We noted in our last post the growing number of announcements of new, reduced-margin Home Equity Conversion Mortgages (HECMs). Just about every reverse mortgage lender around is touting a new HECM 100, HECM +100 or some variation thereof. These loans are the same as a standard Home Equity Conversion Mortgage (HECM) but charge borrowers a reduced rate of interest (1% over the one-year US Treasury rate instead of 1.50%). Clearly, welcome news for seniors thinking about becoming HECM mortgage borrowers.

But some of the announcements imply further borrower benefits: greater choice than ever before. Seattle Mortgage, for example:

These enhancements will offer senior borrowers the option to compare 1.00, 1.25, and 1.50 margins on the monthly adjustable HECM and 2.60, 2.85, and 3.10 margins on the annually adjustable HECM.

“The new margins available represent an opportunity to provide greater options for senior borrowers. Seniors have a vast array of financial needs, and products such as these provide the options they require to fit their particular situation,” says John Nixon, Executive Vice President and COO of Seattle Mortgage.

Sun West Mortgage:

Sun West Mortgage Company, Inc., one of the leading innovators in the reverse mortgage industry, is proud to offer the HECM 100 and 125 to complement the traditional HECM150 product. These new HECM products allow Sun West’s broker partners to remain competitive as the secondary market for reverse mortgages becomes more efficient.

At first blush, this sounds great - more HECM options and lower costs to boot! But wait a minute. Something’s missing. What additional benefits does the borrower get for choosing a more expensive HECM 125 or HECM 150 loan? More upfront cash? Lower closing costs? A toaster?

Ummmm no. Quick calls to both Seattle and Sun West disclosed that there are no sound reasons for a borrower faced with the 3 options to select the HECM 125 or 150 products over the lowest margin HECM loan.

Probably lenders are keeping the higher margin HECMs around to use in rural markets and areas where they don’t face stiff competition (yet). But if maintaining these higher-margin products under the guise of “customer choice” has some short term benefits for lenders, it probably doesn’t help build longer-term public trust in reverse mortgage products. A recent Fidelity Research Institute survey found that “lack of trust of the product” was one of the primary reasons senior homeowners choose not to utilize reverse mortgages.

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A Few More Related Articles of Interest:

Reverse Mortgage Options - A Lender Provides Some Direction

HECM Line of Credit Gains in Popularity Among Reverse Mortgage Borrowers

Reverse Mortgage Pro and Cons

‘Guaranteed Income Gap’ Study Has Implications for Reverse Mortgage Borrowers

Will Genworth Bring New Perspective to Reverse Mortgages?