In July George Bush signed the big housing bill with provisions to for two important reverse mortgage changes.
Most mortgage professionals were clamoring for the first big change and that was to increase lending limits up to 417k. The other change, lenders wish was not included, was the reduction of origination fees.
A quick explanation of origination fees: The lender charges 2% of the appraisal value to 200k. For values from 200k to 417k the lender charges an additional 1%.
Let’s use a $300,000 valued house. The orgination fee for th first $200,000 will be as much as $4,000. For the additional $100,000 in value it can be as much as $1,000. The maximum origination is $5,000.
A 2% across the board origination fee was the order of the day prior to the the new law.
What concerns me is why the lender is getting the proverbial finger pointed at it. I mean how low can the origination fee be before the lender goes bellie up.
This “high cost” origination fee is the only way reverse mortgage companies create revenue. To reduce it is asking them to find a new business.
Furthermore, traditional mortgage origination fees are no less expensive if you examine them closely.
People see a forward mortgage and say, “Hey, you reverse guys sometimes charge twice that”. The reason is forward mortgages build in the difference into the interest rate in what is known as a service release premium.
Although reverse mortgages have SRPs they are very small, which is why the higher origination fee must be charged.
As a mortgage professional I’m somewhat bewildered at AARP’s views toward this subject. I wonder if they are even genuine.
There may be some hypocracy going on. I wonder if they gouge their insurance company’s in same manner they wish to gouge reverse mortgage companies.
I doubt it. Money talks. Do you know AARP makes more money selling insurance than it does membership fees.
This is an area AARP should simply stay out of.
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