SOURCE: The Mortgage Professor LLC

The Mortgage Professor LLC

May 09, 2016 06:00 ET

Mortgage Professor Adds "Price Checker" to the Kosher HECM Shopper

PHILADELPHIA, PA--(Marketwired - May 09, 2016) - One important reason the HECM reverse mortgage market is so small relative to its potential is a well-justified fear of being over-charged. Except for my site where a user can easily compare prices of multiple lenders, price shopping by going from one lender to another is extremely difficult. The lenders in this market do everything they can to convert shoppers into applicants. The great majority of borrowers accept the price of the one lender they have contacted.

The inevitable result is wide price spreads on identical transactions. As an example, my colleague who knows all the tricks of the trade succeeded in shopping one of the largest lenders in the market without becoming an applicant. He obtained a written price quote of 4.611% on an adjustable rate HECM that adjusts annually with a 5% adjustment cap. On the same day, one of the lenders who regularly reports prices to my site was charging 3.236% on the same mortgage, or 1.375% lower.

Price disparities of this magnitude are obscene. To help eliminate them, I have added "Price Checker" to my Kosher HECM reverse mortgage calculator. Price Checker allows a user to enter a set of prices quoted by any lender or broker, and compare them to the prices on the same transaction quoted by the lenders who deliver their prices directly to my site. This allows the user to determine whether the external lender prices competitively or not.

Jack M. Guttentag is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. He served as chief of the Domestic Research Division of the Federal Reserve Bank of New York; was a member of the senior staff of the National Bureau of Economic Research; and was managing editor of both The Journal of Finance and The Housing Finance Review. Prof. Guttentag has been advising consumers and the media on mortgage-related issues since assuming emeritus status in 1996.

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