Comments on: Cheap Reverse Mortgages Disappearing, Says Lender

By: Peter G. Miller

Peter G. Miller — Tue, 25 Sep 2007 14:23:00 +0000

For a detailed response to the comment above, please press here. Thanks.

By: Juneboarder

Juneboarder — Tue, 25 Sep 2007 01:29:45 +0000

Reverse mortgage closing costs consist of a few items: 1. Mortgage Insurance Premium; 2. Loan Origination Fee; and 3. Fees associated with the loan.

1. Mortgage Insurance Premium: This is 2% of the lesser of either your home value or the FHA county limit set forth for your county. For example, if you are in Los Angeles, CA and your home is worth $450,000; then your FHA mortgage insurance premium would be 2% of $362,790 (the county limit).

2. Loan Origination Fee: This is where the lender/broker make money. FHA restricts the amount just like the Mortgage Insurance Premium at 2% of the lesser of either your home value or the FHA county limit. This (along with the monthly servicing fee) are the only two items you can really negotiate with your lender to get costs down.

3. Other Fees Associated With Reverse Mortgages: This would consist of the appraisal, credit report, flood report, and title/escrow fees. This is to simply pay all the charges associated with processing and completing the reverse mortgage loan application.

One truly has to keep in mind that nobody works for free and there are a lot of folks that help orchestrate the completion of your reverse mortgage; hence the reason that there are costs up front. Please always utilize your loan representatives to answer any questions or concerns so that you are never in the dark; they should always be willing to work with you to help clear any matters of concern.

By: Peter G. Miller

Peter G. Miller — Thu, 20 Sep 2007 11:27:51 +0000

Alex –

You have made a really good point and a savvy observation. Allow me to take a somewhat different approach.

If you’re a lender you’re getting your money up front. You then sell the loan. If the value of the home declines, it’s not your problem.

As to the FHA, you are entirely right that the size of their reverse obligation is mounting. Under the FHA modernization bills now being considered, HUD would be allowed to increase the number of reverse mortgages that it underwrites. The question is, at what point is it insuring enough loans to sink the entire FHA system if something goes wrong?

One thing which favors the FHA is that higher-LTV reverse mortgages tend to be short-term while loans generated to borrowers of an earlier age have far-better loan-to-value ratios for lenders — and the FHA.

By: Alex Goldie

Alex Goldie — Thu, 20 Sep 2007 03:27:29 +0000

Would it be a reasonable assumption to say that these lenders are behaving in this manner because assets posed as collateral are in a state of great uncertainty regarding their value? And will an FHA guarantee really be able to cover vast holdings of real estate owned by America’s largest generation in history, if the prevalence of these loans increses as dramaticaly as expected? Concerning the increase in price, I would imagine that many of these companies underwriting these loans direly need profit somewhere in their loan portfolios. Demand is only improving for RAMs, so it is a niche of the industry that is picking up the slack, so to say. Stronger price competition will come about once more lenders get into the game.