AARP Still Vying to Reduce Reverse Mortgage Costs
In July George Bush signed the big housing bill with provisions for two important reverse mortgage changes.
First: the national loan limits were increased from as little $200,000 all the way of up to $417,000. Second: Closing costs were reduced in the form of lower lender origination fees.
This is what the government madates under the new law. Maximum origination fees up to $200,000 of 2%. From $200,000 to $417,000 an additional max of 1%.
Let’s use a $300,000 valued house. The orgination fee for the first $200,000 will be as much as $4,000. For the additional $100,000 in value it can be as much as $1,000. The maximum origination is $5,000.
Prior to the new legislation going into affect a mortgage company could charge two percent up to FHA lending limits.
The question is what would AARP like to do here? Can a lender charge less and still stay in business. Lenders are not non-profits.
These fees pay processors, loan officers, marketing, office rent, and then finally go into the owner’s pocket in the form of profit.
What’s more this lender fee is no more expensive for reverse mortgages than it is with forward mortgages. Forward mortgages simply hide the difference in the form of a higher rate.
How a forward mortgage ends up costing the borrower as much as a reverse mortgage is in the “service release premium”. This is is a fee the bank pays the mortgage company inside the rate. They may charge 1% but there is backend money in those loans.
The reason the origination fee is higher for the reverse is service release premiums are very low.
As a mortgage professional I’m somewhat bewildered at AARP’s views toward this subject. I wonder if they are even genuine.
There may be some hypocracy going on. I wonder if they gouge their insurance company’s in same manner they wish to gouge reverse mortgage companies.
I doubt it. Money talks. Do you know AARP makes more money selling insurance than it does membership fees.
This is an area AARP should simply stay out of.
