Price competition and protection against lock abuse could both be provided by third-party websites that I will call “independent HECM networks,” which would invite participation by lenders and brokers who agree to abide by its rules. The major rule would be to post complete prices on the network’s system.
Such sites would provide competitive pricing by calculating all draw amounts based on the best prices posted by participating loan providers, while identifying the low-price loan provider to the senior. The site would protect the senior against lock abuse by allowing the senior to access the loan provider’s posted price on the lock day.
The networks would have to make themselves known to seniors as places to get educated about HECMs, to determine the amounts they could draw under different payment arrangements, and, in the event that they decide that a HECM is in their interest, to assure themselves of competitive prices and price protection. Since I already have much of this on my site, I plan to expand it into a full-fledged network.
My site, however, does not reach enough seniors to have a major impact, which is why I am proselytizing that organizations devoted to the welfare of seniors should do their own. In particular, organizations such as Consumers Union and AARP, which have been ambivalent to HECMs if not critical, could remove themselves from the culture of distrust and become part of the solution. My colleagues and I are prepared to make any or all of the materials we have developed available to them.
Jack Guttentag is professor emeritus of finance at the Wharton School of the University of Pennsylvania.
©2014 Jack Guttentag
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