Mortgage Professor: Reverse Mortgage Growth Stifled by Lack of Price Competition

Transparent pricing for Home Equity Conversion Mortgages (HECMs) might be a key remedy in breaking the reverse mortgage logjam currently hindering market growth.

A poorly functioning market displaying little price competition has been a significant contributor to the reverse mortgage logjam and a major hindrance to future growth, according to a recent article from “The Mortgage Professor,” a.k.a Jack Guttentag.

The fear of being over-charged has increased seniors’ reluctance toward reverse mortgages, he says, and is further strengthened by a lack of protection against “lock abuse”—an inflated price after the senior has committed to the transaction. 

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“A fear of being over-charged is part of a climate of distrust that strengthens senior reluctance to become involved, and retards market growth,” Guttentag writes. 

 But while greater transparency might help more seniors shop around when looking for a HECM, price shopping would not be effective since HECM lenders are not bound by the prices they quote until the prices are locked.

This time period in-between the quoted price and the locked price may take several weeks, depending on how long it takes for a borrower’s home to be appraised and for the borrower to receive counseling prior to the loan closing.

A potential remedy to the “lock abuse” issue, Guttentag suggests, could be the development of independent HECM networks provided by third-party websites that would invite lenders and brokers to post complete prices. 

“Such sites would provide competitive pricing by calculating all draw amounts based on the best prices posted by participating loan providers, while identifying the low-price loan provider to the senior,” he writes. “The site would protect the senior against lock abuse by allowing the senior to access the loan provider’s posted price on the lock day.”

Read The Mortgage Professor article.

Written by Jason Oliva

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  • In my opinion the amazing and unique flexibility of this product does not warrant an argument about “lock abuse”. I don’t lock anybody BUT I will say that I’ve lowered a margin if an expected rate has drastically changed- its my way of saying I appreciate you Mr and Mrs Client.

  • Unfortunately, the opinion Dr. Jack expresses is his own. It is not based on statistically sound surveys or other credible research. Either the concept expressed is based on anecdote or is purely opinion. If its occurrence is measurable and significant, then it should be measured so that it can be dealt with.

    While such fear possibly exists, it is not of the magnitude that one found related to the reliability of banks during the mid years of Great Depression. But is it as low as the average fear of our favorite chair at work collapsing when we sit on it? So far based on industry reporting of findings on reasons why seniors do not get HECMs, the cause Dr. Jack cites seems never to have significantly “shown up on anyone’s screen” unless the industry is hiding a significant cause for seniors not getting a HECM; while such a cover up is plausible, it is not likely.

    One could argue that Dr. Jack is presenting a plausible cause to create demand for a service he can exploit. I doubt if Dr. Jack would ever participate in such a campaign but to conclude something of this nature with no credible research cited on which to base his conclusion, the conclusion seems more myth than fact. Worse due to his status if promoted by Dr. Jack it could be perceived by seniors as a significant reason not to get a HECM.

    Despite his strong and positive ties to our industry, industry leadership should challenge Dr. Jack about the relevance of this particular reason why seniors do not get HECMs. If this claim is allowed to grow with no significant response, it could become another highly accepted reason (even if unverified anecdote) for not getting a HECM.

    This particular anecdote needs to be challenged and nipped in the bud before it becomes a perceived reason by seniors for not getting a HECM.

  • Is the suggestion here that lenders are changing/raising the margin or rate that the borrower is being charged, between the time they sign the app and sign the final documents? As a broker I can tell you the lenders we work with are not allowing us to do that, and it seems to violate federal law to do so as a lender.

  • I am a skeptic and always want to know what is in this for the other guy. In reviewing the site I did not see the Mortgage Professor charging for anything or making any money on the site. And even the privacy statement is pretty clear that the information cannot be provided to anyone other than a lender that you would choose. So… Is this a good faith effort to keep rates down? With no ulterior motive. Or is there more to it?
    And although I like the idea of keeping the rates down, the site does not talk about any other reason to use a lender. And there are many. As long as the price is reasonable, not necessarily the lowest.

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