Monday, March 14, 2011

What you need to know about a Reverse Mortgage

Seniors sixty-two and older may well be in luck, even in these harsh economic times, due to an interesting little thing called a “reverse mortgage.”

A reverse mortgage not like the mortgage you took out to pay for your home – you don’t pay anything but interest to the lender, because you are essentially borrowing money from yourself. What does this mean? Well, in a reverse mortgage, you’re extracting the value or “equity” of your home and converting it to money that you can use. This might seem a little shady – what happens when you’ve used up all your equity? Will the lender take your home from you?

In a word, no. A reverse mortgage isn’t like that at all. With a reverse mortgage, you receive either a lump sum right now, or a payment once a month from now until you stop living in your home (you pass away, sell your home, go into a nursing home, or otherwise aren’t there for an extended period of time). On the sale of your house, you or your heirs will receive whatever remains of your equity, minus fees and interest.

However, you have to be careful and do your research – there are several different types of reverse mortgage, and it’s your decision, in the end, which one you choose. Among these different types of reverse mortgages, there are:

Single purpose reverse mortgages: these are the least expensive, and so are most suited for those seniors with the lowest income. However, this also means that these mortgages give you access to the least percentage of your home’s equity – about enough to cover some of your property taxes or home maintenance.

Home equity loan or line of credit: if you can afford to make a small payment each month and have good credit, this could be the reverse mortgage for you. It provides you with more money to use, while still remaining fairly cheap.

HECM Standard and Saver reverse mortgages: these mortgages are backed by the Federal Housing Administration, so you can be absolutely certain they’re legitimate. The Standard version takes 2% of your equity off the top, but you get access to 20% more of your equity overall than you get with the Saver mortgage, which only requires .01% of your equity to get.

Jumbo reverse mortgages: these are for seniors with very high end homes, because there is a cap to the HECMs mentioned above. However, they are not nearly as regulated, and could be considered a risky gamble.

If you’re thinking about a reverse mortgage, but still have questions, can help you. Their team of specialists will help you negotiate with your lenders and decide what the best mortgage is best for you and your home.

For more information, please visit

House votes to end emergency mortgage aid

The House has voted to end a program designed to give federal loans to homeowners who can't make mortgage payments because they've lost their jobs or become ill.

Lawmakers approved the Republican-written bill Friday by a mostly party-line 242-177 vote. It marked the second time in two days that the House has voted to end aid for struggling homeowners.

The White House has threatened to veto the bill should it reach President Barack Obama's desk, saying the program would help keep people in their homes. Republicans said with sky-high federal deficits, it is time to make the government smaller and help companies expand and create jobs.

The $1 billion Emergency Mortgage Relief Program was created in last year's financial overhaul law, but has yet to make any loans.


Cutting mortgage giants?

Mortgage giants Fannie Mae and Freddie Mac played key roles in the housing market meltdown just a few years ago. President Barack Obama has proposed dissolving the two companies. Some Republican leaders have praised the plan. What's not to like?

Not so fast. Indeed, Fannie Mae and Freddie Mac, through incredible mismanagement, helped bring on the current recession. But their roles in the mortgage loan system are so gigantic and basic that simply eliminating them without ensuring an adequate replacement is ready would be imprudent.

About half the home mortgages in the United States are either owned or guaranteed by Fannie Mae or Freddie Mac. They and other federal agencies played some part in issuance of as many as 90 percent of the mortgages issued during the past year.

Obviously, the two companies cannot be wiped out with the stroke of a pen. Doing away with them - while clearly a good idea - needs to be a slow phase-out as some mechanism of handling what they do now is put in place.

Again, Republican leaders in Congress seem to like Obama's proposal. But all involved need to take a very close look at the Obama plan to ensure it does not replace two evils with what might amount to anarchy in the mortgage industry.


Monday, March 7, 2011

What Is A Reverse Mortgage And Is One Right For You

Are you sixty-two or older? Are you worried about your monthly income in today’s economy? If your answer to these questions is a resounding – or even whispered – “Yes,” then maybe it’s time to look at taking out a reverse mortgage on your home.

Maybe you’ve heard of a reverse mortgage before, but you aren’t sure what it means. Well, the financial definition is that a reverse mortgage involves a lender paying you a portion of your home’s equity until you stop living there. In laymans’ terms, you’ll receive either one lump-sum payment or a check every month related to the value of your home, until you (or your heirs) sell the house, you pass away, or you are otherwise not be there for an extended period of time. The amount of money you receive depends upon your age, the value of your home, and current interest rates, and this money is tax free, since it’s a conversion of your own capital – you’re essentially borrowing from yourself. Also, when the house is sold, you or your heirs will receive the proceeds, minus the fees, interest incurred, and the equity you’ve already used. Best of all, you can’t owe more than the equity in your home, and your home cannot be taken away from you when you’ve “run out” of equity.

While any reverse mortgage is best for healthy seniors who intend to spend a long time living in their own homes, there are several kinds of reverse mortgages, and it’s important that you do your research as to which one is best for you and your home. These different types include:

  1. Single purpose reverse mortgages: these are the least expensive, often causing little or nothing to you, though the payout is also the lowest. These mortgages are best for the lowest-income seniors, and they will help cover some of your property taxes or home maintenance.
  2. Home equity loan or line of credit: this type of reverse mortgage is suited for seniors who can make a small monthly payment and have good credit. These can also be very cheap to obtain.
  3. Home Equity Conversion (HECM) Saver reverse mortgages: these mortgages cost a tiny .01% of your home’s equity to obtain, though you will receive about 20% less of your home’s equity than the otherwise very similar HECM Standard loan. Both of these loans are issued by the Federal Housing Administration.
  4. HECM Standard reverse mortgages: this mortgage costs about 2% of your home’s equity right off the top to obtain, though you will receive more money yourself than you would with the three aforementioned mortgages.
  5. Jumbo reverse mortgages: these are not as regulated as the two HECMs mentioned above, but they could be better for a senior with a more high-end home. Just remember to shop very carefully.
If you still have questions, can help you! Their specialists will help you negotiate with your lenders to figure out what reverse mortgage best works for you and your home.

State AGs settle with mortgage servicers

The American Banker released a settlement online Monday it said is authored by state attorneys general outlining a code of conduct for mortgage servicing.

All 50 state attorneys general met in Washington Monday at a National Association of Attorneys General conference, where Tom Miller hosted an update panel on the multistate foreclosure probe. Miller's communications representative Geoff Greenwood said the settlement, also known as "the term paper," has not been formally released. Greenwood said the leaked settlement is just a draft and not a final agreement.

The settlement is basically an outline for home borrower redress from the nation's mortgage servicers, especially in nonjudicial states — that is where a court is not required to review a foreclosure case.

"These provisions also apply to bankruptcy proceedings to the maximum extent possible, including proofs of claim and motions for relief from stay filed by or on behalf of" the mortgage servicer, the settlement reads.

In the settlement, there are 16 points mortgage servicers must follow for foreclosure affidavits. These are at the expense of the servicer and require confirmation that all documents are reviewable.

Robo-signed documents need to be reviewed, with proof required that proper processes were taken.

There are a further 12 points for requiring the accuracy and verification of the borrower's account information.

Dual track foreclosures are prohibited. A servicer cannot make a referral to foreclose or file a foreclosure "until borrower/applicant has been sent a written denial by registered mail of all loss mitigation programs for which the borrower is potentially eligible," the settlement says.

Other loss mitigation duties on the part of the servicer include extensive exploration into modified payment options for the borrower. Servicers are required under the agreement to "thoroughly evaluate" the borrower and his or her payment options, as well as "have an affirmative duty to promptly offer and provide" appropriate options.

If a borrower is enrolled in a trial period plan under the Home Affordable Modification Program and makes all required trial period payments, but gets denied a permanent mod, the servicer must suspend all foreclosure-related activity.

Servicing timelines are being condensed. A servicer must make a loan modification decision within 30 days of receiving all applicable documentation.

"Servicer's compliance with this agreement shall be monitored by an independent third party," the attorneys general said in the statement. This overseer would be selected by the AGs themselves and the Consumer Financial Protection Bureau.

Under the settlement, is a regulation for a single point of contact at the servicing firm — essentially one servicer per case, who keeps the borrower updated on servicer contact information and loss mitigation activities. Along with this servicers will create a single electronic record for each account.

The state's attorneys general also agree, in the document, to review the Mortgage Electronic Registration Systems at a later date.

States: Let's make a deal to help homeowners

State attorneys general have launched talks with big banks accused of illegally foreclosing on homeowners with the hopes of reaching a deal that could result in more mortgage modifications, a top negotiator said Monday.

Iowa Attorney General Tom Miller has been leading a 50-state probe into mortgage servicers' foreclosure practices since October.

The negotiations are between the attorneys general and federal agencies on one side, and the five largest mortgage servicers, which comprise 59% of the market.

The AGs did not indicate which banks they are negotiating with. However, the five largest servicers are Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Ally Financial (GJM), according to Inside Mortgage Finance.

Miller refused to confirm reports that the talks have included a proposed $20 billion settlement or a requirement that servicers provide that amount in mortgage modifications to underwater homeowners.

But the final deal could have a major impact on the housing market, making it easier for homeowners to get mortgage modifications, including reductions in the principal amount they owe on their house in some cases, Miller said.

Federal and state officials gave the mortgage servicers a 27-page opening offer late last week but Miller refused to give details of the offer, citing the ongoing negotiations.

So far, the federal government has shied away from forcing banks to offer principal reductions. Instead, the priority has been to lower interest rate payments. And several congressional efforts to pass bills allowing bankruptcy judges to modify loans have all failed.

"We realize the result we come to can have an impact on the housing market and hence the economy," said North Carolina Attorney General Roy Cooper. "That's why all of us at the table want it to be a positive impact."

However, Miller also added that the first offer made to the servicers lacked specifics on the two "most important" things: a proposed settlement figure and a proposal to make way for more mortgage modifications.

The big reason it was missing was because: "We struggled with it."

"Whatever that proposal is, it's going to have some limitations and leave some people out," Miller said.

The government probe of mortgage servicers followed reports that the institutions were using shoddy documentation to improperly foreclose on homeowners. That news prompted several servicers to halt foreclosures for a short period of time.

The attorneys general launched the probe in October to review improper documentation and mortgage modifications.

The government agencies involved include states attorneys general, the Department of Justice, the Department of Housing and Urban Development, the Department of Treasury, the Federal Trade Commission as well as the new Consumer Financial Protection Bureau.

Thursday, February 17, 2011

Loan standards curb demand for housing

NEW YORK — Don’t be quick to read strength in the January jump in housing starts. Home builders still face a raft of obstacles, not the least of which is the shrinking number of people able to get a mortgage.

Housing starts surged 14.6% in January to an annual rate of 596,000. All of the gain, however, was in apartment buildings of five or more units.

Multiunit starts jumped 80% to a 171,000 pace, the highest level since February 2009.Read the complete housing story on MarketWatch.

Starts of single-family homes fell another 1% last month, on top of an 8.4% fall in December. The declines follow the downtrend in home sales since last summer when a federal tax credit for home buyers ended.

In addition to the drags from high unemployment and record foreclosed homes for sales, another reason holding back housing is that banks are more particular about who qualifies for a mortgage.

The latest survey of senior loan officers compiled by the Federal Reserve in January indicated slightly more banks were still tightening their mortgage standards than the number that were lowering them. [By comparison, more banks were easing rather than tightening their standards on industrial loans, and they were evenly split on commercial real estate loans.]

While the net percentage of banks now tightening on mortgages is far lower than during the housing collapse, the number still indicates banks are wary about home-lending. And if fewer people qualify for a mortgage, it stands to reason that there will be fewer home buyers and thus fewer housing starts.

The bars to cross aren’t just high credit scores or income verification. As reported in Wednesday’s Wall Street Journal, downpayments are also rising.

The median downpayment in nine metro areas crept up to 22% of the purchase price at the end of 2010, double the rate three years earlier, according to real-estate tracker

Even though the median price of a new single-family home has fallen sharply to $241,500, the higher downpayment hurdle means potential buyers need about $48,000 in cash on hand, plus extra for closing costs.

The recent rise in mortgage rates is also curbing home buying. According to the Mortgage Bankers Association, the average rate for a 30-year fixed mortgage is up to 5.12% compared to 4.78% at the start of 2011, and applications to buy a home have dropped 9% since then.

Another problem in the mortgage market is the uncertain future for Fannie Mae and Freddie Mac, the agencies that guarantee about 90% of all mortgages written in the United States. If the government decides to shut down Fannie and Freddie, it is unclear how the private mortgage sector will perform or what standards buyers will have to meet to qualify for a loan.

People still need to live somewhere, of course. Which explains why builders broke ground on so many more apartment projects in January.

“If there’s any hope for housing construction, it is not in home ownership but in rentals,” said Joel Naroff of Naroff Economic Advisors. “The surge in multifamily activity, which really started in the second half of last year, is an indication that builders may be looking toward the rental portion of the market, not just condos, as the way to stay in business.”

The curb on construction from higher mortgage standards is not an argument that lenders should return to their free-wheeling ways of the boom. Higher standards should prevent a new round of defaults even if home prices stay at current levels.

Housing, however, is one of those “big-ticket items” that needs financing. Few people have the cash to buy a home outright. Raise the bar on financing and demand will remain weak, meaning housing will be a drag on growth for some time to come.