No Reverse Mortgage Origination Fee Trend, Will it Last?

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.

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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.

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  • amen brother- and in a business where setting the right expectations is everything, what happens when this trend sets the expectation with consumers that they should not have to pay an origination fee?
    A reversal of pricing will be an additional barrier to have to revisit..and re-educate the consumer. As an industry, it is safe to say that we will all flock to this new pricing model for lump-sum candidates. Many originators will proactively encourage the lump-sum when it is not really needed too. Potential headline risk in two departments here. Consumers altering their view of costs as an absolute, and originators doing everything they can to cash in on a 105 price while it lasts.

    Or, maybe this is the first volley in a move to ultimately reduce the total comp available through RM origination on anything but a direct lender channel? Take a look at NH- YSP is banned, Federally chartered banks feel their status preempts that legislation, and this new pricing model effectively makes any NH reverse mortgage broker obsolete. Pretty slick recruitment tool on the part of the Bank, though.
    Pay attention, because it could start happening elsewhere…..how will you continue to do business as you do today?

    Wheres the critic when we need her?

  • Being nimble in this economic environment is critical. To be dependent on an origination fee when it comes to a fixed rate HECM in this market makes one far less competitive.

    In some sections of the country, many competitors started their negotiations with a $500 origination fee — as early as the beginning of this year. Some originators are offering HECMs with no upfront costs except MIP, appraisal, and counseling. No doubt this trend will change with time.

    MetLife and others are just addressing current economic realities.

  • MetLife is eliminating origination fee at a time when regulators are already looking unkindly at the idea that the borrowers are obliged to take the full draw on the loan. How many libors, which may fit the borrowers needs much better than the fixed, do you think MetLIfe will be selling? MetLife’s policy does not serve the industry well.

  • I wonder if Wells and BofA will match Mets offer? My guess is they will wait until the dust settles and stay with the fees for now. Some lenders have already decided to match Met as the backend is pushing 6% which makes numbers work just fine without fees.

  • Actually I have heard of no upfront fees at all except MIP. In some cases even offering part of the back end. How long these brokers can stay in business is indeed an excellent question. We would all do well to watch the trends in our marketplace. Saavy seniors are doing so.

  • I, like many, remember this time last year all too well. Secondary execution plummeted, ARM margins skyrocketed overnight, and business was drastically affected. I think it's naive to think this type of execution will last, and I don't like the idea of tying all of my compensation to backend pricing ESPECIALLY with new RESPA guidelines prohibiting me to increase my origination fee once pricing diminishes… This would leave me with $0 compensation on a pipeline of loans, and I can't risk my staff's livelihood if something similar to last year happens again. I like the idea of passing on more proceeds to the borrower, but eliminating origination fees should not be taken lightly.

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