On November 6 of 2008 reverse mortgage lenders could begin closing reverse mortgages with two important changes:
The one most people were concerned about was FHA increasing its its national loan limits up to four hundred seventeen thousand dollars. The other, less known change, was a reduction in lender fees.
This is what the government madates under the new law. Maximum origination fees up to $200,000 of 2%. From $200,000 to $417,000 an additional max of 1%.
To give you a scenario we'll assume the home is worth $350,000. The fee for the initial $200k is $4,000. Add in an extra $1,500 for the value between 200 to 350 and you arrive at a total fee of $5,500.
Before the law was changed the lender could charge 2% regardless of value, up to the FHA limit.
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.
What's more this lender fee is no more expensive for reverse mortgages than it is with forward mortgages. Forward mortgages simply hide the difference in the form of a higher rate.
How a forward mortgage ends up costing the borrower as much as a reverse mortgage is in the "service release premium". This is is a fee the bank pays the mortgage company inside the rate. They may charge 1% but there is backend money in those loans.
The reason the origination fee is higher for the reverse is service release premiums are very low.
I have to wonder if AARP has any idea of what goes into mortgage origination and the complexities therein. Are they being real at all.
Afterall, they do have a growing senior population to sell insurance to. Do they ask their client insurance companies to take a hit like they mortgage companies?
Oh, don't think so. Insurance commission is the number one money maker for AARP. It's a money train.
AARP is a useful informative of company, but they are off the mark this time.
The one most people were concerned about was FHA increasing its its national loan limits up to four hundred seventeen thousand dollars. The other, less known change, was a reduction in lender fees.
This is what the government madates under the new law. Maximum origination fees up to $200,000 of 2%. From $200,000 to $417,000 an additional max of 1%.
To give you a scenario we'll assume the home is worth $350,000. The fee for the initial $200k is $4,000. Add in an extra $1,500 for the value between 200 to 350 and you arrive at a total fee of $5,500.
Before the law was changed the lender could charge 2% regardless of value, up to the FHA limit.
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.
What's more this lender fee is no more expensive for reverse mortgages than it is with forward mortgages. Forward mortgages simply hide the difference in the form of a higher rate.
How a forward mortgage ends up costing the borrower as much as a reverse mortgage is in the "service release premium". This is is a fee the bank pays the mortgage company inside the rate. They may charge 1% but there is backend money in those loans.
The reason the origination fee is higher for the reverse is service release premiums are very low.
I have to wonder if AARP has any idea of what goes into mortgage origination and the complexities therein. Are they being real at all.
Afterall, they do have a growing senior population to sell insurance to. Do they ask their client insurance companies to take a hit like they mortgage companies?
Oh, don't think so. Insurance commission is the number one money maker for AARP. It's a money train.
AARP is a useful informative of company, but they are off the mark this time.
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