Today Financial Freedom announced they are eliminating their HECM Monthly CMT 150 and adjusting pricing for their higher margin CMT products. According to the announcement, these changes are due to an abrupt change in secondary market pricing levels for HECM CMT products.
It looks like these price changes will be happening across the board too. Just a few hours after the FF announcement, JB Nutter sent an email to correspondents stating they are virtually certain pricing will change dramatically on any loan closing August 22 or after. So what’s the cause for the drastic price changes?
The adjustments could have something to do with Fannie Mae increasing their market delivery charge and loan level price adjustments last week. According to Fannie Mae, these changes are intended to "better align pricing with credit risks, mitigate losses and support Fannie Mae’s ability to provide a stable source of liquidity to lender partners.
This is the beginning of a trend where we will see higher margin reverse mortgages products due to market conditions as well as the new housing Bill. Next Generation Financial Services Co-Founder said it best in a recent email he sent regarding the limit on origination fees…
This legislation was intended to reduce the cost of a HECM to senior homeowners. However, the unintended consequence will be that over the life of the loan seniors will end up paying more. The reduction of the origination fees will force lenders to offer only the higher margin HECM programs to the customer. While this legislation reduces the revenue a company can receive to originate a HECM, a companies fixed expenses required to originate a HECM are not reduced. The origination of a HECM is very labor intensive and consequently expensive. Companies will be forced to increase the HECM margins in an effort to cover revenue shortfall created by the new limits on the origination fees.
Next Generation Financial Services
I couldn’t agree more Mr. Carter.