Fannie Mae Pricing Change Brings Higher Margins For Reverse Mortgages

image Fannie Mae announced some significant pricing changes yesterday, just a few days before lenders will make the switch to mandatory delivery for live pricing.  The change brings higher margins to the reverse mortgage industry with some lenders offering CMT based HECMs with margins as high as 3.75%.

According to people who attended last weeks NRMLA conference in Boston, one of the messages taken away from the event was that Fannie Mae doesn’t want to be the only investor for reverse mortgages.  The significant change in pricing could signal that Fannie Mae is looking to attract other secondary market investors.

Our industry has relied almost entirely on Fannie Mae for the past 12 months and having one investor to sell loans to is never a smart strategy.  However, even when companies like Goldman Sachs were still interested in purchasing HECM production, executives form the company were shocked at the pricing offered by the GSE.

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So will the higher margins attract interest from other investors?  People in the industry are confident it will.  “Long term, the changes are better for the industry,” said David Peskin, CEO of the Senior Lending Network.  He added, “By having more than one take out there is less risk for lenders and competition from other investors will help drive margins down for borrowers in the long run”.

Fannie’s pricing adjustment also makes the LIBOR index much more attractive to HECM borrowers.  For most wholesalers, par pricing is about .5% lower in rate on LIBOR products compared to CMT based HECMs.

Even with the pricing changes, historically the rates for HECMs are still low.  However, I do understand everyone’s frustration with having to re-disclose to borrowers and explain to them why they’re getting a higher margin product.  Everyone wishes there was an alternative, but when there is only one investor… there isn’t much we can do.

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  • Old timer,

    Your response is right on target as well, thank for the compliment by the way. NRMLA should have been in this with both Feet before the announcement even came out. They knew about it long before any of us did, I am very disappointed in NRMLA to say the least.

    Old timer, are we a thing of the past or are we what the industry of today needs more than ever? Have a good evening.

    Best regards,

    John A. Smaldone

  • I just sent the following to my 2 senators and my congressman, followed by an email I sent to my mortgage broker. Please excuse any improper use of terms, I’m pretty unfamiliar with the industry.

    “Last Friday (3/27/2009) my wife and began discussion with a broker for a reverse mortgage. It seems that Fannie Mae dropped a bomb over the weekend by raising margins almost double immediately, without notice or grace period. This may just take us out of the possibility of staying in our home.

    “Here are the particulars: We are both 65 years old. I retired last year. Through Social Security, a very small pension ($355/month), and the two of us working 6 part-time jobs between us, we have managed to piece together 75-80% of of the salary + pastoral housing allowance that I had before I retired – an income stream that hadn’t increased since 2003 and that yielded a higher standard of living than just the raw dollars would suggest since the pastoral housing allowance was non-taxable.

    “Our interest-only mortage has a baloon payment due in January 2010. Even at today’s low rates, we cannot afford to refinance and stay in our home. It looked like a reverse mortage would enable us to stay which is desireable since wee currently live within 10 miles of our 4 grandchildren. Now a reverse mortage may be out of reach with higher margins and lower lending limits. Being forced to sell in this depressed housing market is not an exicitng thought.

    “As taxpayers, we’re providing billins (trillions?) to save the banking and finance industry. Now we’re being asked to also pay almost double what the market rates were last week to help make the banks and financial institutions interested in HECMs.

    “How do you and your senate (or house) colleagues intend to provide help to us beleagered seniors?

    -e.”

    here’s the note to my broker:

    I’ve been trying to do a little web-surfing to understand what’s going on with the reverse mortgage changes. I have no idea what “mandatory delivery,” “margin,” and “principle limit” are. Since we were already at a point of having to add cash to close, will this put us out of having a reverse mortgage as a possibility?”

  • John, I am starting to wonder. The more I think about how truly impotent NRMLA has been over the past several years the madder I get.

    Prevent reduction of fees – FAILED
    Prevent crazy arbitrary margin increases – FAILED
    Prevent crazy counseling requirements – FAILED

    These are just the latest. When was the last time you heard of a broker getting kicked out of NRMLA for violating its’ code of ethics?

    We as lenders are better served contacting our appropriate congressmen directly.

    And in reply to the Rev. Dr. Ed Cook, I am sorry. HUD & Fannie Mae have failed you, not the “greedy loan officer”

  • I’m not looking forward to Monday. I use reverse mortgages to replace old manufactured homes with brand new manufactured homes with no payment. At this time I have four senior families living in temporary housing. Their old homes are in Mexico. The new home has been manufactured, and has to be paid for by the dealer. Live pricing has eliminated three borrowers from getting a reverse mortgage. These seniors have a new home on their land, and can’t pay for it!
    I’m looking for ideas.

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