In the Fall lenders offering reverse mortgages or HECMs started funding reverse mortgages with two big differences legislated in the Bush housing bill.
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.
Before the law was changed the lender could charge 2% regardless of value, up to the FHA limit.
The question is what would AARP like to do here? Can a lender charge less and still stay in business. Lenders are not non-profits.
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.
Additionally, these fees are not more than typical forward mortgages. They appear to be more to the layman.
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.
Reverse mortgage companies make a small percentage of their revenue from the SRP… Many times it’s less than $100. That’s why the origination is higher.
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.
I also have to wonder if AARP is asking all the insurance companys, who use AARPs name to sell insurance (of which AARP gets a commission), to take a 50% pay cut on all insurance sold.
Of course not. AARP is far too busy making a killing on all those policies sold through their marketing efforts.
AARP is not so pure and they should to sit this one out.
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