Financial Freedom Eliminates HECM 150, Reverse Mortgage Margins Trend Higher

FFlogo Today Financial Freedom announced  they are eliminating their HECM Monthly CMT 150 and adjusting pricing for their higher margin CMT products.  According to the announcement, these changes are due to an abrupt change in secondary market pricing levels for HECM CMT products. 

It looks like these price changes will be happening across the board too.  Just a few hours after the FF announcement, JB Nutter sent an email to correspondents stating they are virtually certain pricing will change dramatically on any loan closing August 22 or after.  So what’s the cause for the drastic price changes?   

The adjustments could have something to do with Fannie Mae increasing their market delivery charge and loan level price adjustments last week. According to Fannie Mae, these changes are intended to "better align pricing with credit risks, mitigate losses and support Fannie Mae’s ability to provide a stable source of liquidity to lender partners.

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This is the beginning of a trend where we will see higher margin reverse mortgages products due to market conditions as well as the new housing Bill.  Next Generation Financial Services Co-Founder said it best in a recent email he sent regarding the limit on origination fees…

This legislation was intended to reduce the cost of a HECM to senior homeowners.  However, the unintended consequence will be that over the life of the loan seniors will end up paying more.  The reduction of the origination fees will force lenders to offer only the higher margin HECM programs to the customer.  While this legislation reduces the revenue a company can receive to originate a HECM, a companies fixed expenses required to originate a HECM are not reduced.  The origination of a HECM is very labor intensive and consequently expensive.  Companies will be forced to increase the HECM margins in an effort to cover revenue shortfall created by the new limits on the origination fees.

Brett Carter
Next Generation Financial Services

I couldn’t agree more Mr. Carter.

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  • I have spoken with alot of people about higher margins, once the lower origination fees become effective. Many did not want to hear this, but my cost to originate a reverse mortgage have not gone down! HUD, AARP and NRMLA should have let congress know this and what the REAL long term cost will be on the senior. I thing it is better to pay $1200 more up front then receiving $20, 000 less principal limit and alot more interest over time. Thanks AARP, way to look out for the senior community!

  • way to go Narmla and Arap cut commssion and seniors will pay more. plus let seniors pay for thier counsling session. But not if your buying a home using FHA who will get 45 Million dollars for counsling.

  • If you run some example scenarios through the new Ibis hypothetical calculator demo, you will notice that while the reduced origination fee can save the borrower as much as $1255, the FHA insurance premiums go through the roof with the new higher loan limits. So if the senior saves, $1200+ on one line item of the TALC it is completely wiped out by the even larger cost for MIP. In the end, the overall closing costs are actually higher than they were before the new legislation.

    At this rate, will we ever hear the end of the consumer and critic complaints about reverse mortgages being too expensive to be worthwhile?

  • Did you know that Barney Frank and the House Financial Services Committe OK’ed taking all the money out of the RM part of the FHA insurance fund to fund “affordable housing” for young people? For shame…. The free-spending Congress is now looking at the FHA RM fund as just another slush fund like Social Security, that can be borrowed to spend on other things, rather than reduce the RM premium (as they have always done for the regular FHA mortgage insurace) to reflect the actual insurance cost to run the program. Where is AARP on this issue, I ask??!!!! Disgusting.

  • Congress is the master of unintended consequences, and the consumer gets the short end of the stick…again.

    Earlier posters hit the nail on the head, the so called savings of the reduced loan origination fees are wiped out by the increased margins (forced upon by the new bill) and the FHA 2.0% insurance premium which curiously was overlooked.

    My concern is that the reverse mortgage market had a great product and is messing it up much like the forward mortgage market. These so-called consumer protection bills usually backfire because they are dreamed up by lawmakers with little or no connection to the real world of mortgage lending.

  • You RM loan officers have enjoyed higher origination fees than your colleagues in the prime forward market for a long time. While everyone else was having to negotiate their origination fees down from 1% to 1/2%, you had a built in floor of $2,000 up to a maximum of 2% of (not the Principal Limit mind you) but the maximum claim limit. It’s time the borrowers got a break. A lot of you new brokers have probably come from the subprime forward market where you took origination fees of 3-5%. Those times are gone. Yes, these loans take more time and that’s why HUD approved an origination fee higher than their standard FHA forward mortgages. And you should take more time with these borrowers. Most seniors have trouble understanding all the new terms that come with RMs. Many of them did not have the advantage of a college education. Some didn’t make it out of high school. If you raise your margins to squeeze out more origination, you’ll find yourselves priced out of business. Some lenders out there really view their jobs as providing a service to seniors.

  • I would disagree with the statement that RM loan officers “have enjoyed higher origination fees” than our counterparts in the forward / prime mortgage space. I know several friends who work in this space and even with a 1% LO they still collect at YSP on the back side. It’s this misconception that AARP and lawmakers used to “protect the consumer”.

    The problem is AARP and our lawmakers overlooked the consequences of messing loan origination fees. Banks must still be profitable or this program will not be in the best interests of the borrower and the banks. It must be a win-win situation.

    With mandated lower origination fees the banks (with pressure from the secondary markets & Fannie Mae) had no choice but to increase margins, thus increasing the cost to the senior over the life of the loan. Why? Because these loans are expensive to issue and administer.

    Also, why was the full 2% MIP (FHA) premium not changed? With increased loan limits the senior will pay more.

    In addition, most working in the reverse mortgage field are not from the subprime market, but chose reverse mortgages during the height of the subprime boom. The vast majority of us do spend time….lots of time with our clients and focus on full disclosure and education.

  • I do understand how the consumer believes that saving uo to $1200 on the closing cost is a great deal. But many people do not know where the funds come from. These are investment, who put up their own money for a future investment.
    Also, alot of consumers do not know about the high cost of being a HUD lender; annual audits ($5000 a year) and 10% of all transaction getting a QA (this person cannot be involved with loan origination), employee taxes, marketing, etc.
    I understand that is not the consumer concern, but as a business owner, it is one of mine. I need to provide a good work place for my employees, pay them well to keep the standards HIGH and business expenses. Most people I have meet in the reverse mortgage business, like the program, because it helps people and try to keep the standards very high.
    For the consumer who might not know: raising the margins willnot get us more origination fees, a little more on YSP but the consumer will get $20, 000 less principal (avg) and with a higher margin, more interest charged in the long run.
    Sorry for being so long, but i beleive the consumer is the loser, not the business guy.

  • I also adisagree with Nancy. First off a forward most cases pay 3% not less than the 2% and there is no limit dofor loan sise. You can get a 99% loan with a forward. And as far as YSP if customers take a credi line you might see very little in YSP pricing.
    Second 0in a foward world buyers pay for thier apprasail many time we have to front the appraial money and many cases with falling home prices a deal might not go thru costing us money because it doesn’t pay to try collecting fees. Secondly you probly never did a reverse mortgage which I have seen take 5 and 6 months do to problems. With pay offs or Foreclose issues. Judgements repair. Cancellations even at closing heirs or neighbors tell the not to go through and all moneys have to be returned. Some times they come back when they found that they need the loan.
    Now I hear Bank Ameeica thru country wide has raised thier margin to 200 causing higher rates to the borrowers and giving them less money.
    Please get your facts togetjher before you criticize.

  • In defense of my statements and in response to Larry, I have been a pre-purchase counselor since 1983 and a reverse mortgage counselor since October 1989. I helped potential homebuyers shop for the best mortgage loans and that’s how I know that here in the Atlanta market, origination fees were less than 1% before the market crashed in late 2007. I also went to closing with those borrowers. I now work with the reverse mortgage borrowers, their lenders, and an attorney who negotiates short payoffs from subprime lenders, so I DO understand the origination, processing and closing of the loans. You are correct that the loans take longer to close when there are liens, repairs, and family members who jump in at the last minute with all sorts of concerns. My job is to help work all of those issues and wrap up loose ends such as paying property tax bills that come due right before closing and finding HO insurance for borrowers who have forced placed coverage. However, that being said, I still don’t believe that you guys need a higher origination fee that HUD has approved. And an origination fee on the value of the home (or FHA lending limit) still sounds like a lot more money than I believe it costs for you to close the loan, especially with the higher loan limits that are on the way. Just think, you won’t be able to make loans at 99% of LTV anymore.

  • In defense of my statements and in response to Larry, I have been a pre-purchase counselor since 1983 and a reverse mortgage counselor since October 1989. I helped potential homebuyers shop for the best mortgage loans and that’s how I know that here in the Atlanta market, origination fees were less than 1% before the market crashed in late 2007. I also went to closing with those borrowers and verified that the loan terms promised did not change. I now work with the reverse mortgage borrowers, their lenders, and an attorney who negotiates short payoffs from subprime lenders, so I DO understand the origination, processing and closing of the loans. You are correct that the loans take longer to close when there are liens, repairs, and family members who jump in at the last minute with all sorts of concerns. My job is to help work all of those issues and wrap up loose ends such as paying property tax bills that come due right before closing and finding HO insurance for borrowers who have forced placed coverage. However, that being said, I still don’t believe that you guys need a higher origination fee than HUD has approved. And an origination fee on the value of the home (or FHA lending limit) still sounds like a lot more money than I believe it costs for you to close the loan, especially with the higher loan limits that are on the way. Just think, reverse mortgage counselors who do the pre-application counseling only receive $125 per case (instead of the $145 we previously received) and you think you have it bad! This decision to pay counselors less (and a certain amount of greed on the part of housing counseling agency Directors) has lead to reduced counseling time and quality. The borrower is rushed through counseling (without family members who might have participated in the counseling and had their questions answered at the front end) and then has no idea of how their RM loan works. It’s not a perfect world, but let’s keep working on it.

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