PenFed, an Alexandria, VA based credit union is offering customers their PenFed Advantage program which provides an FHA insured HECM without any origination fee or service fee set aside (SFSA).  Without the SFSA, a 70 year old borrower will see roughly $5,000 more in proceeds with a property valued at $600,000. 

Below is a comparison of the PenFed Advantage and the HECM or you can see a detailed printout here.

The PenFed Advantage still requires a borrower to pay the 2% insurance premium upfront which according to a loan officer I spoke with at the company means it still qualifies as a FHA insured loan.

According to HUD’s Handbook 4235, lenders are not required to establish a SFSA:

1-12SERVICING. The lender is permitted to charge the borrower a servicing fee if this cost has not already been priced into the borrower’s mortgage interest rate.

A. If the lender chooses to assess a servicing fee, the fee is established at closing as a monthly figure and the amount necessary to pay this fee throughout the life of the loan is calculated and set aside from the principal limit at closing (see Paragraph 5-7B. for calculations).

So is PenFed building the servicing costs into the margin?  Probably not considering their margin is 2.5%, but it’s not the first time we’ve seen a credit union take a hit on fees for its customers. 

Other lenders have been considering eliminating the SFSA, which is the most difficult concept in servicing to explain to a senior about their reverse mortgage says Ryan LaRose, Executive Vice President of Celink. 

"We heard some talk of lenders looking at pricing the SFSA into their margin, but it all seemed to quiet down as none of them could get their arms wrapped around what the right amount they would need to increase the margin by in order to cover the life of loan servicing costs," said LaRose.

"In addition, some said they were staying away from it because it could be viewed as a hidden cost vs. the monthly servicing fee, which is broken out plainly for the borrower to see."