Carlsbad, CA

Thursday, March 25, 2010

Within this past week, two national reverse mortgage lenders have announced that they will no longer charge a monthly servicing fee on their fixed-rate FHA guaranteed reverse mortgage product. Ken Keranen, a 17-year field savvy reverse mortgage industry veteran, welcomes this recent development. The monthly servicing fee, Keranen feels, is the hardest concept for new loan officers, HUD counselors, financial advisors and seniors to grasp, let alone explain.

The "service fee set aside" (SFSA) is a so-called contingency figure that is set up like the "sinking fund" that CPA's use. The SFSA is calculated to represent the present value of the monthly servicing fee, at an expected long term rate, through age 100. Explaining that this "set aside" figure that averages around $5,000 at a monthly servicing fee of $30 per month is not really an initial cost, like title insurance for instance, is difficult. It usually comes down to explaining to the client that it should be treated just like interest. In today's environment, where there are a multitude of reverse mortgage products and rates, the SFSA figure makes no sense and oft times confuses the borrower. In Keranen's opinion, it serves no useful purpose and is there so that it can be shown as a portion of the TALC (total annual loan cost) calculation.

The reverse mortgage business has become far more complex since the early days 20 years ago when Fannie Mae bought almost all FHA guaranteed HECMs (Home Equity Conversion Mortgages). The benefit for the client by eliminating service fees is big. A 65 year old client would get approximately $5,250 more regardless of the home value. This is particularly advantageous for those with lower valued homes for it is based on age not value of the home.

The elimination of the service fee set aside will also help seniors wishing to use a reverse mortgage to purchase a new home. It will lower the down payment requirement for a 65 year old by the same $5,250. Keranen hopes that other lenders will follow suit and that this unneeded calculation disappears from not only the fixed rate product but the variable as well. Keranen is an Independent Branch Operator for iReverse Home Loans and can originate loans throughout the country. He can be reached at (800) 747-8006 or by e-mail at www.iReverse.com/kkeranen.

Ken Keranen

Reverse Mortgage Specialist

iReverse Home Loans - A Subsidiary of Hopkins Fed Savings

Carlsbad, CA

800-747-8006