Forward Mortgage and Reverse Starting Going to Same Pricing
The reverse mortgage industry is currently going through a big change. The powers that be (Fannie Mae) has changed the manner in which we, as reverse mortgage companies, price the loans to our customers.
Formerly I could give a customer hard numbers immediately. In other words I could tell them which interest rate and how much money they qualify to receive right off the bat.
Furthermore, my quote was relatively etched in stone for up to 4 months.
Today we can throw this nice long lock period out. Now this industry is pricing its loans like traditional forward mortgages such that we now have varying short lock periods.
Since most reverse mortgages take longer than the lock periods some customers will get burned. Quite a few senior borrowers are banking on the reverse mortgage to come in and pay off their forward mortgage.
Their goal is to eliminate the burden of that payment.
Where I can see a problem is that interest rates play a major role in how much money a borrower can receive for the reverse mortgage. Too often the reverse mortgage is just enough to pay off the forward mortgage.
How much a lender lends is inversely related to rates. When they go up, the borrower gets less, and vice versa.
Since some buyers are right on the cusp, they will be quoted one day. The lender will say, "good news, looks like you'll be able to pay off your mortgage".
Two weeks later, after the market sends the rate up a point or so, when they go to lock they may no longer be able to pay that mortgage off.
Now the borrower is stuck either waiting for rates to come down or is left with the choice of coming in with cash to pay off the mortgage.
We can see that a few of these borrowers will absolutely go through this in the coming months and years.
I believe this new pricing model, though negative in my example, should drum out a good number of the poor loan officers in this industry.
The strong loan officers will have a handle on how to present this to seniors and will win most of this business. Good for us. - 16931
Formerly I could give a customer hard numbers immediately. In other words I could tell them which interest rate and how much money they qualify to receive right off the bat.
Furthermore, my quote was relatively etched in stone for up to 4 months.
Today we can throw this nice long lock period out. Now this industry is pricing its loans like traditional forward mortgages such that we now have varying short lock periods.
Since most reverse mortgages take longer than the lock periods some customers will get burned. Quite a few senior borrowers are banking on the reverse mortgage to come in and pay off their forward mortgage.
Their goal is to eliminate the burden of that payment.
Where I can see a problem is that interest rates play a major role in how much money a borrower can receive for the reverse mortgage. Too often the reverse mortgage is just enough to pay off the forward mortgage.
How much a lender lends is inversely related to rates. When they go up, the borrower gets less, and vice versa.
Since some buyers are right on the cusp, they will be quoted one day. The lender will say, "good news, looks like you'll be able to pay off your mortgage".
Two weeks later, after the market sends the rate up a point or so, when they go to lock they may no longer be able to pay that mortgage off.
Now the borrower is stuck either waiting for rates to come down or is left with the choice of coming in with cash to pay off the mortgage.
We can see that a few of these borrowers will absolutely go through this in the coming months and years.
I believe this new pricing model, though negative in my example, should drum out a good number of the poor loan officers in this industry.
The strong loan officers will have a handle on how to present this to seniors and will win most of this business. Good for us. - 16931
posted by Edgar at
00:06
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