AARP Still Vying to Reduce Reverse Mortgage Costs
On November 6 of 2008 reverse mortgage lenders could begin closing reverse mortgages with two important 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.
Here is how it works; the origination fee is two percent of the value of the home up to $200,000. For values above 200k and up to 417k the fee increases by 1%.
Let’s use a $300,000 valued house. The orgination fee for th 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.
What does AARP really expect of the lender? Should the lender price itself to point where the owner should take a second job? It sounds like it.
This “high cost” origination fee is the only way reverse mortgage companies create revenue. To reduce it is asking them to find a new business.
Furthermore, traditional mortgage origination fees are no less expensive if you examine them closely.
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.
Reverse mortgage companies make a small percentage of their revenue from the SRP… Many times it’s less than $100. That’s why the origination is higher.
I have to wonder if AARP has any idea of what goes into mortgage origination and the complexities therein. Are they being real at all.
I also have to wonder if AARP is asking all the insurance companys, who use AARPs name to sell insurance (of which AARP gets a commission), to take a 50% pay cut on all insurance sold.
I doubt it. Money talks. Do you know AARP makes more money selling insurance than it does membership fees.
AARP is not so pure and they should to sit this one out.
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