I applaud S1L for being the first to come out with this, though all wholesale lenders have been planning to make this move for some time. rnrnI really want to caution all to be careful when discussing YSP in this open forum. The spreads are far too rich, and have put our industry in dangerous waters. Should this info end up on CNN, or the New York Times, it could be disastrous, and will only speed up the inevitable demise of YSP on the HECM.

Critic,rnrnI would not say it if it were not true. Have a good evening.rnrnTake care,rnrnJohn Smaldone

Pam,rnrnI think most lenders would disagree that the $30 per month is just extra income. You see some lenders sell the servicing fee rights and get a SRP on the discounted value of the spread of anticipated future servicing fees earned versus costs. Providing servicing is a real and genuine cost; however, there is a considerable profit from it also otherwise there would be no Celinks in life.rnrn

whart,rnrnI am afraid the situation is far more complex than reflected in your response. rnrnIf the origination fee is eliminated on a fixed rate HECM only that cost is reduced; accrued interest and MIP are unaffected since the origination fee is replaced by paid out proceeds so that the beginning balance due is unchanged. If the SFSA is eliminated, accrued interest and MIP costs actually rise because the beginning balance due is greater since the SFSA itself is not reflected in the beginning balance due but increased proceeds will be. To reach relevant conclusions, the length of the HECM must be known or at least addressed. rnrnBased on the length of the loan, the actual total costs of servicing fees could exceed origination fees resulting in even higher accrued interest and MIP. Then there is the issue of how much the monthly cost of the servicing fee actually is since that can vary.rnrnA reduction in the note rate might produce a greater benefit depending on 1) how much the note interest rate is reduced, 2) the needs of the senior, and 3) how effectively the senior utilizes the additional proceeds. rnrnBy the way, what fixes are you referencing to in your reference to PLF table lookups? Is it LIBOR or the referenced fixes alone that might impact after-market premiums? Generally it is investment alternatives that impact after-market yields.rnrn

There is sufficient premium available in the pricing of the fixed-rate loan, which is always fully disbursed, to cover the cost of servicing. Eliminating the set-aside will provide a direct benefit to the customer.nnThe servicing fee set-aside originally was created back when there was no marketing gain to be had on the sale of a reverse mortgage, all HECMs were adjustable-rate and most involved a payment plan or line of credit with a low initial principal balance. FHA never required the lender to charge a servicing fee.nnThis development is welcome and gives our customers additional choices.

Thanks, whart, for your explanation. Congrats to S1L for taking the leap. Good for Genworth also.

What is SL1 going to do when rates rise? This is only possible due to the current market conditions. I think lenders should keep their profits for future needs…as this industry is going to have a heck of a ride over the next several years. I think a rush to the bottom is unfortunate as it will hurt many in the industry.

These fixed-rate HECM’s are being sold thru Ginnie Mae at up to 9.0% premiums over initial loan balance. The 5.56% rate is an artificial ‘lowest rate’ because of HUD’s floor on principal limit factor lookups. The premium on LIBOR loans is much smaller.rnrnThe Service Fee Set Aside (SFSA) is just that, a set aside. A reduction in origination fees or a reduction in the note rate would have a greater benefit in reducing the ultimate costs to the borrower.rnrnWhen LIBOR rises, or HUD fixes its PLF table lookups, the after-market premium will drop. So consumers should take advantage of this market aberation while it lasts.rnrnPS — In the original article, the word ‘principle’ should be spelled as ‘principal’

I am also concerned about these sudden changes in fees and worry what will replace them. Genworth actually came out with this 1st and I received calls from a few of my other lenders asking about it. With this reduced fee and many brokers starting offer the fixed HECM with no origination charges (not sure why they are doing this and leaving profits on the table) this is the best time for Seniors to take advantage of doing a Reverse Mortgage in many months as far as what kind of money they can receive. Not to be negative but I just do not see this trend of improvement lasting to many issues loom in the future but until then let’s enjoy what we are given!

I just hope the interest rate isn’t raised to offset the loss

I’ve heard several Lenders are currently working on the same – I applaud Security One for being the first.

Perhaps, this will be the trend in the future channel

The first question this brings to mind is why isn't S1L bringing this feature to its adjustable rate HECMs as well? It would be most useful to the industry to eliminate SFSAs on the adjustable rate HECMs so as to greatly minimize the perceived shrinking line of credit problem on future HECMs — that right now affects so many adjustable rate HECMs which are currently outstanding.

If the industry adopts this approach, I hope the SFSA is not replaced by taxes and insurance set asides or (far worse) escrow accounts. Also will we see it extended to adjustable rate HECMs where it is needed most? Until the impact of this move is reflected in the marketplace as a whole, it is hard to say what its ultimate impact might be.

I hope S1L is doing the right thing. This radical move reminds one of other bold moves such as the 1% HECM margins by BNY (now MetLife) and Financial Freedom's slashing of their cash account interest rates; so where are those products today? To this day many still regret those earlier moves.

Since JAM Partners also has a substantial investment in AAG, will they be next to announce this change?

Genworth called me yesterday with the same announcement. They are already accepting these loans – same rate and same premium.

These lenders are making their money on the loan balance, since the loan requires a lump sum disbursement. The $30 monthly fee was just extra income, and could be excluded.

Not sure we'll see this on an ARM, since ARM loans might have smaller initial disbursements, which means lenders are potentially making less money. No guarantee the borrowers will max out their lines.

Critic,

You always bring up the why's or what if's, that is good. You make very good points and ask very good questions, good job.

Thanks,

John A. Smaldone

whart

A reduction in the origination fee would reduce the ultimate costs to the borrower and allow for more $$ to be received but it is unlikely that it would allow for a larger reduction in cost that to get rid of tyhe (sfsa) as 80% of the loans I do have an origination of $3,000 or lower. Even if you took away the entire origination it would not equate to the $ amount of MOST SFSA's.

Also, a reduction in the note rate would also reduce the ultimate cost to the borrower, potentially even more than eliminating the SFSA's, depending on how much lower the rate dropped BUT it would not increase the $$ allowed to the borrower.

I think getting rid of the SFSA is a great start.

The reason lenders are willing to eliminate the origination fee is to get the client off the fence. They can afford to do it as the HECM fixed fixed has become a hot commodity on Wall Street and lenders are getting huge YSP's on the back end end greater than 3% without a cap as with the origination fee. For example a lending limit deal's origination is capped at $6000. With a client who is 70 that would give a YSP payout @3.25% of $12350. Most lenders do not share that with their LO's. There is very little YSP with the Libor programs. I get YSP therfore I discount on the fixed only.

I heard that Bank of America has now started lending with no Servicing fees or Origination fees. I hope the servicing fee can stay away without affecting the origination fees. Hopefully the lack of SFSA won't hurt the performance of the loans in the long run.

tanner,

What are the maximum claim amount and the expected interest rate in your example? You certainly would not get $12,350 even at a 3.25% YSP if the appraised value was only $400,000 (since it yields a maximum origination fee of $6,000) even with an expected interest rate of 5.56%. The MCA in the example you are presenting must be near $625,500 and the expected interest rate, 5.56% or below.

You are leaving out far too much information.

John,

Such compliments from you are quite encouraging. Thank you.

Tanner, can you tell me who is giving 3.25% rebate? The highest I have seen is 3% and Sun West just came out with this yesterday.

I applaud S1L for being the first to come out with this, though all wholesale lenders have been planning to make this move for some time. rnrnI really want to caution all to be careful when discussing YSP in this open forum. The spreads are far too rich, and have put our industry in dangerous waters. Should this info end up on CNN, or the New York Times, it could be disastrous, and will only speed up the inevitable demise of YSP on the HECM.