speculating, but I wonder if these lenders did that because they are caught on the fence between 60-day forward pricing on SRP to the field, but are themselves selling the loan to FNMA subject to daily pricing now.

Here’s why I suspect some linkage… If they didn’t withdraw these HECM margins, what would happen if FNMA started paying less on lower margin HECMs that have thinner SRP set out in forward pricing? These lenders might find themselves selling loans for less than they promised to pay out to the field until some future date. Maybe we’re seeing a bet – that the fatter-margin HECM represent bigger cushions for preserving profitability and room for cutting field SRP. This could offset some risk from potential daily pricing volatility while they get their own live pricing machinery ready.

If so, then this might be a window of competitive product and pricing advantage for Generation until the others gear up in 2009.

If not, then the disappearance of the lower margin HECMs is probably a response to a falling rate environment, which we certainly have. But this yields even less evidence of any steps to address live pricing at these lenders. I doubt that there is enough private investor purchasing for these lenders to ignore FNMA and daily pricing for very long.

For a current applicant, live pricing makes no difference whatsoever. This is purely a technical change in how back-side compensation is calculated and paid.

But it could affect the HECM margins that a lender may decide to offer in the future, so that could indirectly affect the different margin choices you could show to new clients.

Daily live pricing does not affect either the borrower’s monthly loan rate at which the loan balance grows, or the expected rate which is used to calculate the loan amount available.

Since live pricing does not affect the expected rate, it also has no effect on the borrower’s Expected Principal Limit lock on the better Principal Limit as of two dates – that of the application date or the closing date (as long as you close within 120 days of assigning the FHA case number).

I hope you’re right about my wisdom Mr. Nelson – I’m rarely certain of that, but I am certain that your clients benefit from your approach.

I had a former mentor who liked to introduce complication so that he could build it into a bigger case and dazzle people with his brilliance as he solved it. That worked about as well as you would expect… nobody stuck around long enough to see the brilliant solution. I now refer to him as a “Dementor”.

Any idiot can complicate things; it often takes a genius – or at least somebody able to do some good studying – to simplify them. I believe that the real test of your own understanding of a subject is how simply you can accurately explain it to someone who knows little about it, so keep it up. If they want to know more, then you can give it to them without destroying their understanding or trust.

And thanks.