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.
“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