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Recouping profits and preparing the consumer
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It was once the cash cow of our industry and the product de jour for borrowers. The Standard Fixed Rate HECM. It gave consumers maximum proceeds and lenders and brokers a handsome back end premium due. Without this product some have wondered how they can regain some of their lost profit margins.
Reverse Market Insight which tracks our industry shows a recent shift to 95% adjustable or ARM products. Compare that to the prior 75% marketshare the Standard Fixed once held. Now professionals are looking at the revenue per loan. If the average funded amount on reverse mortgages declines, regardless of product type, then the revenue per loan will decline as well”. All which means lender will most likely recoup some of these losses with origination fees.
6 Comments
Shannon. We have charged OF right from the beginning and have had no problem with that at all. so far 100% of my loans have been standard adjustable. Main concerns with new folks today are still the “perception” and the 2% MIP. Liked your scritpture verse and yes we all deserve to get paid for our services. Thanks a gain and have a great week!!
If HUD is limiting draw to need and escrows for taxes and insurance will be place plus getting rid of all the bad apples with credit and income checks why would they not bring back fixed rate standard?
tom,
As to the fixed rate Standard and a limited draw based on need, there is no clear word from HUD how a product which requires that all proceeds be taken at funding would work. Lenders will not offer a fixed rate product which has a line of credit. It just makes no sense. For example, who would want to be subject to draws earning 4.5% when the current prime interest rates are at 6%. Lenders would lose on the arbitrage.
Then comes the question as to what is need? What if the senior does not want to sell a stock in a rising market, is that need? Or how about the down payment on a second home? What about funding the education of a grandchild who is a recovering addict? Etc.
There were some rumors that the limit on proceeds would only apply for a limited period of time such as one or two years. HUD has yet to clarify what they might do to cap proceeds.
Will HUD bring the fixed rate Standard back? Looking at the HUD projected net position of the HECM part of the MMI fund as of year end, how could they?
SHannon,
Wish LOF were truly coming back. Trend from Proficio, Reverse One, and others is 2.5% margins and $0 LOF on the VARIABLE. I am having to waive the fee of late, more often than not due to telesales reps from FLA, TEXAS, Las Vegas, that somehow the young seniors (just turned 62) are finding on the internet. They go through all steps and phases with me, even close, and then give their HUD-1 to their kids, CPA, attorney, Fin Planner etc. who passes it on to a friend most times in another state, who states “Oh, my buddy can beat these numbers, and during the 3 day right of rescission time frame. OUCH! Never happened to me in 6 years and now it’s been the norm on my last 20+ deals. This is why I left forward loans 6 years ago. Last week I had to drop from a margin of 3.0% and an LOF of $6,000 to and LOF of 0% and a margin of 2.5% only to lose by a few $100 still, to someone from another state on the phone who never met them, counseled them, attended their seminar, sat with them at their kitchen table, etc. etc. etc. I called 10 firms and acted like I wanted a job and all were using $0 LOF for variable STD with Margins of 2.5%. This give clients more money, lower closing costs and a better deal for sure. With the fixed we could easily lower the rate and waive the LOF and even give lenders credits, sometimes as much as $20,000 wiping out all closing costs. Now, it’s trending there with the Variable. HELP!
It’s just going to get more competitive on all fronts to close a HECM loan, that’s the reality of it all. Ultimately, the market will dictate if OF’s will become the norm. It’s an expensive loan to begin with and it will get that much more. To boot it will be underwritten like forward loans with the FA to make sure that the borrower has sufficient means to make the insurance and tax payments. The question beckons to note if HECM loans are going to be any different than forward loans by the time it is all said and done? I think FHA would like nothing more than to treat things equally, that’s the role of government, not in agreement, just saying…
There is no one to blame other than our industry. We were the ones maxing out commissions, steering into financial products that only were designed to make us more money and generally treating this product as though it was the ultimate Golden Goose.
Just like all programs connected to the Government, the folks who are going to fix it, have no clue and apparently our lobby group does not have much of an impact within the overall scheme of things.
There is only one thing that needs to be done.
THAT IS TO REFOCUS ON THE SENIOR COMMUNITY AND MEET THEIR NEEDS. PERIOD! This can be done by bringing someone from the industry into the FHA charged with the repair of the product and given the authority to perform those duties. NOT A POLITICIAN. I DARE SAY THE GAL IN CHARGE NOW CANNOT EVEN SPELL MORTGAGE