With just a few words it is becoming more and more difficult to accurately describe the variation of HECM we are offering. I have seen some using the term — “no cost.” Even when only charging or accruing interest, such HECMs do not constitute “no cost” HECMs. Yet this description has been used to describe fixed rate HECMs that accrue both monthly MIP and interest — what a great target for the right litigator!!!

Then there are those who are calling HECMs, “no fee reverse mortgages” when there is no servicing fee set aside and no origination fee being incurred. The headline above is referring to a HECM that is available with no upfront costs and no servicing fee set aside and is described as a “zero fee” HECM. While that might be OK, what about the ongoing FHA MIP? Why is MIP a fee when it is charged upfront but not a fee when it is charged monthly? Some litigators might argue that all FHA MIP constitutes fees since the primary protection it provides is to the lender not the borrower. (HECMs are nonrecourse by law whether they are ultimately endorsed by FHA or not.)

Getting to legally “bullet proof” acceptable but short descriptions will be both a challenge and an area for concern for some time to come. Talking about reporting false advertising, eventually many may conclude that short descriptions for variations in HECMs should be avoided at all costs. This is where good marketing and compliance individuals will definitely earn their compensation.

When 10% plus is being made by the lenders in the secondary market there is a lot of room for generosity. Wouldn't the borrower be better served with a lower interest rate than the fee/cost circus that is taking place now.

lpassman,

Yes, it can make a genuine financial difference. The following assumes that the adjustable versus fixed rate HECM decision has been made. However, practically that decision should be made as more and more of the borrowers concerns and circumstances come into play.

I meet with seniors who are concerned about their life expectancy and do not want to reduce their estates by so much upfront costs. They honestly do not believe they will live long (or are overly worried about the HECM terminating for a whole host of reasons, many of which have their source in worry). For them a $10,000 difference in upfront costs makes the HECM a more reasonable alternative. If the members of this group are right (in many cases they are just overly pessimistic), a lower upfront cost HECM with a slightly higher interest rate is rational and would in cases actually result in lower overall total costs.

In other cases, individuals know they will be moving out of their home within two or so years but need the cash which a HECM can provide. Again a lower upfront cost HECM with a slightly higher interest rate may provide a less costly answer than higher upfront costs with a slightly lower interest rate.

BUT for those who expect to be in their home for years to come (especially married couples), a HECM with an interest rate as low as possible will generally be best.

With fixed rate HECMs, the APR,Amortization, TALC Schedules will help to point out which answer is best. With the adjustable rate HECM, the answer is not so easy since we have no idea where interest will go over the long-term but the TALC and Amortization Schedules using several different margins will be useful.

The last category to consider is those who need the additional proceeds to save their home or get rid of the burden of monthly payments of interest and principal. For these individuals slightly higher or lower total costs at termination is not their concern. They just want to save their home for a whole host of reasons none of us would dispute.

So the answer is — it all depends. Having “choice” is to be preferred over not having choice.

lpassman,

While the financial answer is a matter of calculations and assumptions about the direction of interest rates in the case of the adjustable rate HECM, HECM marketers are having a field day with what their reductions will apply to. What does it matter if the $4,000, $8,000, or any other amount for that matter is applied against all upfront costs or just specific ones. As long as the amount being applied is the same, what does it matter to which type of costs they are being applied to.

Now whether to apply it to the servicing fee set aside or not is an entirely different issue. Since few HECMs will stay in place until the youngest borrower turns 100 or even close to it, not charging a monthly servicing fee does not have the same bang for the buck that reducing actual upfront costs does. However, that is a different subject beyond the scope of this comment.

With each new idea for which costs reductions will be applied reminds me of the fast food advertisement where someone comes for a $2 lunch and there is a whole host of reactions as to what part of the lunch is free. It goes something like this:

One person pipes up that the two dollars is to pay for the main course and drink and the chips are free. Another says it pays for the drink and chips and the main course is free. Then another that the 2 bucks pays for the main course and chips and the drink is free. The last guy says, just give me the $2 and all three are free.

It seems HECM marketers have learned their techniques from “Madison Avenue.” Hardly original or for that matter meaningful — other than the difference in loans such silly advertising generates for the lender.

2545,

If you were able to accurately tell me that the LIBOR interest rates were only going up and when those adjustments were going to take place, you could make us both rich men. Unfortunately no one knows which direction the LIBRO interest rates are going at any point in time. But most of us believe the overall trend on LIBOR will be up but for how long and what peak it will reach and when are outside my field of expertise.

>>and a no fee reverse mortgagernrnThat’s so misleading and I fell for it – all Lenders offer a no fee reverse mortgage when my rebate is used to cover the fees. Bank of America is the only “transparent” Lender. They let you know the MIP is an actual credit from them.