Fed Compensation Rule Levels Playing Field for Fixed Rate Reverse Mortgages

With the April 1 implementation date for the Federal Reserve’s loan officer compensation rule just four days away, several lenders have confirmed that new compensation plans will change the way lenders offer fixed-rate reverse mortgages as the industry knows it.

In general, most wholesalers have settled on a lender-paid compensation model for fixed-rate reverse mortgage loan originators. Under its new plan, MetLife says it will only accept lender-paid submissions, with pricing options where the consumer pays an origination fee to MetLife for fixed-rate, closed-end loans.

“The purpose is to have a broker be agnostic to the pricing choice and not have a decision of pricing option based upon broker compensation,” said Bob Sivori, MetLife Bank vice president, reverse mortgage, who is also responsible for third party channels. Due to recent Fed guidance presented on a conference call, said Sivori, MetLife decided to focus on the lender-paid compensation model (for fixed-rate reverse mortgage loans), pending additional guidance.

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Currently, MetLife is rolling out two coupons with plans to offer more. “The brokers will be compensated identically for each of the options,” he explained. “The borrower will choose the pricing option that makes the most sense.”

Exactly how brokers will fare under the new model is unclear, but Sivori said it will cause brokers to compete on qualities other than price.

“Essentially, it’s a level playing field,” said Sivori, of the effect on brokers.

Ultimately, the implementation of the rule should benefit the borrower. “I don’t think it’s going to be bad for the industry…or for the consumer.”

Written by Elizabeth Ecker

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  • if you are a broker you cannot compete with the saver , the adjustable libor with no origination fee, and now cannot compete with the fixed since you have no ability to pay for borrower’s costs and be competitive. It’s unfortunate this is the direction the industry is heading. You will have 2 or 3 big lenders setting the price in the market with no competition. It happened in NH first (with inability to recieve YSP) and now it is happening nationally. Now with HUD counselors rating folks on a 1-5 scale on whether they ‘need’ to do a reverse mortgage, and telling them to shop around for a $0 origination fee, the industry is heading in a tough direction.

  • if you are a broker you cannot compete with the saver , the adjustable libor with no origination fee, and now cannot compete with the fixed since you have no ability to pay for borrower’s costs and be competitive. It’s unfortunate this is the direction the industry is heading. You will have 2 or 3 big lenders setting the price in the market with no competition. It happened in NH first (with inability to recieve YSP) and now it is happening nationally. Now with HUD counselors rating folks on a 1-5 scale on whether they ‘need’ to do a reverse mortgage, and telling them to shop around for a $0 origination fee, the industry is heading in a tough direction.

  • I have to disagree wholeheartedly. Of the half dozen quotes that have gone out today alone for fixed rate reverse mortgages, 4 out of 6 were loan amounts greater than 200k. Prior to the loan officer comp change, we would have originated these at no upfront fee to the borrower. It appears that through unintended consequences, the cost on 67% of the quotes we originated just today cost the borrower a minimum of $2,250 more. Two of those had substantial UPB’s which would have enabled us to pay some of the borrowers third party costs as well which we can no longer do under the Dodd-Frank Act. Those loans just cost the borrower an additional $2,200 to $2,500. In all, the consumers just received quotes of as much as $5,000 more but in no instance less than $2,250 more than they did prior to the change on 67% of the fixed rate loans quoted. Unlike Mr. Sivori, I would have to say that is bad for the consumer and completely unnecessarily so.

  • A few thoughts from a reverse mortgage counselor…
    It is not the counsleors job to ‘rate’ whether or not a homeowner needs a reverse mortgage. It is simply to make sure they have the knowledge they need to make this decision themselves. The FIT scale 1 – 5 does not make this decision for them. It’s part of an overall package of information they should consider when making their decision. Plus, the counsleor is not rating them. Their own answers to the FIT questions create this rating.

    If a lender provides any loan estimate information to the homeonwer, they must also provide this information to the counselor. The counsleor’s job is to explain these loan estimates to them. We are not allowed to tell people to shop around. We can only tell them that some lenders may offer lower closing costs for taking out a loan with higher interest rates.

  • A few thoughts from a reverse mortgage counselor…
    It is not the counsleors job to ‘rate’ whether or not a homeowner needs a reverse mortgage. It is simply to make sure they have the knowledge they need to make this decision themselves. The FIT scale 1 – 5 does not make this decision for them. It’s part of an overall package of information they should consider when making their decision. Plus, the counsleor is not rating them. Their own answers to the FIT questions create this rating.

    If a lender provides any loan estimate information to the homeonwer, they must also provide this information to the counselor. The counsleor’s job is to explain these loan estimates to them. We are not allowed to tell people to shop around. We can only tell them that some lenders may offer lower closing costs for taking out a loan with higher interest rates.

  • As a reverse mortgage counselor, I would like to clarify what the “FIT” review number is meant to portray to the homeowner. Rather than to rate whether the client “needs” a reverse mortgage loan or not, the number is used to highlight certain challenges to remaining in the home that the homeowner may be facing. For example, if the loan provides enough to refinance a current mortgage but the client is, after closing, still unable to afford taxes, insurance or home maintenance, we are required to point out the fact that they may feel forced to sell the home within a few years or face foreclosure. This discussion helps the client look down the road and decide if it’s still worth it to them, given the higher average annual cost of the loan in the early years in addition to the cost of selling or foreclosure. It also gives us the chance to talk about other options which we are required to do by HUD protocol. We don’t offer opinions about whether the loan is a need or not or a good choice for them or not. In regard to shopping for loans, we do tell them they have the right to do so, but that we can’t speak for a lender or know exactly what the market is demanding tomorrow or next week or what the investor requires. We suggest shopping as one would for any other product.

    Getting back to the subject of this article, although I am not a broker or loan officer and do not know the fine details about the loan officer compensation rule, it does appear that the rule will reduce competition thereby giving even more power to the big banks. The rule looks like it will benefit those who need it the least rather than the most: the consumer and small businesses.

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