Reverse Mortgage Origination Fee Capped, AARP Still Not Happy

logo Bloomberg writer Alexis Leondis recently wrote about reverse mortgages and how the recent housing Bill may increase the number of reverse mortgages.  The article points out that the new loan limits and the origination fee being capped should help increase the popularity of the program.

However, even with the cap on origination fees….. some people still consider reverse mortgages costs to be too high.  “This is still a high-cost product and not one that should be someone’s first choice when looking for additional income,” said David Certner of the AARP.  “Homeowners with a home value of $400,000 can now participate and will pay $6,000 in origination fees, instead of $8,000,” said Certner, who is based in Washington.

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I’m starting to realize that even with protections which prohibit lenders from selling financial products, such as annuities, along with reverse mortgages, extend loan availability to cooperatives, and bar lender-paid counseling, some people will never be satisfied.

While Mr. Certner may still think there reverse mortgage fees are to high, I hope he realizes lowering the origination fee will only drive up the rate and end up costing the senior more money in the long run.

Lender Says Bill May Increase Reverse Mortgages (Bloomberg)

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  • I guess if AARP could reap Millions in endorsement fees as they do for other products–they would be running commercials all day long to promote Reverse Mortgages. Over the last several years that I have been offering them,I have witnessed how much they have helped & even “saved” seniors from financial ruin! In order to lower closing costs how about the FHA insurance charging less than 2%!

  • Fun with numbers: In Florida, HECM closing costs run about 6% of the Max. Claim Amt. Realtor’s commissions run about 6% of the sale price. On top of that, the seller participates (pays) a portion of the closing costs. When the Senior purchases another home, they pay more in closing costs. Then there is the cost of moving, changing records, redecorating, etc.

    AARP (among others) considers selling your home and downsizing to be a lower cost alternative to RM’s. Any rational evaluation will show that RM’s are usually the LOWEST cost option for seniors. (Even using the metric system. 🙂

    If AARP really wanted to lower the cost of RM’s, they might consider the following modest proposal. Evaluate each State’s closing fees and loby for waivers or credits for seniors getting RM’s.

    For example. FHA requires HECM’s to be recorded at 150% of the Maximum Claim Amount. In Florida, fees are collected on the recorded mortgage amount. A 70 year old with a $200,000 home would have a mortgage recorded at $300,000 and pay $1650 in closing costs to the State. That’s about 13% of the total closing costs.

    Eliminating this tax would put $1650 more in the senior’s pocket.

    Why isn’t AARP actively pursuing this? Could it be that it’s easier to go after hard working, honest professionals who offer alternatives but have little power than State governemnts and large financial institutions that are in bed with AARP?

    Since AARP isn’t doing it, I would encourage all Loan Officers review their State’s fees and demand their State legislators to lower the State’s portion of closing costs on RM’s.

    Seniors vote! Anyone who supports such measures becomes a hero, those who don’t could be looking for new jobs after the next election!

  • Excellent suggestion. Lowering recording fees would
    shave the total transaction cost: in some states by
    a significant margin.Broker origination fees as
    mandated by new Housing Bill is as low as we can
    go and still be able to attract high quality people
    to generate Reverse Mortgages for Senior Homeowners.

  • We negotiated our fee on our $70K house down to $1400. The appraiser didn’t count our storage barn which is worth at least $5K saying it wasn’t a permanent structure because it was not in concrete. It is a permanent structure and HUD doesn’t require it be on concrete. That was his opinion. Too much is left to subjective opinions of these greedy, incompetent overpaid appraisers.

    Appraiser made many mistakes and charges the highest rate at $400 for an 800 sq. ft. home.

    More fees should be negotiable, such as doc fees, appraisal fees, mortgage insurance protection (MIP),settlement and closing fee, title insurance fee, recording fees, mortgage tax, etc. Unfortunately these fees can really add up and were not revealed until we signed at closing. We’re considering using our 3 days to cancel.

    Also, the counseling fee should be free and paid for by the government.

  • Also, the HUD counseling was inadequate and the lender, Financial Freedom is not totally upfront, and I suspect other firms are similar. You have to ask them specifically about every charge. Then, they either don’t know and have to check with their home office, or they bullshit you.

    This HAS to have more govt regulation on the lenders and the appraisers. Additionally, HUD needs to pick and train their representatives better.

    Lastly, there are way too many companies and individuals involved in the process of getting a reverse mortgage. It is extremely complicated and confusing for not only seniors but their children as well. Is this purposeful obfuscation? I would not be surprised. HUD even tells appraisers to purposely undervalue homes for reverse mortgages.

  • Scott,

    Origination fees are 2% of the appraised amount or Max Claim Amount (which ever is less). For a $70,000 value that would be $1400. So your “negotiation” of these fees was moot.

    As for the out building, HUD and FHA guidelines are often confusing. If you challenged the omission, your Loan Officer should have resolved the issue to your satisfaction.

    You should have signed a DETAILED Good Faith Estimate at application. Lenders have an accurate picture of the costs associated with your loan.

    Federal regulations require lenders to provide a good faith estimate of the settlement charges the borrower is likely to pay. The GFE must include all charges that will be listed in section L of the HUD-1 Settlement Statement (this is page 2). It must be provided no later than THREE BUSINESS DAYS after you sign the written application.

    If you have documented evidence that these fees were not disclosed to you, then you may wish to condider your options or seek counsel.

    As to your suggestion of negotiating other fees, most of the fees you mentioned are set by State or Federal mandates.

    OK. Here’s my biased opinion. I work for a locally owned, Correspondent Lender. (Probably one of the companies you say should not be in business.) I work on 100% commission and I can submit loans to six different Reverse Mortgage lenders. I work locally, know the products, know the appraisers and title companies, and I know the market. I provide a valuable service to my neighbors. I have no idea who you are, where you live, and have no way of earning your business. Also, I’m taking time out of my day to responding to you for FREE! Please remember this the next time you suggest that I should become unemployed.

    Why would you work with someone who doesn’t or can’t explain the details of a product to your satisfaction? Would you expect this from your Doctor, your Lawyer, etc?

    End of soapbox.

    Craig

  • Well, the AARP can’t seem to make up it’s mind whether it will put it’s support behind the reverse mortgage program or not, despite their participation at its inception. Perhaps, as some suggest and as was writting up in Bloomberg, they are not making any money off reverse mortgages.
    The reforms the Modernization Bill sought to achieve took a left turn somewhere as costs went up despite the capping of the origination fee.
    I understand that reducing the MIP will adversely effect lender participation but there must be a solution. Perhaps deferring part of the payment and amortizing it over the course of the loan, effectively reducing the number at closing, would work.

  • why should aarp ask for lower counsling fees. aarp charges money to train counslors. counslors are making money at $125.00 nor does the 2% mip is a money maker for hud.Scot should learn more about fees before he talks. 70,000= 2500 not 1400

  • mrreverse,
    Are HUD approved counselors charging Counseling fees
    directly to the Senior Reverse Mortgage applicants
    anywhere in the country? If you can come up with any
    info I sure would appreciate your efforts. Thanks

  • yes they are allowed to charge up to 125.000. some case like hardship should not be a charge. some states for residents don’t charge. there is a certain amount that FHA will give as grants to credit counslor’s . I think 125.00 for counsling is ludicrous for average time is 40 minutes to 1 hour. Thanks AARRP who trains counslors and companies who want to earn the big bucks are running to AARP to learn. espacail with the new purchase program. Counslors will be trainned after Jan 1,2009 more money for counslors!!!!!!!!!
    Thanks AARP fpr looking out for our seniors.

  • “Scot should learn more about fees before he talks. 70,000= 2500 not 1400”

    mr. reverse:
    JFYI, I DID learn about the fees before obtaining the reverse mortgage. I did much research on the subject of reverse mortgages. I was told by Fin. Freedom and another lender that it is usually $2,000 or 2%, but lenders usually charge the minimum of $2,000 and don’t go any lower. I took that as true. Is that info false? If so, I was falsely told that the minimum is $2,000 by 2 lenders. Anyhow, I stated correctly that we got the orig fee price of $1400, which is 2% of $70,000, what I previously stated.

    …and yes, your bias shows in this area.

    It is ludicrous that AARP is training counselors for these high prices. I wish I could make $125 for 35-40 minutes.

  • Scott good for you negotiated a lower orgination fee of 1400 . which the orginator probly earned 660.00 . Possable made 2 trips to take applacation. Went toclosing ( which I doubt) was available for .your phone calls to help you tomdraw money or change payment schedule. Or probly gave you a the highestoal rate. Also helped negotiate closing cost. Probly not doing any thing to help the borrowers. I guess you do the same thing when you go to a resturant or tell your boss to give you less money for your work since you are not earning your commission. The same way a good mloan officer does to earn his fee. FYI Hud has set orginsaton fee at 2% starting at 2500 for minium fee and 130 home 2% and at 200000 1% over that amout up to 6000 max fee. Realtors charge 6% of sale price. Conventional mortgage will pay up to 5% of loan amount.

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