Competition and Origination Fees: An Open Letter to AARP

Dear AARP,

In recent months it has been explained by the leadership of the National Reverse Mortgage Lenders Association (NRMLA) that you continue to be concerned about the origination fees that are charged to seniors as part of the origination of a Reverse Mortgage. It has been stated that NRLMA and yourselves reached a compromise to reduce the maximum origination fee from 2% to 1.5% in the current version of the FHA Modernization Act as it still sits in Congress. While I applaud your noble and valiant efforts to save seniors money and subsequently allowing them to gain more equity in their home, I would like to point out that your efforts, while good, maybe unnecessary to legislate this change.

A prospect of mine that I had been working with for approximately 30 days called me up and told me that he was going to do his Reverse Mortgage through another lender. I immediately told him that I was already giving him a lower cost at 1.5% than most of the competition in the Chicago market. He told me that someone had lowered their origination fee to 1.3% and that this woman working from Colorado sent him a folder and told him to “fill out all the stuff” and send it back to him in order for him to get the deal. I could hardly believe that one of the National Retail/Wholesale companies was shot-gunning application packages out with 1.3% in writing (who BTW is begging us to sign their broker application). A few days later, I saw the package and the Good Faith and there was the magic number. I congratulated my client on finding the best possible deal and told him I would not only match it, I would meet with them face to face so that they could understand the process and ask all the questions face to face, rather than attempting to complete the paperwork over the phone with some stranger in Denver.

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The traditional forward mortgage market is dead here in our market and a reverse mortgage is the only product for many people to get any business in the door. Looking at other industries where competition drives costs lower for consumers such as the airline industry, more competition will drive the origination costs further down and benefit the consumer. Let competition and free markets reign. (Ugh, I sound like Larry Kudlow on CNBC)

George

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  • More people should stand up to AARP. This is absolutly nuts what they are trying to do with the origination fee.

    The lenders need this money to promote and market the HECM program for more seniors to benefit. The marketing costs are very high.

  • Annon: AARP is your friend. The very last thing you want as a lender is for AARP to publish a story that’s printed in a newsletter to their 50million members that lenders refuse to lower rates because of their burdensome “marketing costs”. AARP is nuts? Advocating for their clients is what they’re supposed to do. I’m all for it, because here’s what’s happening: those borrowers who aren’t savvy enough to negotiate their origination fee get stuck paying 2%, while the educated (and likely wealthier) borrowers pay less. That’s unethical.

    George: I’m not real clear what your story’s point is, either. If the market as you describe is already offering reverse mortgages for less than the 1.3% origination fee, than why would it matter if the origination fee were manditorily lowered to 1.5%? I guess the idea is that borrowers who didn’t get that mailing from Colorado would pay you the 2.0% origination, then? By this logic, we should eliminate the 2% cap, too, I guess; I can only imagine our industry being ruined by the news story about the guy that tried to charge 4%.

    I applaud NRMLA’s efforts. Let’s be the leaders in our industry and not be seen as the

    Mike

  • Annon: AARP is your friend. The very last thing you want as a lender is for AARP to publish a story that’s printed in a newsletter to their 50million members that lenders refuse to lower rates because of their burdensome “marketing costs”. AARP is nuts? Advocating for their clients is what they’re supposed to do. I’m all for it, because here’s what’s happening: those borrowers who aren’t savvy enough to negotiate their origination fee get stuck paying 2%, while the educated (and likely wealthier) borrowers pay less. That’s unethical.

    George: I’m not real clear what your story’s point is, either. If the market as you describe is already offering reverse mortgages for less than the 1.3% origination fee, than why would it matter if the origination fee were manditorily lowered to 1.5%? I guess the idea is that borrowers who didn’t get that mailing from Colorado would pay you the 2.0% origination, then? By this logic, we should eliminate the 2% cap, too, I guess; I can only imagine our industry being ruined by the news story about the guy that tried to charge 4%.

    I applaud NRMLA’s efforts. Let’s be the leaders in our industry.

    Mike

  • Maybe AARP should worry about lowering costs to the senior by requesting to implement a 1% insurance premium in lieu of the 2% they now charge, Now, that makes sense.
    AARP has its own agenda and it is to MAKE MONEY. We as broker need to make money too. By the way, it is not 50MM members it is 35MM members.
    We need to be sensitive to our seniors needs and wants tehrefore I strongly suggest to the FHA/HUD/AARP trio to get working in lowering a very high and very profitable insurance cost from 2% to perhaps .5 to 1 %.

    Thank you and may God bless you all.

    Oscar

  • Mike, AARP has no friends but the money that the organization makes for all of the directors and owners. Remember, it is a for profit organization. Be aware that they sell all types of “benefits” even though they may not be the best available.

    Oscar

  • Wow… Oscar. Interesting to know. Maybe AARP can suggest that the FHA use part of the insurance premium to cover HECM counseling. As a hecm counselor myself, I know that soon seniors will have to pay for this out of pocket.

  • AARP has their hands all over the reverse mortgage business- from doing the independent counseling to having quite an indepth part of their website devoted primarily to reverse mortgages. Remember- they clearly mentioned for some time that they did not endorse reverse mortgages. Then all of a sudden I hear from folks that I’ve sold reverse mortgages to that AARP calls to talk to them about their Long Term Care Insurance and that a reverse mortgage makes sense for paying for that LTC. I also don’t see anyone complaining that they advertise for their insurance program that is a supplement to Medicare. So they don’t have problems selling their own programs but they want to tell folks to be wary of other products that they don’t sell. Same goes for Council for Aging throwing the idea out there that they want to offer their own reverse mortgage program.

  • Now that both the senate and house have passed versions
    of the modernization bill, and have excluded it from the stimulus act, what is happening to a reconciliation conference? Any chance the whole thing will be abandoned? Lets hope not.

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