Reverse Mortgage Guide

HUD has asked Congress to remove proposed legislative language that would limit the cost of originating reverse mortgages.

In letters to Rep. Barney Frank (D-MA), chairman of the House Committee on Financial Services and Sen. Chris Dodd (D-CT), chairman of the Senate Committee on Banking, HUD says that Congress should not limit reverse mortgage origination fees to 1.5 percent of the “maximum claim amount”.

“Generally,” HUD explains on its web site, “the property value and the maximum claim amount will be the same because the maximum claim amount is the lesser of the appraised value or the maximum mortgage amount under Section 203(b) of the National Housing Act.”

In its letter to Capitol Hill, the department says:

“HUD is in agreement with the provisions in H.R. 1852 and S. 2338 that increase the number of Home Equity Conversion Mortgages (HECMs or “reverse mortgages”) that may be insured by FHA, while authorizing HECMs for use in condominium units and purchase transactions. HUD applauds these amendments because they help ensure the ability of FHA to serve a larger number of targeted homebuyers, in more areas of the nation, than are being served under the present HECM program. However, HUD encourages the Congress to remove provisions contained in both H.R. 1852 and S. 2338 that propose a 1.5 percent limitation on HECM loan origination fees. HUD is aware of the need to protect seniors from potentially excessive fees, but believes any such limitations should be flexible enough to respond to a changing market. Thus, such limitations should be established through Federal Register notice or other appropriate vehicle, instead of through a rigid statutory framework.”

Huh?

The Internet is peppered with ads for loan officers explaining how they can make big money selling reverse mortgages to seniors. Given HUD guarantees, reverse mortgages represent virtually zero risk to lenders. Given few claims to date against HUD for lender losses — and NO claims by borrowers — reverse mortgages are obviously and overtly overpriced.

HUD says, effectively, that lenders will not be enticed to offer reverse mortgages if origination fees are “limited” to 1.5 percent. This is nonsense. It suggests that efficient, competitive and entrepreneurial lenders do not exist.

This entry was posted on Wednesday, February 13th, 2008 at 3:06 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.