State Bans Yield Spread Premiums For Reverse Mortgages

New Hampshire’s State Legislature passed HB 610 on June 24 which bans yield spread premiums (YSP) for reverse mortgages.  The bill is in the enrollment process and will be delivered to Governor John Lynch’s office soon.

HB 610 also includes a provision related to companies cross selling reverse mortgages with other financial products.  The provision reads:

A person, or its affiliate, brokering or funding a reverse mortgage shall not participate in, or be associated with, or employ any party that participates in or is associated with, any other financial or insurance activity and a mortgagor shall not be required, directly or indirectly, as a condition of obtaining a mortgage, to purchase any other financial or insurance product.

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So what does this mean for originators in New Hampshire?  It makes working for a bank or mortgage banker more attractive since they aren’t required to disclose any YSP on their good faith estimates.  The reality is that no one is making much on the back end these days, so I can’t say this is going to really protect seniors. 

Assuming Gov. Lynch signs the bill, it becomes effective July 31.

HB 610

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  • New Hampshire saw 522 HECMs endorsed in 2008 and 237 Jan-May this year. Will be very interesting to see where volume goes over the rest of the year, as most economic analysis of the business would suggest it's pretty difficult to support the level of distribution and competition currently in place without the YSP revenue.

  • This is dangerous as it has the unintended consequence of making reverse mortgages on lower-value properties unprofitable.

    And if there's no profit in them, and you lose money on each one, how many can you do each month?

    Maybe one?

    Making lower property value HECMs charity work greatly limits how many folks in lower-value properties we can help.

    I say let HUD lead the way, and keep the states out of it.

  • I obviously wouldn't want this to be the start of a trend that moves to other states. If the lending limits go back to 87% of the FHA conforming loan limit (which could fall below $417k in 2010) and home proces continue to fall, it will be a very difficult business.

  • Look at the deeper picture here. This bill will keep brokers from steering a borrower to a higher margin or higher rate in order to get higher premium. i believe this is the intent. The second item is what the author said; it makes an unlevel playing field between brokers and those who can close in their own name and re-sell the loan. Coming full circle this will end up costing the consumer more as those lenders will use the higher margins/rates so they can maximize the back end of the loan.

  • Brilliant. This will cost the consumer more money as no one will discount the origination fee now. Good thing the government is screwing the seniors.

  • Why doesn't the federal government consider lowering the absurd 2% Federal Mortgage Insurance Premium if they are so concerned with YSP. They limit origination fees and cap them. Why didn't they do that with the MIP?……..hmmmmm……..Yes folks, on a $300,000
    home that's $6,000 literally flushed down the drain.

    • Frank,

      I know many in the industry tie MIP to the origination fee, but why? I fully agree that the current origination fee structure is terrible but it is unrealistic to believe this program will survive without significant contributions by the participants to help defer the losses the HECM program is expected to experience.

      The problem started with a consumer advocate at AARP who wanted to scale back our fees much, much further. We need to find reasonable voices in AARP and Congress who can make a strong case on why our origination fees need to return to their prior structure. Then market competition can drive down unreasonable origination fees as it did in the past and to some degree even now.

  • Another Dumb A_s legislator making it more difficult for Americans to pursue the American Dream!

    First of all, there are not many Reverse Mortgage lenders left. To further complicate this there is a warehouse line of credit shortage; and according to a previous article from this publication there is only 10% of the warehouse money available now that we had in 2007. Our goverment has put not billions, but trillions of dollars of stimulous, bail out, TARP, and what ever you call it kind of money out there. Where…? Why is there no mortgage line of credit emphasis? What is the point of having new special mortgage programs with no money to fund them? Guess what? There is barely any YSP being paid at all right now on Reverses. You are luckky to get a point.

    If this Governor signs this, he is just one of many uneducated bafoons shaping our country. I thought “price fixing” was illegal.

  • This legislation is partly a result of the bad press the reverse mortgage industry has gotten because of the abuses committed by an unethical minority of RM originators, many of whom are members in good standing of NRMLA..

    Ever since the origination fee income was capped at $6,000, brokers have relied on the YSP to make up the difference in lost income. Often, it has been necessary to discount the origination fee in order to make the deal.

    NRMLA, which is dominated by the large banks and servicers whose business model relies on cross-selling of other financial products and services, continues to subscribe to the fiction that it is possible to have “ethical cross-selling.”

    With the enactment of the New Hampshire legislation, legitimate brokers who originate reverse mortgages (and do not engage in cross-selling, ethical or otherwise) will be squeezed out of the market by the aforementioned, NRMLA-controlling banks and large servicers who will be able to 1) continue to enjoy undisclosed gains on the sale of closed reverse mortgage loans and 2) take advantage of “ethical cross-selling” opportunities after the sale in order to make up for the RM origination income shortfall.

  • Good evening,

    I am very disappointed by the action taken by the state of New Hampshire, banning yield spread premiums or gain on sales premiums.

    This is another case that re-enforces what in have been saying all along. The states need to stay out of regulating a Reverse Mortgage, HUD needs to maintain control and keep everything uniformed.

    The legislators involved in writing this bill to be imposed do not have a clue about the mortgage business, much less the reverse mortgage industry.

    The gain on sale premium are for value received on the servicing, delivering marketable programs and I could go on and on. The state of New Hampshire is not in any way protecting the consumer, they are hurting the consumer or lets call it what it is, the senior.

    These people do not understand how a Reverse Mortgage is bought, packaged up and sold as a security. The states are more to blame for hurting the seniors, originators and companies than anyone, except FNMA of course. What concerns me the most is that if other states do not have common sense and follows suit to New Hampshire, this will put the Reverse Mortgage industry one more step in going under. Who suffers the most, our seniors. This will drive the good originators and those who have the compassion for seniors out of the business. Guess what, the predatory lender and originator will be their like a Vulture picking away at the Crumbs.

    Who is really causing a rise in predatory lending, I will tell you who it is! FNMA, the states, HUD through its inefficiency to enforce, the news media, our great legislators on the hill and all the rest of the great philosophers that do not understand a reverse mortgage if they walked backwards reading the documentation on one of the loans.

    I am one mad and discussed individual and every one of you reading my comment should feel the same way. We need help somehow. We express our frustrations on blogs like this but that is all we do. We need a strong lobbying group to put a stop to bills like this from going through, we need to be heard. Every day we read something that is damaging the reverse mortgage industry, enough is enough, it can't keep going on. The sub-prime industry was not treated as bad as the reverse mortgage industry is today.

    I am appalled, it 8:45 PM EST on a Friday evening and something like this wants me to call it an evening. Shame on you New Hampshire, shame on you.

    Have a good weekend everyone,

    John A. Smaldone

  • Mr. Smaldone,

    There appears to be three proposals in this comment. The first two are: “The states need to stay out of regulating a Reverse Mortgage, HUD needs to maintain control and keep everything uniformed.” The third is: “We need a strong lobbying group to put a stop to bills like this from going through, we need to be heard.”

    While your anger and disgust is very understandable, based on our constitution, there is little which can be done to keep states from creating laws overseeing our industry. Was there ever actually a time when HUD maintained control and kept everything uniform? If there was, it was long before I came into the industry.

    Lobbies are important but they cannot possibly do what you propose. Who would the lobbying group represent? More importantly, who is the “we” in your third proposal?

    We are still a dinky industry with insufficient income to be the powerhouses the ABA, the AICPA, AARP, the unions, and other groups are. A state model act seems the best way to bring some order out of this chaos. Based on how it was created, unfortunately the MBA proposal seems doomed for failure; I just hope I am wrong.

    What practical measures do you believe should be taken to reach your goals? While most of us agree with your assessment and what you want to attain, without an achievable game plan all that will be accomplished is spinning our wheels with even more frustration.

    /You are so right. Something needs to be done before othis industry is damaged even more.

  • TO: James Veale

    James,

    You are right, I wrote my comment more out of anger and being just appalled at the narrow minded thinking of some of these people who legislate. I wish I had some good come backs to your comments so we could get into another lively debate like the last time, however I don't have any. The lively debate was a compliment, I enjoyed it.

    From a practical and legal standpoint you are right on target and their is not one thing you said I disagree with. I got my frustration out but showed lack of professionalism. You are right we are a dinky industry but the people we represent, seniors, are not a dinky part of our population. They need a Reverse Mortgage more today than they ever have.

    I realize this does not change or matter from a legal standpoint but it sure does from a moral standpoint. You say what can we do, we can speak out. We can exercise our freedom of speech. We can try to take up the banner for our seniors. The only problem as you point out is how do we organize and have one strong voice? I love this industry but it is getting harder each day to do the job we were meant to do. I guess I said enough for one day. I thank you James for putting things in its proper prospective. You have a good day.

    Best regards,

    John A. Smaldone

  • The ban of YSP has now hurt with the elimination of origination fee's. While we all want to do what is always in the best interest of the customer. Should or are we not entitled to some income? I've reduced my origination fee to help a customer and alway reduce when I can to benefit my senior. I take great pride in my work. But I'm not sure how long I can continue with the competition making it impossible to compete fairly.

  • The ban of YSP has now hurt with the elimination of origination fee’s. While we all want to do what is always in the best interest of the customer. Should or are we not entitled to some income? I’ve reduced my origination fee to help a customer and alway reduce when I can to benefit my senior. I take great pride in my work. But I’m not sure how long I can continue with the competition making it impossible to compete fairly.

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