Reverse Mortgage Looking Pricing Loans Like Forward Market
Things just got more interesting in the reverse mortgage industry. Fannie Mae, the company which securitizes reverse mortgages on the secondary market, has changed how we price our loans.
Last week when someone called in for a quote, we would give them some competitive numbers and we could stick by them.
In fact the quote, if the customer went forward, would be good for 120 days.
This is no longer the case. Today reverse mortgage feel more like forward mortgages in that interest rate pricing is done with varying lock periods. And pricing can change day to day prior to locking rates.
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.
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.
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".
Here is the worst case scenario. The customer goes through the process, gets counseling, application, even an appraisal and finally can lock in the loan. If rates take a turn for the worse during that period this loan is toast.
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.
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 stronger, more knowledgeable LOs will see this as old hat, know how to explain it, and probably garner more of the business.
Last week when someone called in for a quote, we would give them some competitive numbers and we could stick by them.
In fact the quote, if the customer went forward, would be good for 120 days.
This is no longer the case. Today reverse mortgage feel more like forward mortgages in that interest rate pricing is done with varying lock periods. And pricing can change day to day prior to locking rates.
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.
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.
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".
Here is the worst case scenario. The customer goes through the process, gets counseling, application, even an appraisal and finally can lock in the loan. If rates take a turn for the worse during that period this loan is toast.
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.
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 stronger, more knowledgeable LOs will see this as old hat, know how to explain it, and probably garner more of the business.
posted by Debt Consolidation Loan at
12:12 AM
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