New Rules for Reverse Mortgage Interest Rate Pricing
Fannie Mae and the powers behind her, last week, changed the manner in which us little reverse mortgage companies can price our loans to consumers. This is a big change.
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.
The 120 lock period is no longer available. Rather, the new pricing structure has much shorter interest rate lock periods. This likens itself to the forward mortgage market.
A high percentage of borrowers are looking to the reverse mortgage as a savior to pay off their current forward mortgage. Some of these folks are in for a rude awakening.
Getting rid of the payment associated with the mortgage is their main goal.
Here is where they can get in trouble. Often the loan amount, offered by a reverse mortgage lender, is just enough to pay off the mortgage. A big factor determining how much the borrower gets is the interest rate.
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.
Where our group of customers may be in trouble is they will call in for a quote. Rates will be good that day and the lender will verbally green light the transaction.
Envision this.. Fourteen days later, when the borrower can finally lock in the rate, what if rates are up one percent or so. This borrower will be out of luck in as far as paying off that mortgage.
At this point what are the choices for this customer? He can either wait for interest rates to drop back down or pay the difference in cash.
This is not exactly a great pricing change for the average reverse mortgage customer.
The upside for the professional loan officer is it will weed out the fly-by-nighters entering the reverse mortgage business just looking to make a buck.
The stronger, more knowledgeable LOs will see this as old hat, know how to explain it, and probably garner more of the business.
