HECM 100 vs. HECM 150

Today, which reverse mortgage product will get your borrower more money?

A.) HECM 100
B.) HECM 150

If you said A, you are incorrect!  Right now the HECM 150 has a higher principal limit than the HECM 100 because expected rates on the monthly HECM loans have bottomed out.  Our Financial Freedom account executive(thanks Chris!) pointed this out tonight and according to him this is why:

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the expected rates have gone so low, and below the HUD tables, the principal limits on the HECM 100, 150 and LIBOR 65 are equal and cannot get any better.

I admit, that when I saw the email I didn’t think it could be true… but it’s.  While the rates are slightly higher on the HECM 150 than they are on the HECM 100, the service set-aside is lower on the 150 than the 100.  Contrary to what we might guess, a higher expected rate causes the service set-aside to decrease.  Take a look at the numbers I ran below if you need more proof.

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Interesting huh?  I think so… Also, lets not forget that a HECM 150 will help us originators make a little extra money too!

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  • Let’s see. Take an additional $81 for the borrower at close in exchange for an additional 50bps on the note rate and think that is a good deal? For whom? And then a little more glee about making more YSP on the deal? Ever looked at an amortization schedule?

  • I agree with the above comments. No borrower in his/her right mind would choose the HECM 150 over the HECM 100, since the additional 50bps on their interest rate would eat up the home’s equity at a considerably faster pace (just reference any reverse mortgage amortization schedule right now between these products)!!

    Also, the restricted principle limit calculation on loans where the expected rate drops below 5.5% has been published for some time by HUD within Mortgagee Letter 04-18.
    Notice, though, how the service set aside goes down every time the rates go up. For those with time and a curious mind, I highly recommend reading HUD Handbook 4235.1 5-7, and Appendix 21-22 regarding a mathematical explanation on how the service set-aside is calculated.

  • The previous posters have it right. Even with the reduction in set aside fee going to the bottom line and giving the borrower an extra $250, that sum doesn’t come close to justifying an additional 50bps over the life of the loan. Any l.o. steering his client in this direction is only in it for the money and does a disservice to our industry. I don’t even pay attention to these kinds of blips. Any such discrepancy must be evaluated within the big picture context and most importantly the best interest of the client. This is not worth mentioning. Thanks RM I have been curious as to how the service set-aside fee was calculated.

  • I personally have morals and standards that just will not allow me to do anything that is not totally in favor of the borrower. If anyone out there truly believes you reap what you sow, then this is a no brainer. I understand the premis that the writer is getting at, and noticed this immediately Tuesday morning myself, however, in my heart I knew that in reality getting a few hundred dollars more does not justify the borrower paying back at 50bps higher over the life of the loan. Yes, the mortgage company will make out better, but I attribute my success to always trying to do the right thing by my borrower’s. Very good point, but I will have to pass on this. Thanks for sharing this nontheless.

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