Bank of America Paying Half of MIP on Fixed Rate Reverse Mortgages

April 15th, 2010 | by John Yedinak Published in Bank of America, News, Reverse Mortgage | 18 Comments

Bank of America announced to wholesale reverse mortgage customers it will pay 50% of the upfront Mortgage Insurance Premium (MIP) on all HECM fixed rate transactions.

The new policy is effective April, 16 said the company in a statement to brokers.

“In an effort to continue to drive additional benefit back to senior borrowers, this product enhancement, along with our recently introduced $0 servicing fee, will assist you in providing innovative and cost-effective options to your customers,” said the company.

In addition, the Bank of America is improving pricing on the fixed rate reverse mortgage pricing by 20bps. The new policy is only for its HECM fixed products, the adjustable rate HECM still requires the 2% insurance premium.

Bank of America is the 2nd largest reverse mortgage lender in the country and according to data from HUD has endorsed 4,445 HECMs during FY 2010.

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wealthone

Got a big problem here. I'm all for saving folks money but this could be construed as coersion- paying the client's fees to get them qualified. Currently at our company it is a code of conduct policy for me to pay for fees or services a borrower cannot afford to get them qualified- example would be repairs on the home on the fixed product that can't be put in the repair rider like on the adjustable product. What's to say that splitting the Mandated HUD fees to get someone in the door isn't a similar situation? Waiving the SFSA and origination are one thing since they are not required fees by HUD. The MIP is another. Not sure if this gives the right message- but I'll see how it plays out and talk with some folks about.
reversemaniac

What's next, MetLife announcing they will pay the entire upfront MIP?

It's no wonder Virtual Bank exited the wholesale business.
oldtimer2

Strange times. This is not the same program it was even 3 years ago. All of this variance will further confuse and scare borrowers.
do_the_right_thing

The bigger problem is the fact that there are lenders paying in excess of 500 bps and how that exposes our industry to increased scrutiny. Bank of America is simply using money that could have otherwise been driven to the broker and giving it to the senior in the form of a Lender Paid credit. The arguement insinuating that this is a way to qualify borrowers who cannot afford is flawed. How is it any different than HUD changing principal limit factors or a lender offering lower rates/margins? However, if the argument really insinuates can't afford, then my quick response is afford what? they don't repay anything and it is probably lifting a huge financial burden from them if the MIP reduction is what it takes for them to satisfy existing liens!
James_E_Veale_CPA_MBT

I was just asked if this has anything to do with B of A taking on a shared insured position with FHA so that the potential loss on termination would be split (self-insured as to 50%). I think if that were the case, the MIP on the outstanding balance would also be reduced. Since B of A only announced that the upfront MIP would be reduced, it seems B of A is simply paying FHA for one-half of the upfront premium and the borrower the other half. Perhaps B of A will clarify this issue in a subsequent announcement.
Joyce

Unfortuantely the Lender can pay for borrowers closing costs up to the FHA allowed amount. Since there really is no qualifying for a reverse mortgage, it is not an incentive to get them qualified, it only impacts how much money they are credited with.
http://rmlo.bankofamerica.com/raymonddenton rainmand

>>example would be repairs on the home on the fixed product that can't be put in the repair rider like on the adjustable product.

We don't have to worry about that anymore – Bank of America just announced repairs are okay with the fixed program.
QuanAdora

Get's one to wonder who will come up with a
No Closing Cost FHA (HECM) plan. Hard to figure a down side for
Senior Homeowners. Bob LaFay Reverse Mortgage Counselor
Underwritten

This is the right approach. Bank of America has found a way to drive more proceeds to our borrowers without mandating my fees! My biggest issue with other lender's approach, is that they cap my origination fee, and all my compensation depends on YSP. A year ago, secondary execution plummeted, and shrunk my pipeline substantially. No one saw that coming! This gives me the ability to compete with a $0 origination fee offer, while not making all my money on the backend. Further, I think all of us have discussed that setting the precedent that origination fees are not necessary is dangerous to the broker community.

As far as whether this is compliant or not, I think it's pretty simple. Instead of paying us more YSP, BofA pays the closing costs. As long as this fee is paid it is compliant, regardless of whether borrowers, brokers, or lenders pay it.
The_Critic

do_the_right_thing,

Maybe there are several alternate reasons for keeping the interest rate higher with lower upfront costs. While you are right that HUD could increase Principal Limit Factors, practically speaking that is not going to happen. So this is a real blessing for some seniors.

There is also the side that the lower the upfront costs go, the more appealing our product becomes both psychologically and economically to many seniors. If a senior only wants the loan for four years, lower upfront costs make the fixed rate HECM look — on an economic basis — a lot more attractive.

Then a reason no one has addressed but should be is the impact of lower interest rates on the secondary market. Yes, the market will price adjust at lower interest rates but somehow HECMs just look a lot more lackluster and unappealing at lower interest rates.
The_Critic

Underwritten,

As to more YSP, maybe there is yet another alternative? Why not simply reduce the interest rate on HECMs? That gets one to the same place and yet keeps the transparency of a HECM.

While I like the B of A approach, reducing interest rates is a clear alternative. You are right about any lender required reduction to origination fees; when it comes to these fees, originators/brokers should be permitted as much latitude as possible.
The_Critic

Joyce,

Why do you believe the reduction to closing costs is unfortunate? This part of the discusssion is crucial to the industry because many believe that lower upfront costs and set asides are to be preferred and allow for more HECM acceptability to more seniors — you know the old “your upfront costs are just too high” argument.
The_Critic

Bob,

The main downside is if the total balance due at the end of the HECM would be higher than it might otherwise be. But even if that is marginally true, clarity in decision making may more than offset a slightly higher balance due.

Although I hear cries about transparency, the SFSA is so difficult to explain at times that borrowers seem to disconnect at some point and lose interest in other facets of the loan. The elimination of some of items like the origination fee, the SFSA, and upfront MIP may result in better overall education for seniors regarding a HECM. It could mean more clarity in decision making, a significantly potential benefit to seniors and their advisors.

The end of discounted set asides like the SFSA would mean the end of “the shrinking line of credit” phenomenon.
Underwritten

The Critic,

I would agree that a lower rate would be a better approach if HUD removed the 5.5% floor on fixed rate loans, but based on what I've heard that is unlikely. Until that happens, I think a strong majority of our borrowers would prefer reduced closing costs and in more proceeds over equity preservation. With that said, I think BofA's approach is hands down the best we've seen so far.
Anonymous

Underwritten,rnrnAs to more YSP, maybe there is yet another alternative? Why not simply reduce the interest rate on HECMs? That gets one to the same place and yet keeps the transparency of a HECM.rnrnWhile I like the B of A approach, reducing interest rates is a clear alternative. You are right about any lender required reduction to origination fees; when it comes to these fees, originators/brokers should be permitted as much latitude as possible.
Anonymous

Joyce,rnrnWhy do you believe the reduction to closing costs is unfortunate? This part of the discusssion is crucial to the industry because many believe that lower upfront costs and set asides are to be preferred and allow for more HECM acceptability to more seniors — you know the old “your upfront costs are just too high” argument.
Anonymous

Bob,rnrnThe main downside is if the total balance due at the end of the HECM would be higher than it might otherwise be. But even if that is marginally true, clarity in decision making may more than offset a slightly higher balance due.rnrnAlthough I hear cries about transparency, the SFSA is so difficult to explain at times that borrowers seem to disconnect at some point and lose interest in other facets of the loan. The elimination of some of items like the origination fee, the SFSA, and upfront MIP may result in better overall education for seniors regarding a HECM. It could mean more clarity in decision making, a significantly potential benefit to seniors and their advisors. rnrnThe end of discounted set asides like the SFSA would mean the end of “the shrinking line of credit” phenomenon.rn
Anonymous

The Critic,rnrnI would agree that a lower rate would be a better approach if HUD removed the 5.5% floor on fixed rate loans, but based on what I’ve heard that is unlikely. Until that happens, I think a strong majority of our borrowers would prefer reduced closing costs and in more proceeds over equity preservation. With that said, I think BofA’s approach is hands down the best we’ve seen so far.

Bank of America Paying Half of MIP on Fixed Rate Reverse Mortgages

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