New Year Brings Higher Reverse Mortgage Margins

Only a few days into 2009 and it’s clear that there is going to be some changes to the reverse mortgage business.  One of the biggest changes for the originator is the move to “live pricing”.  I covered the changes a couple weeks ago when Generation made the switch, but last week we saw a flurry of announcements from other wholesalers making the change.

Now, the reverse mortgage business mirrors the “forward” business with daily rate sheets, lock extensions, ect.  Wholesalers are taking different approaches in terms of how many days you can lock for but one thing is the same across the board… margins are going up.

Dennis Haber commented about this on his blog earlier this week

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Many are dismayed that the margins on the HECM program keep going up.  People ask, “Do they really have to increase”?  Some say that the margins are purposely going up at a time the interest rates are low.  The thinking goes that many in the industry will not care, as the expected rate is well below the floor.  However, what happens when those indices upon which those margins  attach go up as well?   The point is eventually rates will have to go back up.  And when those rates go back up, it will eventually significantly decrease the benefit amounts going into the pockets of our clients.

And rates will go back up. If not to combat the threat of inflation, then to provide a better return for those countries that have invested in our treasuries. The answer to the interest rate queries noted above is that the market is dictating these results. This answer, however does not satisfy everyone.

Whether you agree with Dennis or not, it’s clear that the deterioration in the capital markets and lack of liquidity has created the need for higher margins on both CMT and LIBOR products.

“These higher margin products and higher asset premiums will allow for improved profitability for all wholesale and correspondent companies, while at the same time increase principal limits to the senior” says David Brindley, VP Strategic Account Manager at Generation Mortgage. “With the extraordinary rally in the 10 year sector of the treasury market, expected rates continue to be below HUD’s mandated 5.50% floor,” added Brindley.

I spoke with another executive from a leading lender who said that FNMA’s move to higher margin products sends a clear message about moving the industry to more “profitable” business.  While I wasn’t able to confirm this with FNMA, it’s clear that 2009 will bring lots of changes to the business.  Lets all hope that “profitability” is one of them.

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  • all well and good, except for those clients in the pipeline who signed princ. limit lock disclosures and had commitment letters issued under lower margins. Now the wholesalers negate those commitments, and the consumer gets less $$. Seems like fodder for a good class action suit.

  • Joe,

    It doesn’t work that way. As stated above, when the expected is below 5.50%, the client actually benefits financially from a higher margin. It is a slight increase, but an increase none the less. Regardless, Fannie controls most of the HECM secondary market, so they set the pricing, period.

  • This is an expected rate. As indexes drop the time it takes the outstanding balance to catch up to the max claim amount is increased so from Fannie Mae point of view their risk of the borrower passing before the assigment to hud can be made is increased. That maeans that housing market conditions play a larger role in this type of situation and the likehood of selling for a loss is there.Even as Fannie still gets reimbursed for the loss it is more attractive and less costly to be able to assign the loan to hud and hud it servicer deal with the mess.

  • what happanes when the rates go back up as they will and seniors will find thier equity fastly disapearing and you can expect to see 9% rates and higher. Now that we have 2.75% margins. This gives the bank a 2.75% profit to work with. As rates go down in the future we probly will see lower margins back but it wouldn’t help the seniors who are stuck with high margins. It’s great that we now have all the forward thinging in our bussenss.
    More important I feel NRMLA has sold us out!!!!!!!!
    In their negotaitnig for us we agreed to allow our orgination fees to be cut. Instead of the market correcting it’s self. I have seen quotes from a major lenders loan officers on a $240,000 home where he circled he was only charging $3,000 orgination fee. Though I had quoted $4,800 which ended up with a value of $280,000 and I charged $5600 because of the work involved. Only to have Metlife reduce it to the new cap and did not wait till Nov. 1 to do it. I had closed on Oct.27,2008. The market could have taken care of this as many companies were cutting orgiantion fees.

    BUTwhere is our wonderful NRMLA who promised us we would make up for it. We did recive higher limits, though here in MIAMI our average loan is about $225,000 no help there we actual lose instead of $4500 we get $4,250. Thanks a lot. oF course HUD is still getting 2% with no cutting. Second where is all the promise we were supposed to get.Where is the Co-op’s though no bigge there, what about the purcahse program promised us in NOVEMBER AND WE STILL HAVE NOT HEARD WHEN HUD WILL ISSUE A LETTER. Minor things like easer rules for condos and manufactured homes. Late model manufactured home who have been bulit to codes and tied down but still need a structal engineers report which cost $400.00 plus $400.00 for an apprasial and counsling fee many seniors and our vet’s don’t have. Which brings up another sore spot. We were
    always instructed that ght seniors could not spend any money till they were counseled, only to find out after spending money even though we do searches to find out value of the home many times the is not there and they lost $525.00. I do instruct my apprasers to let me know in advance if the value is there so we can avoid any charges since by law they are not allowed to do pencil searches.We are finding with Values droping we are spending more time and money trying to put deals together.
    Why do we have take the brunt of this. The banks are making thier full share of the money, HUD is geeting there full MIP fees.Insurance is covering it all. Unless our seniors are now subsiding FHA forward mortgages and paying for counsling for the forward market.
    Where is our voice in this matter????????????

  • What is the possibility of the reverse mortgage limits, currently at 417m, being raised above 600m ? Apparently, with a home valuation at 575m, and an interest only mortgage of 400m, we do not qualify for this type of mortgage. We are both in our 70’s and have lost over 30% of our IRA income and are barely making ends meet. The home equity we used for improvements was a total wash when home values started down last year. We see a reverse mortgage as the only viable alternative for us to keep our home, otherwise we are going to join the thousands of other homeowners and just walk away.

  • Mark I know the letter says but Hud has not released a the actual mortgage letter.Nor does lenders have an application package freedom according to Financial freedom, nor Wells Fargo who says don’t expect untill Feb and will not close untill end of Feburay maybe March. Nor does Met life who has ine app but waiting for clearance from. Problem with value or sale price. aslo don’t want builders involved.

  • To Larry Conners: Aarp pushing for higher limits of 625,000. but don’t hold your breath till it’s available. But the wiil hit you with a 2% MIP and we stiil still have our cap. Even though we probly will have more work to do with trustand tax loop holes higher home bring with them.

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