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.
In fact the quote, if the customer went forward, would be good for 120 days.
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.
This is going to come up and bite some people, i can guarantee you. There exists a certain segment of reverse mortgage customers that are attempting to pay off a forward mortgage.
Their goal is to eliminate the burden of that payment.
Many times the lender will lend just barely enough to cover the payoff of the mortgage. Remember, part of the equation of how much a lender will lend is based upon interest rates.
The interest rate affects the amount of money a lender will lend in the opposite way of its movement. If rates are up, the loan is less. If rates are down, the loan is more.
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.
The borrower has the choice now of paying the difference between what the reverse mortgage company will lend, now much less than before, and his forward mortgage in cash.
We can see that a few of these borrowers will absolutely go through this in the coming months and years.
The new pricing should offer a better experience for customers such that it should, because of its complexity, sift out some of the weak reverse mortgage loan officers.
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.