Bank of America Paying Entire Upfront MIP on Fixed Rate Reverse Mortgages

bankofamericalogo.jpgBank of America (BAC:NYSE) announced it’s paying 100% of the upfront mortgage insurance premium (MIP) on unlocked fixed rate HECMs starting May 7, 2010.

“In an effort to continue to drive additional benefit back to senior borrowers, this latest product enhancement will assist you in providing innovative and cost-effective options to your customers,” said the company in a statement to brokers.

In addition, the product has no servicing fee and pricing for its wholesale reverse mortgage customers remains unchanged.  Originators have no restrictions on the HUD allowable origination fee said BofA.  “This reduces your exposure to monetary risk due to secondary market fluctuations and allows you further flexibility to adjust the origination fee to remain competitive.”

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The decision to credit the entire insurance premium for borrowers and keep pricing the same is the most aggressive move we’ve seen in the past month.  As industry volume continues to slide, reverse mortgage lenders feel this could reverse that trend.

“Our whole industry has been held back by an artificial misunderstanding on costs,” said Dave Bancroft, EVP of Security One Lending. “Take away the costs and we will be able to break into a lot of circles that have never been tapped.”

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  • It sounds good BUT, A) Will this push people towards fixed-rate loans when they should be taking adjustables? B) Will this confuse our clients who will not understand why their loan has $15,000 more in closing costs than their friends? and C) What will happen if the secondary market shifts considerably and B of A has to start charging the MIP again, and noone wants to pay it?

    • Michael,

      That is why we are “paid the big bucks.” It is our job to take the confusion out of the transaction and help seniors find the right product for them. Depending on the state where the borrower and property resides, a fiduciary duty of care may apply.

      What is wrong with increasing the interest rate so that these upfront costs and the SFSA reduction continue to be covered? Or what is wrong with more than one fixed rate HECM product with one having lower upfront costs with a higher note interest rate and one with higher upfront costs but a lower interest rate on the note?

      Our industry began substantially changing once proprietary products were introduced and the marginal rate of HECMs was reduced to 1%. The days before those changes are no more. Don't expect the days of little change and less variety to return.

  • Reversing the slide is not the issue. Lessening the slide is.

    Dave Bancroft is right. For far too long this industry has had an ancient old banker attitude towards innovation. Why it takes a crisis to change that mentality is ridiculous.

    All of us who have been ACTIVE in this business for at least 6 months have come across resistance to HECMs based on upfront costs. Proprietary reverse mortgage lenders understood that principal immediately upon offering their products. While most of us are pleased with these changes, why weren't they initiated two decades ago?

    I hope these changes do not drown out the cries for a HECM II. Lower costs at lower interest rates would be very helpful. There needs to be both adjustable as well as fixed rate HECM IIs. Why not offer several HECMs at various PLFs so that the MIP could be charged based on the PLFs offered? Yes, that would result in risk based pricing. Maybe the number of participating seniors would not double but that number would certainly rise and perhaps projected positive credit subsidies would be reduced as a result.

  • Im trying to get a reverse mortgage now..but now the appraisers are a pain in the butt..Just a appraisal 3/31/2010 for $298,000 and only 7 months ago had one from BA for $365,500..SAME PLACE

    • nornocyte,

      If you have adequate comps vindicating a higher value, have your originator submit a challenge through the lender. I did for a customer (with better and more timely comps) and on an AMC appraisal, the appraiser amended his estimate of value, increasing it by about 5%. But if you do not have the comps unless there is a math or other significant error, little can be done. But if you have adequate documentation (that is generally the challenge) and your originator will not provide it to the appraiser through the lender, find a new originator. If the appraiser ignores the submission, work with the originator to see if there is something else which can be done; usually there is not.

      So as to reduce any false expectations, my experience with an increase in the estimate of value with an AMC appraisal is quite rare.

  • Is this available to both wholesale and retail for Bank of America Reverse Loan Originators? I heard from one of thier retail LO's that the paid MIP is only available to theer wholesale side.

  • Since there is no free lunch, where does the UFMIP cost com from, i.e. is it taken out of the origination loan, the back end or bothy, or does the investor absorb it?

    • It depends on the solution you're seeking. What's your primary objective? Are you interested in receiving a monthly check? Or does a Credit Line make more sense for your situation. Or is your goal to eliminate your monthly mortgage payment? Or to receive the absolute lowest fees possible?

      It's important to understand the solution you're seeking prior to recommending the best reverse mortgage program.

  • It depends on the solution you’re seeking. What’s your primary objective? Are you interested in receiving a monthly check? Or does a Credit Line make more sense for your situation. Or is your goal to eliminate your monthly mortgage payment? Or to receive the absolute lowest fees possible?rnrnIt’s important to understand the solution you’re seeking prior to recommending the best reverse mortgage program.

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