Wow! Bank of America is starting to cover the biggest Reverse Mortgage closing cost on certain loans

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Mortgage and Lending with First Meridian Mortgage

It's no secret that fixed-rate Reverse Mortgages have been getting a much better execution in the secondary market. This means that the lenders are getting much more money when they sell the loans after they close.

Most lenders have been passing this on to the originators like me. Some have been covering some of the closing costs like the servicing fee or origination fee. The biggest closing cost is almost always the Mortgage Insurance Premium or MIP that is 2% of the appraised value (up to $625,500). The MIP is usually more than half of the closing cost total.

At first glance, Bank of America paying the MIP for fixed-rate Reverse Mortgages sounds great, but there are a few issues and complications that it can cause. here are three potential issues:

 1) Will the huge disparity in closing costs push people to take the fixed-rate loan, which requires a full draw at closing, instead of an adjustable-rate loan that gives them much more flexibility in how they take the money out?

2) Will these new closing cost reductions cause the borrowers confusion when they see that their adjustable-rate loan had $14,000 more in closing costs than their friends fixed-rate loan? (remember that for some borrowers a fixed-rate option is the right thing and for some, an adjustable-rate option is much better)

3) If the secondary market for reverse mortgages deteriorates in the future, will we be able to start charging borrowers for the MIP when they may not want to anymore?

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