Kevin's Corner

You Need an Expert

I decided to rerun this information again because it is a great summary of the changes in the reverse mortgage business as new products, lower interest rates, availability of fixed rates have forever changed the landscape of reverse mortgages. It truly is the beginning of a consumer driven market.

It is very exciting to be involved with reverse mortgages. Not only has the product reached new heights in consumer acceptance, but also competition in the development of new products is starting to really heat up.

From the inception of the FHA Home Equity Conversion Mortgage (HECM), the only investor or buyer of these loans has been FannieMae, a multi-billion quasi-governmental corporation that securitizes pools of mortgages into investment vehicles called mortgage backed securities (MBS). The market for MBSs is enormous and these investment vehicles allow for a fairly liquid market for capital to be lent into the mortgage business. FannieMae’s activities have been critical to the success of developing the HECM program’s growth from nothing to over 70,000 loans issued in 2006.

However, nothing stays the same in the world of finance, and in 2006 the monopoly Fannie Mae had in “investing” in reverse mortgages came to an end. By the end of 2006, there were four investor/purchasers of reverse mortgages and real competition had formed in what we call the ‘secondary market’ for reverse mortgages. With FannieMae’s monopoly broken, the dawn of new product development was finally able to take place. The future of the reverse mortgage industry would be forever changed, as these new investors sought new products to further participate in the growth of reverse mortgage sales.

In January 2007, it happened. One of the largest lender/servicers, introduced a HECM product that had a lower interest margin than the industry standard set by FannieMae. This sent ripples through the industry as the other key lender/servicers were forced to match this lower margin product. The lower margin product is an absolute winner for consumers because it lowers the interest rate, will save borrowers thousand of dollars in future interest charges and increases the amount of equity available to be borrowed under the program. Finally, the consumer will have a choice in which version of the HECM product best suits them. I call this progress.

It doesn’t stop there. The four largest lender/servicers: Wells Fargo, Financial Freedom, BNY Mortgage and Seattle Mortgage are now competitors on a different level. When FannieMae bought all the loans, these entities did not compete on products but on service, methods of distribution, coverage and closing fees. But now with multiple investors, these entities are now allowed to compete on products, which changes everything. It’s very exciting.

Competition means choice. Choice means the consumer is in the driver seat. The business has now evolved from selling Model T’s to a more comprehensive offering of different products. Product innovation has always driven the financial markets and now reverse mortgages is no exception.

What does this mean to you? Well, quite clearly there are products that can help more borrowers than we could before. My business is now to work with all the leading lender/servicers  to offer to our clients the “best of the best”. Offering the best each company as to offer. Not all origination companies will have access to all the new products like me while others will only offer products from one lender. As the leading reverse mortgage lender in Monmouth and Ocean Counties not associated with a bank, I can offer all of the products and since I specialize in reverse mortgages and only reverse mortgages, I can offer the expertise to figure out which of the products provides you with the best solution. There is no question about it, you need the expertise of knowledgeable experts to get the right advice. Banks and other institutions that sell hundreds of products cannot dedicate the resources to specialize in this field. The rapid change of the products requires dedicated individuals to maintain the expertise to properly advise clients.

I will continue to let you know about the changes in the reverse mortgage business in this column but if you would like to have the personalized, one on one consultation to bring you up-to-date, please call me today for an appointment. See the difference in dealing with experience, I’m sure you will be pleased. Not only are reverse mortgages my business, it is my passion. Give me call and see why.