A few weeks ago, Lender Lead Solutions became the first reverse mortgage lender to offer a reverse mortgage for people under 62. At the conference LLS rolled the program out in additional states so I thought I would do a follow up post on what the Simple60 offers that the HECM cant. The Simple60 wasn’t designed to replace your HECM business but it was created to fill a void in the marketplace for three different types of clients:
- One borrower too young and not willing to come off title.
- Closing cost sensitive, not willing to pay the hefty costs associated with a HECM.
- Consumer does not plan on living in the home for too much longer therefore a HECM does not make economic sense.
Everyone that reads this blog has run into at least 2 of these scenarios if not all three. In fact a recent poll that LLS conducted showed that 22% of reverse mortgage originators lost business due to high closing costs. It’s no secret that reverse mortgages have a substantial amount of fees, especially when the borrower only plans to be in the house for less than 5 years.
The Simple60 is designed to be… Simple, hence the name. The product keeps the costs associated with loan very low when compared with the traditional reverse mortgage. The only fee that is paid by the borrower is the settlement charge. The settlement charge is based on a flat fee for the principal limit allowed. Below is a chart that goes over the fees:
Other than the settlement fee, the the borrower is responsible for paying the appraisal (must be paid upfront, credited at closing), state tax, and recording fees. You as the mortgage broker are paid by LLS, so you don’t charge your origination fee like you would on a HECM. There is also no upfront mortgage insurance premium or servicing set aside which dramatically lower the overall costs to the borrower.
To help give you a better idea of how the costs compare with other HECM products, LLS gives you a break even analysis that is based on a home value of $250K and a loan amount of $50K.
As you can see from the numbers above your break even point when comparing the Simple60 to the HECM 100 is the 5th year of the loan. When you compare it to the LIBOR 75 product you will break even after the 6th year of the loan.
Like I said earlier, the Simple60 isn’t going to replace your HECM business but it will provide you with an alternative solution that wasn’t available until now. To see more scenarios and ways to utilize the Simple60, check out the powerpoint presentation below.