Are Reverse Mortgage Origination Fees Making a Comeback?

A disproportionate product shift to adjustable rate mortgages (ARMs) resulting from the April 1 moratorium of the standard fixed-rate could mean a comeback for origination fees charged by brokers and lenders as a means to rebalance in the “new” marketplace.

Two months after the moratorium on the standard fixed-rate reverse mortgage has seen a market shift of 95% ARM products, compared to 70-75% share of fixed rates previously held prior to the fixed-rate suspension, notes the most recent industry report from Reverse Market Insight (RMI).

If the average funded amount on reverse mortgages declines, regardless of product type, according to Mike Gruley of 1st Financial Reverse Mortgages, then the revenue per loan will likely decline as well.

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“This is perhaps less of a pricing issue, and more of a utilization issue,” says Gruley.

With the libor, for example, utilization is typically lower, says Gruley, which means lower funded amounts and lower revenue.

If lenders must maintain current margins, the only way to recapture lost loan revenues will be with adjustments to the originations fee.

“One of these actions would be to increase origination fee revenue by re-introducing origination fees on the fixed products, and increasing them on libor products,” says Gruley, who believes that whatever happens, the market will adjust to the utilization and revenue changes without too much disruption to business.

The lower sales premiums paid on ARM products, relative to their fixed-rate counterparts, is already and will continue to create a reduction in average revenue per loan, according to the RMI report.

“Whether that leads to origination and servicing fees returning to our industry is yet to be determined, but clearly something has to give,” writes RMI President and Founder John Lunde.

Written by Jason Oliva

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  • Something needs to be done regarding compensation to loan officers. The demise of the fixed rate and lower volume makes it very hard for loan officers to make a decent living. I know of more than a few who have left or are considering leaving the industry.
    I don’t understand why LO’s do not get to share in compensation from future draws. If a customer receives tenure payments of lets say $2,500.00 a month (30K annually) why do they not get to share in the revenue generated. This way they can build a business with recurring monthly revenue. It is a win for the customer who would not have to be charged an origination fee because they took little or no upfront draw and a win for the LO.
    Insurance agents do not get a one time commission for selling a policy. They get a share every year that policy is renewed and new income is generated.

    • I agree that the compensation methodology has to change. Being a TPO, I’d love to see a wholesaler lead the way on this. I’m sick of the bait and switch tactics I’m seeing where an estimate is being sent with a full draw expectation, but the customer doesn’t want a full draw (or it isn’t explained that it is a requirement of the estimate).

      FHA opposes LO’s pushing for full draws as that isn’t the way they intended the HECM. The compensation offered by the market runs inverse of their intended usage. When HUD makes the changes at the beginning of the fourth quarter, that’s when it would help to have an alternate compensation method. If there is none, only the strong will survive.

      Either that, or every lender will be clamoring for HECM leads with a large mortgage payoff.

  • I agree some what with Mike Gruley, origination fees will have to come back. I feel they will have to come back if everything remains the same as they are with the product ctiterias.

    Where I don’t agree with Mike is on increasing the origination fee on the Libor product, not at this time anyway.

    I feel this for a couple of reasons, first off, the product and the senior can’t handle it at this time, not even taking into consideration the bad publicity that will hit the industry like a ton of bricks.

    Secondly, I feel the CFPB will climb all over this like Flies to Honey. That is the last thing we need.

    The origination fee needs to be a standard on the Libor products. We must accept the hands of time rolling back on this one!

    John A. Smaldone

  • Since when did origination fees go away? I was recently being discounted over the origination fee. On top of that, was there ever a time that the origination fee was not charged on fixed rate HECMs? Some fixed rate HECM borrowers who wanted low interest rates traded the lower interest rate for a relative small origination fee.

    As to servicing fees charged to borrowers, there seems to be a misunderstanding of the nature of disclosed (but real) costs and those buried in the interest rate. The original reason for the breakout was for sake of transparency. Because of the difficulty of explaining the servicing fee set aside, that breakout proved more confusing than adding transparency. Will it return? Who knows but for now it seems “no.”

  • Actually, if you think about this it just proves that many companies were selling the fixed rate due to the compensation, and NOT utilization.

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