When MetLife announced it was eliminating not only the service fee set aside, but the origination fee as well, I expected everyone to follow their lead. Typically it’s what happens. One reverse mortgage lender lowers its margin, others follow. If you’ve been in the business for a few years, we would see wholesalers lower LIBOR margins down to 65 basis points and see them come back up when the margin was no longer profitable for investors and lenders.
Now we have MetLife, who was the first company (they were BNY Mortgage at the time) to release the HECM 100 and the fixed rate product to the marketplace, pushing the envelope again by eliminating the SFSA and origination fee. Great news for the borrower, and while I’m all for increasing competition, the move has made others in the industry a bit worried.
The pricing for Ginnie Mae HMBS has shot through the roof over the past few months and has been the driver behind all of the changes over the last few weeks. With pricing so good, lenders started eliminating the SFSA which provides borrowers more proceeds than before. During a time of principal limit reductions and the possibility of more on the way, the change is welcomed by both borrowers and reverse mortgage originators on the street.
The concern from others in the industry is what happens when HMBS pricing comes back to reality? There is clearly an interest from institutional investors, the Urban and Knight deal is proof. However, does it mean investors will continue to bid up the price?
There has been a rush of interest in the HMBS product because investors see it as a predictable investment with prepayment speeds slower than a typical MBS, but the pricing isn’t realistic according to our sources. Lets assume that pricing falls a bit, will lenders start charging an origination fee again? If it falls a little, most agreed that it wouldn’t change anything considering how good pricing is right now. However, if it drops 200 basis points, will lenders start charging an origination fee again?
What’s clear is MetLife is ready to change things if pricing changes drastically. During a conference call with correspondents, MetLife told brokers the max origination fee it could charge for the HECM Fixed with no SFSA was $1200. But the company did say that if pricing worsens, they would lift the origination fee restrictions. So MetLife isn’t ruling out that there could be changes down the road.
Lets all hope that pricing remains strong because the industry needs all the help it can get right now, but if Fannie Mae has taught us anything… it’s that pricing can change overnight.