Following loan officer compensation changes in early April, originators are finding they have much less flexibility in being able to work with seniors to qualify for reverse mortgages. In cases where a broker could previously offer to absorb some of the closing costs in order to help a borrower close, the Federal Reserve’s loan officer compensation rule prohibits such practice.
While some brokers say they are losing their competitive edge to large lenders, who suffers the most from the Fed’s change? Borrowing seniors, say several brokers who spoke with RMD.
“For years, one of the primary concerns prospective applicants had when considering a reverse mortgage was the high closing costs,” says Ken Klawans, President of iReverse Home Loans. “Pre-April 1 (and with the help of a strong secondary market), we frequently utilized a portion of our revenue to pay for the borrower’s closing costs. A no-closing cost reverse mortgage helped battle the widespread ‘too expensive’ perception and helped improve the image of the product. This was truly beneficial to the consumer…and our industry.”
The shift ultimately hurts the borrower in cases where the seniors who need the HECM most, often can’t quite make ends meet. In other cases, the broker may see little to no profit on the loan.
“In the past we had more flexibility to lower closing costs,” says Lance Jackson, president and CEO of Castle Reverse. “Now we aren’t allowed to pick up any of a customer’s MIP or third party charges, so overall costs to borrowers has increased and our ability to compete with the banks has decreased.”
All Reverse Mortgage Company has faced similar difficulties and reports at least one instance where, under the new compensation rules, a borrower facing foreclosure could not get the loan.
“As it currently stands, originators cannot pay fees and it has stopped us from closing at least one reverse mortgage for a borrower who was in foreclosure,” says Michael Branson, All Reverse CEO. “No one was injured except the senior homeowner.”
For those who see the new rule as having a negative impact on the borrower, there is uncertainty to why government would create a sweeping policy that could so adversely affect the borrower’s ability to obtain a HECM loan.
“I feel the Fed should have made two rules, one for Forward and one for Reverse. There is no logic in not letting originators discount and it has made loan costs higher for seniors,” says Thomas Mastromatto, of Homerun Financial.
“I would like the opportunity to help every borrower I possibly can,” says Branson. “I fail to see how ‘consumer protections’ like these to help any senior homeowner.”
The days of helping seniors with closing costs may be gone, the brokers say, but there is hope for a change in Washington that will level the playing field and bring the benefits of working with brokers back to senior borrowers.
“Post-April 1, our government has forced us to keep all revenue without the option of sharing it with the consumer,” says Klawans. “While I don’t believe we have had loans fall out due to this rule, I’m hoping that one of the bureaucrats in Washington will wake up soon, understand this unintended and anti-consumer consequence and fix it.”
Written by Elizabeth Ecker
