admin,

You are an originator in Illinois. What is your opinion on this subject? Is NRMLA, the MBA, AARP, B of A, or any other player in this arena sponsoring legislation to change the situation? What chances do you hear such legislation would have if it were proposed? Is this one of those laws that applies to state but not nationally chartered banks?

We are working through the process of becoming qualified in Illinois but if fixed rate HECMs cannot be offered in your home state, why even proceed until there is some hope that this law does not apply or will quickly change?

Is there any further word on RM lenders withdrawing from Georgia because of its funding rules?

Mr. Nelson,

On a HECM the ratio of the upfront costs to the loan amount will generally exceed 5% in all cases. In most cases the MIP will be over 3% by itself.
You are focusing on the Maximum Claim Amount (“MCA”) as the denominator while the Illinois law focuses on the Principal Limit (“PL”), i.e., the “loan amount.”

For example, if the MCA is $100,000 and the borrower is 62, the PL is $56,200. The upfront MIP alone is over 3.5% of the loan amount by itself. If the originator charges $2,500 as the origination fee, now the origination is over 4.4% by itself. So without considering other upfront closing costs, the percentage to loan amount already exceeds 7.5%.

Then the question becomes is the loan amount defined as the PL or the PL minus the servicing fee set aside? If it is the latter, the percentages move higher.

You get the idea.

Thank you, Cynic: Bottom line is many of the Seniors I meet I find their only asset to speak of is home equity. At this stage in a Senior's life, making a monthly home equity payment on retirement income (In many cases just Social Security) is not just difficult but impossible, unless the borrower goes without medicine or food. I still say the Industry needs to publicize sories of real Seniors who have been saved by the FHA HECM program. Please see the September 14, 2009 issue of Newsweek to see how the Life Insurance Industry has advertised a special section telling real life stories how Life Insurance has made families financially whole after the unexpected loss of the breadwinner. Since MetLife now plays such a huge roll in our industry perhaps they could take the lead. An FHA HECM is
a true Lifesaver, regardless of the cost of a few extra dollars; many times just stopping the mortgage payment with no Line of Credit or lump sum at closing is a geniune blessing.

Ahh yes….A Senior moment. Sorry Critic; Thanks Cynic. Too many c's,
not enough ZZZZs. (at my age you are afraid to go to sleep, you might not wake up!!) Nelse.

I have been doing reverse mortgages for a long time and the fixed rate has really only been around a short while. But i have seen so many negitive things happening since the intro of the RM fixed rate. Yes as most LO doing RM’s you like the fixed because it makes your client take the money at closing , so you pocket more in yeild spread. Greed will always kill a good thing! However the fixed is great if there is a large payoff or all the money is needed but its the worst thing you can push if not much money is needed at closing. I promote the Adj rate R/M even though they get less money, because in most cases they dont need all the money up front. Since the Adj rate RM has not been higher then 5.8 % in a long time it is proving to be a safe program. This means you prolong the equity of the home owner, the cost is less and the government is not dishing out huge money up front. I tell my client to use the line of credit its better in the long run to do that, yes i make less but i do more to. If your doing 1 or 2 RM loans a month you need to get out, doing 5 or more you can make good money, offer the Adj over the fixed when possible and all will be normal again. Greed my friends killed the sub prime, so shall it kill the fixed rate RM’s and hurt the rest of the programs. If we find out the client financial needs and we tell the truth about the 2 programs and how they work and not trying to make a killing in yield we should see the fannie fixed rate and Adj rate RM programs out there. If LO’s in the RM business continue think about themsevles over thier client the RM industry will be a crazy industry.