WSJ: Reverse Mortgage Lenders Cut Fees to Drum Up Business

201004200912.jpg Over the weekend both the New York Time and Wall Street Journal covered how reverse mortgage lenders are lowering costs for consumers. WSJ writer Kelly Green reports that:

Reverse mortgages have long been considered one of the most expensive ways to extract cash from your house. But that is changing as some of the country’s biggest reverse-mortgage lenders are slicing closing costs—helping even some affluent homeowners who want to generate additional income.

Referencing the list of lenders including Genworth Financial Inc.,Bank of America Corp.,Wells Fargo & Co., OneWest Bank’s Financial Freedom and others who have dropped or reduced their origination or servicing fees, or both.

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With volume down 22% from Oct. 1, 2009 to March 31, 2010, lenders are lowering costs to help reduce the impact of falling home values and the 10% reduction in the principal limit factors last year says the WSJ.

Made possible by the growth and profitability of Ginnie Mae’s HMBS program, Peter Bell, President of the National Reverse Mortgage Lenders Association said the bonds have become “popular with investors because of their government guarantees and high yields compared with Treasurys.” He added “these bonds also have been more profitable for issuers than selling them to Fannie Mae.”

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Reverse Mortgages Now Look Cheaper

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  • The news is good news. This is where the feds through its agency actually has watched out for the senior. They have found upon the amount of gain on sale premiums lenders and brokers are making on the fixed rate product.

    This is not just a method to get more business in the door. This is a control perpetrated on the part of the government to stay off predatory lending.

    What everyone needs to know is that the lender/servicer is absorbing the origination fees as well as the servicing fee through the gain on sale premiums.

    If I were to make a prediction, which is dangerous in this day of age, I would predict this will not last to long, maybe 6 to 9 months at the most, if that.

    I am not saying the markets wont destroy my prediction, it could very easily. However, I don't think so?

    John A. Smaldone

    • Mr. Smaldone,

      Here is one time we disagree.

      Some of us are of the opinion that this may be the start of at least two different fixed rate products. One would be offered with all fees charged but at lower interest rates and the other offfered at low fees but higher interest rates. If that is the case, this product will have greater utility and will be more attractive to more seniors.

      Mr. Jackson is right that this is good press for the industry.

      Best regards.

      • James,

        How are you, long time no hear. I do agree with you that this is the start of two fixed rate products, it is already happening.

        Either it will remain this way, or, we will see the no origination fee, no service fee go away. If it does not go away, we will see the two level's of rates, high for the no origination product and low for the origination and service fee product. In short we will be going closer to the way the forward industry prices its product, discounting or at par in this case. This will also mean GNMA pools at mixed coupon rates or separate pools for each rate?

        I still feel I was right up to a point. You just took it to another level and did a good job on a prediction of what might be with us for a long time to come. Actually, it may not be bad to have the two to choose from on a permanent basis. Lets hope we don't go completely to the forward philosophy and wind up with 5 or 6 or even more different interest rate scenarios.

        You did good James, have a great weekend.

        Thanks,

        John A. Smaldone

      • Mr. Smaldone,

        I always enjoy reading your comments. I appreciate your efforts in behalf of the industry.

        I hope we do not see an abundance of variations in products. Many times all it does is confuse.

        Enjoy your weekend too.

      • James,

        Please call me John, is James ok for you or do you prefer Jim?

        Thank you for your compliment sir, I appreciate. I agree with your last sentence 100%. You take care my friend.

        John A. Smaldone

  • James,rnrnPlease call me John, is James ok for you or do you prefer Jim?rnrnThank you for your compliment sir, I appreciate. I agree with your last sentence 100%. You take care my friend.rnrnJohn A. Smaldone

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