Competition and Origination Fees: An Open Letter to AARP

Dear AARP,

In recent months it has been explained by the leadership of the National Reverse Mortgage Lenders Association (NRMLA) that you continue to be concerned about the origination fees that are charged to seniors as part of the origination of a Reverse Mortgage. It has been stated that NRLMA and yourselves reached a compromise to reduce the maximum origination fee from 2% to 1.5% in the current version of the FHA Modernization Act as it still sits in Congress. While I applaud your noble and valiant efforts to save seniors money and subsequently allowing them to gain more equity in their home, I would like to point out that your efforts, while good, maybe unnecessary to legislate this change.

A prospect of mine that I had been working with for approximately 30 days called me up and told me that he was going to do his Reverse Mortgage through another lender. I immediately told him that I was already giving him a lower cost at 1.5% than most of the competition in the Chicago market. He told me that someone had lowered their origination fee to 1.3% and that this woman working from Colorado sent him a folder and told him to “fill out all the stuff” and send it back to him in order for him to get the deal. I could hardly believe that one of the National Retail/Wholesale companies was shot-gunning application packages out with 1.3% in writing (who BTW is begging us to sign their broker application). A few days later, I saw the package and the Good Faith and there was the magic number. I congratulated my client on finding the best possible deal and told him I would not only match it, I would meet with them face to face so that they could understand the process and ask all the questions face to face, rather than attempting to complete the paperwork over the phone with some stranger in Denver.

The traditional forward mortgage market is dead here in our market and a reverse mortgage is the only product for many people to get any business in the door. Looking at other industries where competition drives costs lower for consumers such as the airline industry, more competition will drive the origination costs further down and benefit the consumer. Let competition and free markets reign. (Ugh, I sound like Larry Kudlow on CNBC)


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