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

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Reverse Mortgage Education, We Have A Long Way To go

Over the weekend I was reading some of the comments on RMD and many of them were geared towards the Wall Street Journal describing a reverse mortgage as a product which sold your home to a bank.  Each of us has put lots of work into teaching people that a bank doesn’t own your home when you get a reverse mortgage, but it’s clear that more education needs to be done. 

Last week the Los Angeles Times wrote that More homeowners turning to reverse mortgages and in its letters to the editor, a woman wrote in and said that Reverse mortgages should have fixed interest rates:

I’m glad to see that the government has considered reverse mortgages in the stimulus package. But still not enough has been done.

This has been one of the biggest rip-offs in the banking business — and directed at seniors, which is inexcusable.

The biggest problem with the reverse mortgage is not the exceedingly high origination costs, the maintenance costs or the low ceiling on loans, but the fact that there is no fixed interest rate. The approximate rate you quote in your article is 4%, but who knows what the interest rate will be in five or 10 years.

With rates at a historic low, this is an unseemly burden to seniors and their heirs.

When I read her comment it made me realize that our industry has needs to do a better job marketing to the public about what type of reverse mortgages are available.  BNY Mortgage released a fixed rate HECM in March of 2007 and shortly following that other lenders did as well.  As of last week, some lenders are offering a fixed rate HECM at 5.63%, why don’t more people realize that?

In terms of marketing, the industry has been built on two famous faces, Robert Wagner and James Garner.  They’ve been the main drivers of public awareness for the product and they’ve done a great job, but it’s obvious more needs to be done. 

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