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.
“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.”
Written by Jason Oliva