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Special Reports
Reverse Mortgages
Borrowers Are Getting More Choices
Margins are getting thinner
By Bonnie Sinnock
The reverse mortgage market has reached a new stage where borrowers have more
options than ever before, according to Atare Agbamu, a product specialist and owner of consultancy ThinkReverse
LLC here. "Essentially we are in an era of ... product ... variety," he said. "For the last 17-18
years it has been [the Home Equity Conversion Mortgage] for the low- to moderate-income group and Fannie Mae's
HomeKeeper, which was essentially there for comparison ... and then on the jumbo side we had Financial Freedom
product," Mr. Agbamu explained. "Now we have more choices," he said, noting that not only has the
primary market for reverse mortgages been growing, but also the secondary.
As part of the recent evolution in the business and as the Bank of New York's new product offerings illustrate
(see related story), margins in the business have gotten thinner, Mr. Agbamu said. "What it has done, essentially,
[is] cut lenders' profit," he said, indicating that a "price war" has been going on the business.
While margins in reverse mortgage may look high "to the uninitiated," Mr. Agbamu said he considers them
to have been "fair" given the product's long sales cycle and the time it takes to close the loans.
While the challenging market and the concerns in subprime may have spurred some mortgage market participants to
seek alternative product offerings outside the credit-impaired sector, Mr. Agbamu said he doesn't believe this
has been a catalyst when it comes to the reverse mortgage sector's increased competitiveness. "I don't think
most of the people are moving [into the reverse mortgage sector] because of the bloodbath in the subprime market,"
he said. "They are mostly, I would say they are [curious.]"
However, Mr. Agbamu does think a return to stability in the forward mortgage market may mark a future exit point
for some players experimenting with the product now if they don't have "stamina" and a long-term commitment
to the business.
In the meantime, while thin margins are challenging lenders there are opportunities for borrowers - at least those
who are adequately informed or have adequately informed advisors.
Mr. Agbamu, who originates reverses for loan broker Credo Mortgage, said he sees some danger in that "the
advisory network is going to be confused" by some of the product evolution in the business. The concern is
that "counselors will keep recommending and advising on the old products," he said, noting that the "soft
side of the business" is where "the danger is."
"There are some incentives now in the industry for brokers who are not very
strong on ethics to recommend the old HECMs ... because with that they can get premium pricing in addition to the
origination fee," Mr. Agbamu said.
Borrowers and advisors should generally focus on products that allow the former to obtain more money at a lower
cost, he said.
Some products more broadly available recently than ever before have specific uses that borrowers and their advisors
should be aware of, Mr. Agbamu said. The fixed-rate HECM, for example, "only makes sense for those who are
going to be taking out 100% of what is available to them. Because from an investor standpoint it doesn't make sense
to have a fixed rate for someone who is just taking $5,000," he said.
When asked how many borrowers have such a need, Mr. Agbamu said it is an area where hard data appear to be lacking.
"That is something we don't have the numbers for," he said.
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