Past efforts to provide senior homeowners with the tools needed to obtain competitive pricing on HECM reverse mortgages have been only partly successful. There is now a Kosher HECM network on which 10 lenders post their prices, generating competitive prices for the seniors who access it. It is new and small relative to the mainstream market, but the potential savings to seniors are considerable.
For example, a borrower of 70 using the network on Dec, 3, 2015, whose home is worth $600,000 with a mortgage balance of $200,000, would have paid an interest rate of 3.99% on a fixed-rate HECM, with no origination fee. This was the lowest price posted by any of the 10 lenders. The same borrower accessing the mainstream market would have paid 5.06% with an origination fee of $6,000. This is the price estimated by NRMLA, the trade association of HECM lenders.
To date, the competitive segment of the market has not affected pricing in the mainstream market. Mainstream lenders do not post their prices, and few borrowers know enough to comparison shop effectively.
In searching for ways in which the competitive network could impact the non-competitive mainstream market, we found that many seniors visit the network before they access a mainstream lender, presumably to educate themselves. This made us aware that we were not giving them everything they needed to shop mainstream lenders effectively. To fill this gap, we developed the HECM Shopper's Assistant, or HSA.
The HSA is designed to bring some of the price competitiveness of the Kosher network to bear on the mainstream market. It will do that by empowering a type of intelligent shopper that mainstream lenders have not seen before.
The HSA is a one-page summary of all the information a lender who is being shopped needs to price a HECM accurately. This includes:
- Personal data including property value and zip code, existing liens and the borrower's birth date.
- Desired mortgage type, whether fixed or adjustable rate, if adjustable the maximum rate increase.
- Draw amounts, covering upfront cash draws, monthly payments, the monthly payment period, and credit line.
- The price the borrower is looking to beat, including interest rate, lender fees and upfront mortgage insurance premium.
To use the HSA as a shopping tool, the borrower needs only to present the information shown above to the lender being shopped, and ask whether or not the lender can offer either a) a lower rate on the same mortgage type without a higher fee or b) a lower fee without a higher rate.
Shoppers off the network do have to be careful of "low-ballers", who quote low prices they have no intention of delivering. Low-ballers bet that the borrower who has invested time and effort in the transaction, only to find that the price has increased, will be satisfied with the lender's explanation of why that happened. There is no low-balling on the Kosher network because the loan providers are monitored, but off the network there is no monitoring. The HSA includes tips for dealing with low-ballers.