HECM Competition and Innovation Continues
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When we wrote about Bank of New York’s (BNY) new HECM 100 a couple of weeks ago, we noted that the product set a new standard by lowering borrowers’ interest cost on-half percent and that “competing lenders will have little choice but to respond with innovative products of their own.”
Now Wells Fargo Home Mortgage, the largest originator of HECM loans has announced it will cut its margin on new HECM loans starting with applications taken on or after February 5, 2007. Here’s the complete text of Wells’ press release:
Wells Fargo Home Mortgage, the nation’s leading retail originator of reverse mortgages, will trim the margin it charges on a government-insured reverse mortgage product and begin offering the federally insured, variable Home Equity Conversion Mortgage (HECM) product using a lower margin for loan applications taken on or after Feb. 5, 2007.
In addition, effective Feb. 6, 2007, seniors who have already applied for a reverse mortgage with Wells Fargo will be offered the lower margin. This change will save borrowers money over the life of their loan and give them greater access to their home equity.
“Reverse mortgages are about making the most of the equity that seniors have built into their homes,” said Jeff Taylor, vice president of Wells Fargo’s Senior Products Group. “By lowering the margin, we are lowering the interest rate charged on a reverse mortgage. This means more seniors will be able to use the reverse mortgage program, giving them the ability to turn their home equity into additional retirement funds.”
Wells Fargo is cutting the margin on its variable HECM by 50 basis points.
It’s a move that will give seniors greater access to their home equity. As an example, a senior who is 70 years old with a home valued at $300,000 could get approximately $14,100 more in borrowing capacity than with a higher-margin HECM loan.
The HECM reverse mortgage is the most popular reverse mortgage in America today. Through the program, the U.S. Department of Housing and Urban Development insures mortgages that allow homeowners age 62 or over to convert their home equity into tax-free income. The program has insured over 200,000 reverse mortgages since 1990.
With a HECM, a senior homeowner receives proceeds from a lender — either in a lump sum, regular monthly payments, a line of credit or a combination of these. When the house is sold, or the last remaining borrower dies or moves out of the home, the loan amount plus the accrued interest is repaid. The borrower can’t owe more than the value of the home.
Wells Fargo Home Mortgage helped senior Americans secure nearly one-third of all reverse mortgages originated in 2006.
Clearly, Wells announcement is in response to BNY’s HECM 100 and the half-percent rate relief is the cornerstone of each bank’s product. But it’s not immediately clear how other features and details of the loans may have changed (if at all) or how the banks’ offerings stack up against each other.
Nor is it clear how other lenders will react. According to HUD’s monthly HECM activity reports, Wells and BNY were the #1 and #11 originators of HECM loans endorsed during January 2007. Together, the banks account for 2,151 (24.4%) of the 8,824 loans endorsed during the first moth of the year (not taking into account activity by any affiliated lenders). It will be interesting to see how their market share changes and what actions other lenders take in the weeks ahead.
But in any case, Well Fargo’s announcement signals more competition and is more good news for the borrower/consumer. We hope to have more information in the near future.
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