In times of falling interest rates, reverse mortgage originators have had the capacity to pass along savings to borrowers in the form of covering some of the loan’s upfront costs and reducing the upfront fees overall.
Today, with rates rising, borrowers are increasingly facing the full upfront costs, it is increasingly important to clearly explain and detail those reverse mortgage costs and fees to consumers, says Craig Barnes, education leader for Reverse Mortgage Funding. By addressing all costs, originators can start a conversation about the loan’s benefits and protections.
“What education can we impart to loan originators about the virtues of the product regardless of whether you can sell it for zero closing costs?” Barnes asked during a presentation before attendees of the National Reverse Mortgage Lenders Association Western Meeting on Wednesday. “When rates rise and originators are not able to cover as many closing costs are before, it’s increasingly important to know what those costs are.”
Borrowers who have had a forward mortgage will be familiar with many of the closing costs, Barnes noted, such as fees relating to title and escrow, appraisal services and insurance.
Costs that are unique to the reverse mortgage product should be detailed carefully with borrowers upfront, he says, so they understand the purpose of those costs — namely, borrower protections.
The mortgage insurance premium is often noted in the mass media as one of the hefty upfront costs of getting a Home Equity Conversion Mortgage. Particularly for those drawing more than 60% of the loan proceeds in the first year and paying the upfront MIP of 2.5% of the appraised value of the home, this can amount to a large sum for borrowers.
But for the upfront cost comes a very important protection, that should be detailed and shared and explained to borrowers, Barnes says.
“We have to explain MIP is there to protect the borrower,” he says. “We can’t have the non-recourse [feature] and not have MIP.”
Further, for those who are facing the higher upfront MIP but are on the cusp of drawing more than 60% of the loan proceeds in the first year, Barnes suggests explaining to borrowers how by bringing cash to close the loan can help them borrow more in the long run by reducing the MIP.
“In some cases, you as an originator can save borrowers lots of money,” he says, pointing to a recent transaction where the borrower could bring less than $100 to closing in order to save around $5,800 on the mortgage insurance premium.
“Now [the originator] has two loans in the pipeline that were referrals from that borrower,” Barnes says. “It sure didn’t hurt that they saved almost $6,000 [for the borrower].”
Written by Elizabeth Ecker