Wells Fargo Eliminates Servicing and Origination Fee for Adjustable Rate HECM

201004130836.jpg As lenders continue to aggressively compete for reverse mortgage business, Wells Fargo quietly started offering an adjustable rate HECM product without an origination and service fee set aside.

While there hasn’t been an official announcement, a Wells Fargo spokesperson confirmed with RMD the company recently released the product.

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Currently the margin on the adjustable rate product is 2.20%, which while higher than other margins offered by competitors is attractive without the SFSA and origination fee. By eliminating both fees, borrowers are able to receive more money than before.

Wells Fargo continues to be the dominant retail reverse mortgage lender in the country. According to data from Reverse Market Insight, its market share is 17.5% for retail and 3.1% for wholesale. However, its combined market share is 19.1%, with Bank of America trailing right behind with 18.2% said RM Insight.

In addition, the company recently rolled out a no origination and SFSA HECM fixed product.

To see more data on Wells Fargo, check out its listing on Reverse Base.

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  • perception is a big reason why people buy or don’t buy- if people perceive that the costs are too high this may at least interest them in the product and a dialog with them may be open to show them the other 175 is better.

  • The originator is getting paid out of the pocket of WF, not from the consumer, believe it or not, still based on the typically calculated fee. Even if the borrower takes no draw on the credit line, the originator will be paid that typical calculated fee, yes it is true….! But I do not know how easy it is to wholesale to WF.

  • One topic that is being overlooked is that with no servicing fee set aside, when will the line of credit on an adjustable rate HECM ever shrink??? Yes, if one really works at it, there are a very few situations where that might be possible but this potential problem all but becomes mute. With this product one can actually begin discussing how the line of credit grows by the note rate. But wait there is more….rnrnGenerally the fixed rate HECM itself is a financial planning tool for the dull minded. It plops down a hunk of change and then it is a matter of paying down (or not) the balance due depending on the current and future cash needs of the borrower along with home appreciation factors. It will rarely be used as a tax planning tool. If the reason to get the HECM was a long-term cash need, then as to financial planning, it is a question of how the borrower will invest any excess funds; the HECM itself simply becomes a mortgage. It is this characteristic, however, that also makes it a very useful product to many, many seniors with existing mortgages. rnrnThe adjustable rate HECM is a much different product. It has a lot of potential as a vibrant, robust, and useful financial tool. Its line of credit in the right situation can be very useful to meet business working capital, tax planning, personal cash management, and other financial needs. rnrnAdjustable rate HECMs can become a tool not just the one-time provider of the needed cash and, thereafter, a mortgage. In most cases, the lower the upfront costs, set asides, and ongoing administrative costs, the more exciting this tool (particularly the line of credit feature) becomes. In the right situation it can save thousands in debt related fees and costs annually, time consumed each year in getting financing approved and arranged, and other ways not normally associated with a HECM. It is in the business and investment arenas that the HECM can be most effectively used to mitigate exposure to recourse liabilities.rnrnThe adjustable rate HECM is the product that can be used to hedge against home value reductions at little cost since the unused line of credit can grow. The annual adjustable rate HECM is particularly useful to many seniors, especially if their cash need is not current and will most likely occur in future periods. The lower the entry costs in these situations, the better; in these situations, the concerns over interest rates is not generally as significant as it would be in other situations. rnrnIt is the adjustable rate product that drew me to the industry. It alone has a vibrant, robust, and work horse like characteristic. A low cost entry fee and no ongoing servicing fees (its charge is unrelated to the balance due) make it even more appealing despite the interest rate being slightly higher than those which have servicing fee set asides.rnrnPenFed and Wells have started something that has great potential for the product and hopefully for our industry.rn

  • michaelpinter – When the borrower takes no draw they aren’t paid unless they get a “per unit” compensation – this won’t last long because even as stupid as Wells is, they will wake up soon.

  • If you go to the PenFed reverse mortgage webpage on their website, they claim it is. They are charging the 2% upfront FHA MIP. There are many possible reasons why PenFed may not appear on the FHA approved lenders list — one of which is that the product is only offered to its members.

  • I’m not understanding how this works. If a client closes with Wells retail they pay no origination and if they close with Wells wholesale, they do? If Wells Wholesale is not charging origination, how does the originator get paid? Even if there is YSP on the back-end, what happens when the borrower takes no draw?

  • Is…Pentagon Federal’s product FHA endorsed? According to HUD’s website they are not showing up as such. Not sure if you can include their proprietary product in this comparison- its apples to oranges.

  • Looks like everyone is going to have thier own twist and make it sound like it is better than every one elses. This could still be more costly and will offer less money than a 1.75% margin. To pay an extra .45% in order to eliminate $30 a month does not make much sense to the consumer. Yes, the origination fee is gone, but this can be reduced on the 1.75 as well. 45% on a 100,000 balance is $450 a year and will only grow over time with an increasing loan balance. This may be good for someone in the short term, or someone who doesn’t want to borrow much money, but not over time when the loan starts to grow. The origination fee can easily be reduced to compensate for some of the closing costs making the 1.75 even more appealing. Also, at a 1.75 margin, and a full origination fee, a borrower would recieve more money. Yes, the costs will differ a little over time, but consumers are more interested in how much money they can get than the little savings this may provide in the short term. This is where people need to understand these programs better than ever if you are going to explain these differences to a homeowner. You will get caught pretty quickly if you can’t explain them well and then someone sits down and put’s holes in your entire explanation.

  • Congratulations to Wells Fargo. This is an interesting move on several levels. rnrnWhile Wells has a 2.2% margin, Pentagon Federal has a 2.5%; however, Pentagon Federal Credit Union per their amortization schedule charges no MIP (currently 0.5% per annum) on the balance due. (PenFed does charge 2% for MIP upfront.) So the PenFed product is still cheaper.rnrnEvery single day now, our product is less transparent with more costs being caught up in the interest rate. As an originator, these are interesting times to be living in.

  • Congratulations to Wells Fargo. This is an interesting move on several levels.

    While Wells has a 2.2% margin, Pentagon Federal has a 2.5%; however, Pentagon Federal Credit Union per their amortization schedule charges no MIP (currently 0.5% per annum) on their product. So the PenFed product is still cheaper.

    Every single day now, our product is less transparent with more costs being caught up in the interest rate. As an originator, these are interesting times to be living in.

  • Looks like everyone is going to have thier own twist and make it sound like it is better than every one elses. This could still be more costly and will offer less money than a 1.75% margin. To pay an extra .45% in order to eliminate $30 a month does not make much sense to the consumer. Yes, the origination fee is gone, but this can be reduced on the 1.75 as well. 45% on a 100,000 balance is $450 a year and will only grow over time with an increasing loan balance. This may be good for someone in the short term, or someone who doesn't want to borrow much money, but not over time when the loan starts to grow. The origination fee can easily be reduced to compensate for some of the closing costs making the 1.75 even more appealing. Also, at a 1.75 margin, and a full origination fee, a borrower would recieve more money. Yes, the costs will differ a little over time, but consumers are more interested in how much money they can get than the little savings this may provide in the short term. This is where people need to understand these programs better than ever if you are going to explain these differences to a homeowner. You will get caught pretty quickly if you can't explain them well and then someone sits down and put's holes in your entire explanation.

    • perception is a big reason why people buy or don't buy- if people perceive that the costs are too high this may at least interest them in the product and a dialog with them may be open to show them the other 175 is better.

  • Is…Pentagon Federal's product FHA endorsed? According to HUD's website they are not showing up as such. Not sure if you can include their proprietary product in this comparison- its apples to oranges.

    • If you go to the PenFed reverse mortgage webpage on their website, they claim it is. They are charging the 2% upfront FHA MIP. There are many possible reasons why PenFed may not appear on the FHA approved lenders list — one of which is that the product is only offered to its members.

      • They do not show up in Neighborhood Watch, says “Lender not a participant” in the HECM Lender Insurance section.

  • I'm not understanding how this works. If a client closes with Wells retail they pay no origination and if they close with Wells wholesale, they do? If Wells Wholesale is not charging origination, how does the originator get paid? Even if there is YSP on the back-end, what happens when the borrower takes no draw?

    • The originator is getting paid out of the pocket of WF, not from the consumer, believe it or not, still based on the typically calculated fee. Even if the borrower takes no draw on the credit line, the originator will be paid that typical calculated fee, yes it is true….! But I do not know how easy it is to wholesale to WF.

  • michaelpinter – When the borrower takes no draw they aren't paid unless they get a “per unit” compensation – this won't last long because even as stupid as Wells is, they will wake up soon.

  • One topic that is being overlooked is that with no servicing fee set aside, when will the line of credit on an adjustable rate HECM ever shrink??? Yes, if one really works at it, there are a very few situations where that might be possible but this potential problem all but becomes mute. With this product one can actually begin discussing how the line of credit grows by the note rate. But wait there is more….

    Generally the fixed rate HECM itself is a financial planning tool for the dull minded. It plops down a hunk of change and then it is a matter of paying down (or not) the balance due depending on the current and future cash needs of the borrower along with home appreciation factors. It will rarely be used as a tax planning tool. If the reason to get the HECM was a long-term cash need, then as to financial planning, it is a question of how the borrower will invest any excess funds; the HECM itself simply becomes a mortgage. It is this characteristic, however, that also makes it a very useful product to many, many seniors with existing mortgages.

    The adjustable rate HECM is a much different product. It has a lot of potential as a vibrant, robust, and useful financial tool. Its line of credit in the right situation can be very useful to meet business working capital, tax planning, personal cash management, and other financial needs.

    Adjustable rate HECMs can become a tool not just the one-time provider of the needed cash and, thereafter, a mortgage. In most cases, the lower the upfront costs, set asides, and ongoing administrative costs, the more exciting this tool (particularly the line of credit feature) becomes. In the right situation it can save thousands in debt related fees and costs annually, time consumed each year in getting financing approved and arranged, and other ways not normally associated with a HECM. It is in the business and investment arenas that the HECM can be most effectively used to mitigate exposure to recourse liabilities.

    The adjustable rate HECM is the product that can be used to hedge against home value reductions at little cost since the unused line of credit can grow. The annual adjustable rate HECM is particularly useful to many seniors, especially if their cash need is not current and will most likely occur in future periods. The lower the entry costs in these situations, the better; in these situations, the concerns over interest rates is not generally as significant as it would be in other situations.

    It is the adjustable rate product that drew me to the industry. It alone has a vibrant, robust, and work horse like characteristic. A low cost entry fee and no ongoing servicing fees (its charge is unrelated to the balance due) make it even more appealing despite the interest rate being slightly higher than those which have servicing fee set asides.

    PenFed and Wells have started something that has great potential for the product and hopefully for our industry.

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