Reverse Mortgage Daily recently ran a piece with this title, and it raised some interesting points. The author wonders aloud about whether recent fee reductions will confuse customers to the point of indecision. Not only could this increase bad publicity surrounding reverse mortgages, but it could also lead to decreased volume.

Based on the results of a rudimentary survey, it seems that the readership was evenly split over whether the pricing changes would confuse borrowers. Some readers thought that lower fees would naturally be embraced by borrowers, while other readers considered the notion that older people tend to prefer simplicity: “As one of my older friends used to tell me all of the time: ‘As I get older I find myself hating too many selections on a menu. Why can’t they have fewer choices?’ ”

Personally, I can see the logic in both positions. On the one hand, lower fees are unambiguously a good thing for borrowers, especially if they are adopted universally by all lenders. When you consider the origination fees, service fees, insurance premiums, and interest charges, reverse mortgages are downright expensive. While they remain expensive in spite of the fee cuts, any development which transfers money from the lender to the borrower should be applauded.

On the other hand, I can also understand why pricing changes could be confusing to consumers. Since the pricing changes haven’t yet been adopted by all lenders, some borrowers might be inclined to wonder if perhaps there is a link between price and quality, and obtain a reverse mortgage from a lender that hasn’t lowered its fees. In addition, the fee reductions have been implemented in various ways, which IS confusing. In nominal terms, eliminating origination fees is probably comparable to a 50% discount in the upfront insurance premium, but this may not be clear to borrowers.

Finally, there is the notion that fee reductions can potentially be bad for borrowers, if they increase the size of reverse mortgage loan. As I discussed in a recent post, if a lender shrewdly (with or without the complete understanding of the borrower) rolls the savings back into the reverse mortgage, the interest paid on that additional principal will more than offset the decrease in fees, over the life of the mortgage.

Perhaps borrowers are right to be skeptical, after all.