Pricing exceptions are widespread in mortgage — and so are the regulatory risks

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FNMA’s Reverse Mortgage Pricing Changes Worry Industry

image Last week the Fort Mill Times published a great article detailing how the changes in Fannie Mae’s pricing is causing problems in the industry.  In Changes in reverse mortgages worry industry, Adrian Sainz writes that industry veterans are concerned that the change to “live pricing” can confuse seniors and cause them to question whether they’re getting fair treatment.

“Instead of (Fannie Mae) announcing the problem and then pitch in to help find an alternative, what do they do? Like normal, drop a bomb, this time on the reverse mortgage industry and our senior citizen population,” said John Smaldone, senior vice president for reverse mortgages for AAXA Mortgage, said in a letter to U.S. Rep. John J. Duncan, R-Tenn.

Last month – and without any real warning – Fannie Mae made changes that allow for higher margins for reverse mortgage lenders. Simply put, margins are the interest rate spreads a lender makes on the loan. So, the higher the margin, the higher the interest rate the borrower pays.

Worse still, under the new rules the margin – typically 2 to 3.5 percentage points – can change from the time a borrower submits an application and the loan is funded, which can be up to 120 days.

The borrower signs a form from the lender projecting the maximum amount of money the borrower may receive. But with rates that can change, the senior will not really know how much they can borrow until closing, or days before. That makes the disclosure form practically useless, Smaldone said.

“The reality of the draconian move by Fannie Mae is to create uncertainty in the reverse mortgage market place,” real estate attorney and Florida International University law professor Dennis Haber wrote on his blog.

Amy Bonitatibus, a Fannie Mae spokeswoman, said the pricing adjustments are meant to bring more investors and more cash flow into the reverse mortgage industry.  In theory, more investors in the marketplace should help drive margins back down in the long run, but it’s unclear when that will happen.

Changes in reverse mortgages worry industry

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