Magazine article American Banker

Reverse Loan Price Cutting Taking Hold?

Magazine article American Banker

Reverse Loan Price Cutting Taking Hold?

Article excerpt

Pricing on reverse mortgages, long static, appears to be turning competitive - a change that lenders attribute to an expansion of secondary-market outlets for such loans.

Three weeks ago, BNY Mortgage Co. became the first reverse-mortgage lender in years to trim the margin over the one-year Treasury note that it charges on government-insured reverse mortgages below the industry-standard 150 basis points. And on Friday, Seattle Mortgage, a unit of Seattle Financial Group, said it intends to cut its margin by the same amount, 50 basis points, as BNY Mortgage.

John Nixon, an executive vice president and the chief operating officer at Seattle Mortgage, said he expects that all major reverse-mortgage lenders, including Wells Fargo & Co.'s home mortgage unit and IndyMac Bancorp Inc.'s Financial Freedom, will eventually match the BNY Mortgage interest rate. Wells Fargo and Financial Freedom said their executives were not available to comment on Friday.

Mr. Nixon said the rate cuts were made possible by the increased participation of Wall Street investment banks, which have been buying and securitizing reverse mortgages in hopes that demographic trends will make this a huge market.

"It's the interest from the investor community that allows lenders to pass the secondary market gains back to customers in the form of lower margins," he said. "All the players are betting that this will be a very significant market with the baby boomers retiring over the next 10 years."

Roughly 90,000 reverse mortgages, aggregating $10 million of loans, were originated last year, double the volume in 2005, according to the National Reverse Mortgage Lenders Association, a trade group.

A government-insured product, known as the Home Equity Conversion Mortgage, accounts for 95% of the reverse-mortgage market. Up until a year ago, the only investor in Home Equity Conversion Mortgages was Fannie Mae. …

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