Reverse mortgages continue to be popular with seniors - the most recent data shows a record 11,261 reverse mortgages were made in March, up from 9,086 in February. The National Reverse Mortgage Lenders Association expects there to be about 150,000 reverse mortgage originations this year, up 30 percent over last year.
The only reverse mortgage program that is available for Seniors is the FHA HECM reverse mortgage program and these loans are being bought by Fannie Mae. Fannie Mae is doing some things where it is trying to attract more money to the reverse mortgage market by increasing the amount of money that reverse mortgage lenders can make on selling the loans by raising fees and allowing the interest rates to change before closing.
But by raising fees and allowing the rates to change right up until closing may be shutting some seniors out of getting a reverse mortgage because it reduces the amount of money a senior homeowner can borrow - and possibly even means that some seniors may not be able to get a reverse mortgage any longer.
Without any warning, last month Fannie Mae made changes that allow for higher margins for reverse mortgage lenders. This means that the spread a lender makes on the loan can now be wider. So, the higher the margin, the higher the interest rate the borrower pays.
Under the new rules, the margin can now be up to 3.75% (it used to be 1.5%) and can change from the time a borrower submits an application and the loan is funded, which can be up to 120 days.
The reason for the move by Fannie Mae is that because they are virtually the only buyer of these loans, they are trying to lure in other investors. Now that they can make more money, Fannie Mae hopes that more investors will step in and buy them.
The only question in my mind is... will there be any seniors who still want to get a reverse mortgage if they become even more expensive than they already are?