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.
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.
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.
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 amount of money a borrower receives is inversely associated with the interest rate. For instance, when rates are low, the borrower gets more money. Conversely when they go up, the borrower gets less.
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.
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.
This is the down side. The up side for the borrower is it will force lenders to be competitive in their pricing.
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 reverse mortgage loan officers with knowledge and experience would understand how to properly present this to customers. My guess is they will win more customers.