December 15, 2015
Past efforts to provide senior
homeowners with the tools needed to obtain competitive
pricing on HECM reverse mortgages have been only partly
successful. There is now a Kosher HECM network on which 10
lenders post their prices, generating competitive prices for
the seniors who access it. It is new and small relative to
the mainstream market, but the potential savings to seniors
are considerable.
For example, a borrower of 70
using the network on Dec, 3, 2015, whose home is worth
$600,000 with a mortgage balance of $200,000, would have
paid an interest rate of 3.99% on a fixed-rate HECM, with no
origination fee. This was the lowest price posted by any of
the 10 lenders. The same borrower accessing the mainstream
market would have paid 5.06% with an origination fee of
$6,000. This is the price estimated by NRMLA, the trade
association of HECM lenders.
To date, the competitive segment
of the market has not affected pricing in the mainstream
market. Mainstream lenders do not post their prices, and few
borrowers know enough to comparison shop effectively.
In searching for ways in which
the competitive network could impact the non-competitive
mainstream market, we found that many seniors visit the
network before they access a mainstream lender, presumably
to educate themselves. This made us aware that we were not
giving them everything they needed to shop mainstream
lenders effectively. To fill this gap, we developed the
HECM Shopper’s Assistant, or HSA.
The HSA is designed to bring
some of the price competitiveness of the Kosher network to
bear on the mainstream market. It will do that by
empowering a type of intelligent shopper that mainstream
lenders have not seen before.
The HSA is a one-page summary of
all the information a lender who is being shopped needs to
price a HECM accurately. This includes:
·
*Personal data
including property value and zip code, existing liens and
the borrower’s birth date.
·
*Desired mortgage
type, whether fixed or adjustable rate, if adjustable the
maximum rate increase.
·
*Draw amounts,
covering upfront cash draws, monthly payments, the monthly
payment period, and credit line.
·
*The price the
borrower is looking to beat, including interest rate, lender
fees and upfront mortgage insurance premium.
To use the HSA as a shopping tool, the borrower needs only
to present the information shown above to the lender being
shopped, and ask whether or not the lender can offer either
a) a lower rate on the same mortgage type without a higher
fee or b) a lower fee without a higher rate.
Shoppers off the network do have to be careful of
“low-ballers”, who quote low prices they have no intention
of delivering. Low-ballers bet that the borrower who has
invested time and effort in the transaction, only to find
that the price has increased, will be satisfied with the
lender’s explanation of why that happened. There is no
low-balling on the Kosher network because the loan providers
are monitored, but off the network there is no monitoring.
The HSA includes tips for dealing with low-ballers.