WSJ: Lower Costs Make Reverse Mortgages More Attractive

NewImage.jpgOver the weekend the Wall Street Journal published that with lower costs, reverse mortgages are looking better.  WSJ columnist Amy Hoak writes that the lower costs also bring a new challenge to consumers, comparing the offers to find the best one.

“Quite a few of the lenders now have reduced the origination fees,” says Barbara Stucki, vice president of home-equity initiatives for the National Council on Aging. “Some of them are getting rid of the origination fees. Some are willing to pay some of the mortgage-insurance premium fees upfront.”

It’s an important development for reverse mortgages, which have in the past faced criticism for charging high upfront costs, says Peter Bell, president of the National Reverse Mortgage Lenders Association.

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Driven by an increase in demand for Ginne Mae securities backed by the loans, investors are willing to pay a premium because of the attractive yield from the loans according to the WSJ.  Lenders have been passing that premium to borrowers by reducing the upfront costs of the loans.

However, the recent fee reductions mean more work for prospective borrowers to compare loans from multiple lenders.  One lender might reduce the origination fee, while another might waive the origination fee but raise the interest rate. Another could change the servicing fee said Bell.

“Consumers need to get the full details of the offer from the lender, and [they] need to analyze them and compare them,” he says.

Reverse Mortgages Look Better

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  • While the article was positive, it was also misleading.

    While Dr. Stucki has a great deal of knowledge about HECMs, her statement about lenders getting rid of origination fees and paying some of the upfront MIP puts a false expectation in seniors as to adjustable rate HECMs. For many seniors an adjustable rate HECM is THE more appropriate product.

    The advice by Dr. Stucki to go to counseling before meeting with a lender is not a wise decision in California. It could result in having to redo counseling based on AB 329 requirements.

    As usual Peter Bell did a great job explaining the product in a more generalized fashion. We could all learn from his way of presenting this product. His evaluation was very even handed but positive.

    Jeff Lewis was OK but generally mediocre. His advice about HECMs as a short-term loan is less applicable today than it was in 2009. With the reduction in upfront costs, the APR of most fixed rate HECMs at the same note interest rate has fallen based on paying off the loan in one year. Since there are no penalties for early payoff, this product looks much better as a short-term financing answer than last year. Today we saw one borrower whose APR dropped over 3% if they held the loan for only one year versus the same exact loan last year because of no upfront MIP or servicing fee set aside. It made him feel more comfortable about getting the product in case there was a need for an early payoff.

    When discussing how borrowers could receive their proceeds, the author treated the subject as if it applied equally to fixed and adjustable rate HECMs. It is apparent, HUD needs to update that discussion on its website since that is where the author indicates she got her information.

    Then there is the issue of the borrower NEVER owing more than the balance due because of FHA insurance. Of course we all know that is completely false if the borrower or heirs want to keep the home. What does FHA insurance have to do with how much the borrower has to repay anyway? This is after all a nonrecourse debt by its very terms.

    While positive, the article could stand substantial improvement.

  • While the article was positive, it was also misleading. rnrnWhile Dr. Stucki has a great deal of knowledge about HECMs, her statement about lenders getting rid of origination fees and paying some of the upfront MIP puts a false expectation in seniors as to adjustable rate HECMs. For many seniors an adjustable rate HECM is THE more appropriate product. rnrnThe advice by Dr. Stucki to go to counseling before meeting with a lender is not a wise decision in California. It could result in having to redo counseling based on AB 329 requirements.rnrnAs usual Peter Bell did a great job explaining the product in a more generalized fashion. We could all learn from his way of presenting this product. His evaluation was very even handed but positive. rnrnJeff Lewis was OK but generally mediocre. His advice about HECMs as a short-term loan is less applicable today than it was in 2009. With the reduction in upfront costs, the APR of most fixed rate HECMs at the same note interest rate has fallen based on paying off the loan in one year. Since there are no penalties for early payoff, this product looks much better as a short-term financing answer than last year. Today we saw one borrower whose APR dropped over 3% if they held the loan for only one year versus the same exact loan last year because of no upfront MIP or servicing fee set aside. It made him feel more comfortable about getting the product in case there was a need for an early payoff. rnrnWhen discussing how borrowers could receive their proceeds, the author treated the subject as if it applied equally to fixed and adjustable rate HECMs. It is apparent, HUD needs to update that discussion on its website since that is where the author indicates she got her information.rnrnThen there is the issue of the borrower NEVER owing more than the balance due because of FHA insurance. Of course we all know that is completely false if the borrower or heirs want to keep the home. What does FHA insurance have to do with how much the borrower has to repay anyway? This is after all a nonrecourse debt by its very terms.rnrnWhile positive, the article could stand substantial improvement.rn

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