Are Reverse Mortgage Pricing Changes Confusing Consumers?

Most would think that lowering reverse mortgage costs for consumers would be a positive thing but many in the industry feel these changes are only causing more confusion.

Dennis Haber has been voicing his opinion on the changes a lot recently, and he recently wrote that the new interest rates, elimination of the servicing fees, and other changes will only increase what he calls “the consumer confusion noise ratio”. When borrowers contact lenders and receive a variety of fees, it will only lead to consumers being more confused.

“An industry that claims to know its borrower is showing just how little it really knows and the plethora of choices will freeze the borrower into paralysis, as they fail to determine which move is better,” says Haber.

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He believes that all of these choices make a borrower choose “inactivity” over moving forward and he isn’t alone.

Beth Paterson, from Reverse Mortgages SIDAC in Minnesota believes that all of the changes are adding to the fear of reverse mortgages and the stalemate of the industry. “The no origination fee is just one more change contributing to this,” says Paterson.

One would think that lower costs for the consumer would be a good thing, but clearly people think these changes are confusing borrowers.

For years the industry relied on Fannie Mae, which issued 60 day pricing commitments and essentially kept pricing simple for borrowers and lenders. However, as they left the market, everyone said we needed an alternative and we got it in Ginnie Mae.

However, now people don’t like the fluctuation in pricing even though it has made the product much more competitive and a better deal for the consumer compared to anything else available in the marketplace. If these changes are providing HECMs to consumers at a lower cost, I don’t understand how this could be viewed as a negative thing.

What do you guys think, are all of the changes confusing borrowers?

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  • I haven't encountered any confusion from any consumers. The pricing changes are easy to explain and the consumers I've spoken with are comfortable with the changes, and even appreciate them. Nobody has been confused or scared.

    • rainmand,

      Your customer base is not the traditional RM originator's customer base. As a “discounter,” you would normally be dealing with seniors who are looking for the best deals and are less adverse to product differentiations which produce lower costs. So your comments are not necessarily reflective of our industry as a whole. I would think your prospects would find these changes far more positive and far less confusing as you state..

      Those of us with more traditional customer bases will find more resistance to change. I do not believe that either Dennis or Beth are dreaming up their perceptions. In certain senior segments, one would naturally expect to find the kind of reluctance to change they present.

  • Here the issue becomes one of perception.

    Younger seniors will generally encourage diversity that results in better choices while older seniors will be more bothered. As one of my older friends used to tell me all of the time: “As I get older I find myself hating too many selections on a menu. Why can't they have fewer choices so that I tell them if I want dinner # 1, 2, or 3? I'll let them know if I don't want their vegetables.” I do not believe this change with age is atypical.

    As an originator for a California financial lender, we have to be very careful in this regard. Under AB 260, we now — as well as CA DRE licenses (and originators in state chartered banks and credit unions) — have a fiduciary, not just agency, duty to our customers. We must now put their financial interests above our own. This standard is new to many of us in California and we are carefully trying to apply this standard to originating.

    Per the incorrect comments of the HECM_Dude (and he is a bright and generally knowledgeable individual), it appears many are unaware that despite the removal of the fiduciary duty standard from the California reverse mortgage legislation, AB 329, it was retained and enhanced in AB 260 and now applies to all mortgage transactions.

    Under a fiduciary duty standard, one not only has to be concerned about confused clients but also clients who “know what they want” especially if the originator believes the choice is not in their best interests. This exceeds suitability standards and generally imposes greater responsibilities on originators.

  • You just have to love the changes. It is the best break Seniors have had since
    the inception of (HECM) Anything that benefits the end user is good news.
    Bob LaFay Reverse Mortgage Consultant

  • Have never been more capable of helping my clients than in past couple of weeks since changes. Have spoken to clients that more than a year ago would not have done the loan that are now in counseling and ready to move forward (in reverse). $9000 to $11,000 is a HUGE deal for some of these folks and they don't want to wait for values to decrease or another haircut.

  • I agree that more changes can get confusing for some clients, but more proceeds to the borrower and more flexibility for us because of more money on the back end are very good things.

  • I originate in Northern California and I expected many of my “undecided” borrowers to jump at the chance to get a low cost fixed rate HECM. I offer no origination fee, no servicing fee, no other closing costs and I pay down some of their MIP, but this doesn't seem to move them toward making their decision. Cost apparently isn't a big barrier to the product.

    • Is the fixed always the best fit for your clients or is it more beneficial to you? Seems to me that the industry has migrated to the fixed HECM as that's where the money is. When they originally came out with the fixed, we were advised to sell these only to those in need of all of the proceeds. The percentage of fixed to adjustable has become astounding.

    • mrreverse,

      Regguy1 brings up an important application of the fiduciary duty standard that all originators who are required to be licensed under the NMLS (not necessarily those who are only required to register) in California are governed by. Under that standard we must put the financial interests of the consumer above our own. That is a much higher standard than merely helping consumers figure out what products are best suited to them.

  • While all the changes are great for our seniors and help those who at one time couldnt do a reverse. HOWEVER for originators like myself It has managed to hurt my business completely. Here in NH YSP is band, small brokers & community banks are also feeling this in NH.

  • mrreverse,rnrnRegguy1 brings up an important application of the fiduciary duty standard that all originators who are required to be licensed under the NMLS (not necessarily those who are only required to register) in California are governed by. Under that standard we must put the financial interests of the consumer above our own. That is a much higher standard than merely helping consumers figure out what products are best suited to them.

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