If you know a senior homeowner who is running out of money, a reverse mortgage might generate enough cash to allow them to stay in their home for many more years. Last fall the Federal Housing Administration created new rules, and opportunities, for lower-cost reverse mortgages. Now that most lenders have launched these new products, it’s worth an updated look.
Reverse mortgage basics
A reverse mortgage turns your home into your pension, either giving you a lump-sum payout from the equity in your home, or a fixed monthly check that will keep paying you as long as you live in the home.
This reverse mortgage is available to homeowners age 62 or older, who have either paid off their mortgage or have a small remaining balance. The amount you can receive is determined by your age, the value of your home, and current interest rates. Basically, the older you are when you take out the reverse mortgage, the more money you can receive — either in a lump sum or monthly payout.
And all the money you withdraw is tax-free, since it is the return of your own capital.
You don’t need a credit check, and you retain title to your home. You won’t have any mortgage payments, although you will be responsible for homeowners insurance, property taxes and upkeep on your home. But you’ll now have a monthly check to pay for those expenses, or a pool of money in the bank to cover emergencies.
Basically, you are just borrowing from yourself — although you will be paying interest on that loan. But the interest is added to the amount of equity taken out of the home. When you sell the home, or die, the amount you have borrowed out of your home’s equity must be repaid from the sale proceeds.
Importantly, you — or your heirs — can never owe more than the home is worth. And you can never be forced out of your home because you’ve “run out” of equity. Eventually, when the home is sold, because you move or die, any proceeds (minus the withdrawals, interest and fees) are returned to you, or your heirs.
If that sounds too good to be true, this is the one product that really is as good as it sounds — if you understand all the details and costs.
Costs and considerations
There are basically two kinds of reverse mortgages, and they are offered by many banks. Since all of these mortgages are insured by the Federal Housing Administration, they must follow the same basic rules — although there could be some differences in cost.
A reverse mortgage is called a HECM loan, which stands for Home Equity Conversion Mortgage. There are two types of loans — the Standard HECM and the newer “HECM Saver.” Each lets you borrow a different percentage of your equity, and each has different fees.
The amount you can borrow on a reverse mortgage depends on the appraised value of your home. But no matter how valuable your home, the FHA has determined that the maximum amount of equity that will be considered for a reverse mortgage in 2011 is $625,500.
The interest paid (taken out of your remaining equity) on both of these loans can be either at a fixed or variable rate. These days, few lenders will promise a fixed monthly payment at a fixed interest rate for the rest of your life. So most loans are variable rate, based on an index set by the FHA, and typically the interest is adjusted monthly. The initial interest rate on the Saver loan is slightly higher than on the Standard loan.
The Standard HECM loan allows you to access more money from your home equity than the Saver HECM, which allows access to about 20 percent less equity. But, the Standard requires a 2 percent upfront premium — again taken out of your equity — while the Saver has a tiny .01 percent upfront fee. Both loans also take a monthly insurance premium of 1.25 percent out of your equity to pay for the FHA insurance on these products.
(The FHA insurance protects the lenders, so they don’t lose money. Think about it this way: If the bank promises to pay you $2,000 a month for life in a reverse mortgage, and if you live to be 100, instead of the expected 85, the bank will lose out on the deal. The FHA insurance covers that possibility.)
The one place lenders do compete is in origination fees on these loans. The law allows banks to charge a maximum of $6,000 in origination fees, but many lenders today advertise that they will waive the entire origination fee. (They know they will make money on the loan interest over the years — as long as you don’t live too long.)
Getting started
If you’re interested in knowing what you could get in a reverse mortgage, go to ReverseMortgage.org, and use the online calculator, to see what monthly payment or lump sum may be received out of your home. You can also search for reverse mortgage lenders in your area.
In the box here you can see an example of what you could receive in a reverse mortgage.
Are you still worried about taking money out of your home? It’s understandable if you are because a reverse mortgage is only available to a homeowner who has paid off the mortgage, or has a small remaining balance. If you fall in that category, you’ve been a good saver all your life. So think of it as your home repaying you for all those years of saving.
Before taking out a reverse mortgage you must go through a counseling process, to make sure you understand how this works. And as part of that process, the lender must estimate for you how much you will have withdrawn from your equity after three, five and 10 years, and up to the youngest borrower’s 100th birthday, even if the interest rate adjusts upward to the cap. (Important note: On all these adjustable loans, the rate can rise up to 10 percent higher than the initial rate.)
There is one good way to beat the lender on a reverse mortgage. That’s to stay healthy and live in your home for many years, while you keep collecting the money. That’s what I keep telling my own father about the reverse mortgage I organized for him nearly a decade ago. I think it’s an inspiration for him.
And it could be the answer for you, so if you’re planning and hoping to stay in your home for a while, check out a reverse mortgage. Lenders know they are dealing with seniors and their families, so they are set up to patiently explain the process. It doesn’t cost anything to investigate a reverse mortgage and it may pay off big time. That’s the Savage Truth.
SOURCE
Sunday, January 30, 2011
Not All Home Mortgage Interest Is Tax Deductible
The new issue of Forbes has an article, Learning To Love Your Home Loan, which details the benefits of the once beloved, now feared, home mortgage. Of course, the ability to deduct interest on up to $1.1 million of mortgage debt is a big part of a home loan’s appeal, particularly to upper income folks who are taxed at higher rates.
As the article, by Stephane Fitch, puts it:
“Believe it or not, the mortgage is still one of the greatest wealth-building tools available, especially for well-to-do homeowners. Thanks go partly to the laws of economics; leverage in the guise of a mortgage, after all, can amplify gains in a rising market just as it amplified losses in a falling one. Then there’s the Uncle Sam effect. Thanks to federal tax law, no form of debt is potentially as beneficial to the average citizen as the venerable home mortgage.”
It’s an interesting article. But there’s one trap I wish it had discussed—and that anyone considering mortgage debt needs to be aware of. If you want to take on a big mortgage, you must do so when you first buy your house. That’s because, as the Internal Revenue Service explains in Publication 936, the only interest that is generally deductible is from loans you take to “buy, build or improve your home” or a second home. This is what’s known as home acquisition debt. (The exception is that the interest on up to $100,000 of borrowing against your home equity is deductible, but only in the regular tax, not in the calculation of the alternative minimum tax, which traps many upper middle income folks, particularly those who live in states with high individual income tax rates.)
So, for example, if you buy a $1 million home with an $800,000 mortgage, interest on the whole $800,000 is deductible. But if you buy a $1 million house with a $600,000 mortgage, pay down the principal of that mortgage to $590,000 and later refinance with an $800,000 loan, using the extra $210,000 to invest in the stock market, interest on only $590,000 of the new mortgage will be deductible as home acquisition debt; another $100,000 will be deductible as home equity debt, but not if you’re stuck paying AMT. (Put another way, what’s left of the principal on the original mortgage is what counts as home acquisition debt and this is the best type of debt to have, from a tax point of view.)
On the other hand, if you swap your old (now $590,000 in principal) mortgage for an $800,000 mortgage and use the extra $210,000 to build a home addition for your in-laws, interest on the whole $800,000 is deductible because that sum has been used to buy and improve your house. (For tips on multigenerational living, see staff member Ashlea Ebeling’s story here. For advice on dealing with difficult aging parents, see contributor Carolyn Rosenblatt’s post here.)
Also, beware the following trap: You can’t get a new $800,000 mortgage on your first home and use the extra $210,000 to pick up a bargain second home in a depressed, but sunny market like Tucson or Phoenix. (The 10 Best Places For Bargain Retirement Homes are here.) That’s because to qualify as home acquisition debt a mortgage must be used to buy or improve the home it is secured by. So you’ll need to take a new, separate mortgage, on your second home.
The bottom line: When you first buy a house, take as big a mortgage as you can qualify for, as you’re comfortable with, and as it makes economic sense to carry. So, for example, you may want to put 20% down to get a better mortgage rate and to avoid having to pay mortgage insurance premiums. (Yes, mortgage insurance premiums are now deductible—but not if your adjusted gross income is more than $109,000 per couple. Anyway, do you really want to give your hard-earned dollars to PMI Group or MBIA?) On the other hand, why put 30% or 40% down? You can always pay down some of the mortgage early if you find you have no better use for your cash—or if Congress limits the value of the mortgage interest deduction, as President Obama’s deficit reduction panel suggested last month it do.
SOURCE
As the article, by Stephane Fitch, puts it:
“Believe it or not, the mortgage is still one of the greatest wealth-building tools available, especially for well-to-do homeowners. Thanks go partly to the laws of economics; leverage in the guise of a mortgage, after all, can amplify gains in a rising market just as it amplified losses in a falling one. Then there’s the Uncle Sam effect. Thanks to federal tax law, no form of debt is potentially as beneficial to the average citizen as the venerable home mortgage.”
It’s an interesting article. But there’s one trap I wish it had discussed—and that anyone considering mortgage debt needs to be aware of. If you want to take on a big mortgage, you must do so when you first buy your house. That’s because, as the Internal Revenue Service explains in Publication 936, the only interest that is generally deductible is from loans you take to “buy, build or improve your home” or a second home. This is what’s known as home acquisition debt. (The exception is that the interest on up to $100,000 of borrowing against your home equity is deductible, but only in the regular tax, not in the calculation of the alternative minimum tax, which traps many upper middle income folks, particularly those who live in states with high individual income tax rates.)
So, for example, if you buy a $1 million home with an $800,000 mortgage, interest on the whole $800,000 is deductible. But if you buy a $1 million house with a $600,000 mortgage, pay down the principal of that mortgage to $590,000 and later refinance with an $800,000 loan, using the extra $210,000 to invest in the stock market, interest on only $590,000 of the new mortgage will be deductible as home acquisition debt; another $100,000 will be deductible as home equity debt, but not if you’re stuck paying AMT. (Put another way, what’s left of the principal on the original mortgage is what counts as home acquisition debt and this is the best type of debt to have, from a tax point of view.)
On the other hand, if you swap your old (now $590,000 in principal) mortgage for an $800,000 mortgage and use the extra $210,000 to build a home addition for your in-laws, interest on the whole $800,000 is deductible because that sum has been used to buy and improve your house. (For tips on multigenerational living, see staff member Ashlea Ebeling’s story here. For advice on dealing with difficult aging parents, see contributor Carolyn Rosenblatt’s post here.)
Also, beware the following trap: You can’t get a new $800,000 mortgage on your first home and use the extra $210,000 to pick up a bargain second home in a depressed, but sunny market like Tucson or Phoenix. (The 10 Best Places For Bargain Retirement Homes are here.) That’s because to qualify as home acquisition debt a mortgage must be used to buy or improve the home it is secured by. So you’ll need to take a new, separate mortgage, on your second home.
The bottom line: When you first buy a house, take as big a mortgage as you can qualify for, as you’re comfortable with, and as it makes economic sense to carry. So, for example, you may want to put 20% down to get a better mortgage rate and to avoid having to pay mortgage insurance premiums. (Yes, mortgage insurance premiums are now deductible—but not if your adjusted gross income is more than $109,000 per couple. Anyway, do you really want to give your hard-earned dollars to PMI Group or MBIA?) On the other hand, why put 30% or 40% down? You can always pay down some of the mortgage early if you find you have no better use for your cash—or if Congress limits the value of the mortgage interest deduction, as President Obama’s deficit reduction panel suggested last month it do.
SOURCE
Tax refund? Buy a house!
Did you know you only need a 3.5 percent down payment to buy a home if you’re eligible for FHA financing? If your tax refund is a sizable chunk of change, now’s a great time to buy because it’s a buyers market, no doubt about it. For first-time homebuyers, now’s an especially advantageous time to take the plunge.
The most common loans for first-time buyers, without a doubt, are Federal Housing Administration loans. FHA loans require only a 3.5 percent out of pocket down payment. For instance, on a $100,000 loan, the buyer would only need to come up with $3.500 and the seller could pay the rest of the closing costs. Still a bit short on funds to close? The nice thing about FHA is that it allows gifts from blood relatives. So if you need some help, Daddy can close the gap. You are limited to a base loan amount on average of $200,160, but that doesn’t usually pose a problem for first-time buyers.
Tennessee Housing Development Agency specifically targets first-time homebuyers. It sets interest rates below current market rates, offers reduced mortgage insurance, and can assist with down payments if you go to class and learn about budgeting and home buying. I spoke with a couple the other day, and we figured out they were getting paid roughly $360 an hour to go to class for eight hours. Not a bad deal, huh? However, you must income-qualify for this program. It’s designed to assist moderate- to low-income families. I guess the reasoning is that if you make a certain amount of money, you can afford a down payment. And its loan limit cap mirrors FHA for the most part. THDA can be used to finance FHA, Veteran, Rural Housing or conventional loans.
Speaking of Rural Housing and Veterans, these are also great deals for first-time homebuyers. Both offer 100 percent financing without monthly mortgage insurance! Of course, you have to fit into a niche to qualify for either. If you aren’t a veteran or have a pertinent connection to the qualification guidelines, you can forget about VA. But it has no income limit, no loan limit, and the seller can pretty much pay for all closing costs. What a deal! With Rural Housing, you not only have to income-qualify, you must also property-qualify. Like it sounds, Rural Housing loans encourage buying homes in less populated areas.
With foreclosures abounding, great deals exist that allow for instant equity for first-time homebuyers. But be aware, most of these programs mentioned are quite particular about the condition of the property. Any health and safety issues must be addressed before closing. Many times the banks that own foreclosure properties want to sell “as is.” It can be difficult to marry first-time buyer financing with foreclosures, but it can be done. Just be sure to work with a Realtor who is experienced in this area and a lender who knows their stuff.
So, if you’re getting money back from Uncle Sam, stop paying rent and start building equity in a home of your own!
Monday, January 24, 2011
RBI reduces home loan exposure of co-op banks
The Reserve Bank of India said cooperative banks cannot give housing loans beyond 5 percent of their total assets.
Earlier, state cooperative banks and central cooperative banks were allowed to extend housing finance up to 10 percent of their total loans and advances. These banks, with exposure in excess of the new limits, have been asked to initiate steps to bring it down to the revised limits within six months.
Their assets may be reckoned, based on the audited balance sheet on March 31 of the preceding financial year, RBI said.
The decision would curtail their exposure to real estate. The revised limit would be applicable with immediate effect. They were earlier allowed to give house loan to an individual borrower up to
20 lakh. In case of a bank having a net worth of 100 crore and above, the limit was 30 lakh.
SOURCE
Earlier, state cooperative banks and central cooperative banks were allowed to extend housing finance up to 10 percent of their total loans and advances. These banks, with exposure in excess of the new limits, have been asked to initiate steps to bring it down to the revised limits within six months.
Their assets may be reckoned, based on the audited balance sheet on March 31 of the preceding financial year, RBI said.
The decision would curtail their exposure to real estate. The revised limit would be applicable with immediate effect. They were earlier allowed to give house loan to an individual borrower up to
20 lakh. In case of a bank having a net worth of 100 crore and above, the limit was 30 lakh.SOURCE
Current Low Fixed Rate Mortgages for January 24, 2011
Fixed rate mortgages are one of the most popular type of home loans in the United States. The interest rates on these mortgages are fixed during the life of the loan, so borrowers do not have to worry about their mortgage rates changing when interest rates rise. Fixed mortgages could be good for borrowers who plan to stay for a long term 10 years or more in the same house.
For qualified borrowers, a 30 year fixed rate mortgage is available at a 4.375% rate and 4.581% APR. A 20 year fixed rate mortgage is available at a 4.250% interest rate and 4.532% APR, and a 15 year fixed rate mortgage is available at a 3.750% mortgage rate and 4.106% APR.
In addition to low fixed rate mortgages, Total Mortgage also offers a wide array of other mortgage products such as FHA mortgages, jumbo mortgages and adjustable rate mortgages at some of the most competitive rates in the industry. To see all our current mortgage rates please visit us online, or call 877-868-2503 to speak with a licensed mortgage professional today.
Mortgage rates are always changing. All rates were quoted at 12:30 P.M., on January 24, 2011.
Treasury Promises First-Ever Release of Loan Modification Records
At the end of this month, for the first time ever, the U.S. Treasury plans to release to the public a treasure trove of demographic information on people who have received loan modifications. That is, if the government releases the information as promised — information that has a critical impact on policies that prevent home foreclosures.
So far, the Treasury has stalled on making this key information available, despite requests by housing and consumer advocacy groups and media organizations, including New America Media, under the federal Freedom of Information Act. Loan modifications are changes made to the terms of a home loan and could include such things as being granted a different interest rate, a principal reduction or a decrease in how often the loan payments must be made.
Housing advocates say they have been waiting for the Treasury to the release the information for more than a year.
National Consumer Law Center attorney Geoffry Walsh, whose organization filed a FOIA request at the end of 2009, says the Treasury still hasn’t provided the information. Walsh says his group requested data detailing why borrowers were denied loan modifications.
Saturday, January 22, 2011
Home-Mortgage Rates Steady
Reports indicating that inflation remains tame kept home-mortgage rates relatively steady this week, Freddie Mac's chief economist said on Thursday.
Rates on the 30-year fixed-rate mortgage averaged 4.74% for the week ended Jan. 20, up from 4.71% last week, according to Freddie Mac's weekly survey of conforming mortgage rates. The mortgage averaged 4.99% a year ago.
Fifteen-year fixed-rate mortgages averaged 4.05% this week, down from 4.08% last week and 4.4% a year ago. Rates on five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.69%, down from 3.72% last week; the ARM averaged 4.27% a year ago.
And one-year Treasury-indexed ARMs averaged 3.25%, up from 3.23% last week; the ARM averaged 4.32% a year ago.
To obtain the rates, the fixed-rate mortgages required payment of an average 0.8 point, the five-year ARM required an average 0.7 point and the one-year ARM required an average 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.
"Mortgage rates were little changed during the holiday week amid reports that inflation remains tame," said Frank Nothaft, vice president and chief economist of Freddie Mac, in a news release. "Both the December core producer price index and consumer price index matched the market consensus. Compared to December 2009, core consumer prices rose at a 0.8% rate, the smallest yearly increase since records began in 1958." But the housing construction market remains weak, he said.
Treasury official praises mortgage servicers
An Obama administration housing official on Wednesday praised the mortgage servicing companies, just one day after Treasury Secretary Timothy Geithner said the industry needs an overhaul.
Cindy Gertz, director of operations at the Treasury Department's Homeownership Preservation Office, said mortgage servicers--firms which collect loan payments--have hired tens of thousands of extra staff to work with a crush of struggling borrowers who are trying to renegotiate the terms of their mortgages.
"I think tremendous progress has been made," Gertz told a group of bankers at a conference organized by the Mortgage Bankers Association. Gertz, a former executive at mortgage finance giant Freddie Mac, did acknowledge that the process is not complete.
Other Obama administration officials have sharply criticized the mortgage servicing industry.
David Stevens, the Federal Housing Administration Commissioner, told the conference the industry has a "trust deficit" that threatens the future of the housing market.
On Tuesday, the Obama administration called for a revamp of the way companies that service home loans are paid, saying the current system offers little incentive to rewrite mortgages for distressed borrowers. Geithner and Housing and Urban Development Secretary Shaun Donovan said the compensation system is "broken and should be fixed."
Treasury spokeswoman Andrea Risotto stressed that Gertz was narrowly referring to the implementation of the Making Home Affordable (MHA) program, the Obama administration's comprehensive effort to stabilize the U.S. housing market and prevent avoidable foreclosures.
"While servicers have made progress and built up their infrastructure to implement the (MHA) program, we continue to reinforce that more work needs to be done to strengthen implementation and improve the homeowner experience," Risotto said in a statement provided to Reuters.
A little more than 500,000 borrowers have thus far received a permanent loan modification under the Home Affordable Modification Program (HAMP), the highest profile component of the MHA effort.
Also speaking at the conference on Wednesday, the head of the Federal Deposit Insurance Corp called on the industry to fund a new commission to compensate homeowners who may have wrongly been kicked out of their homes.
FDIC Chairman Sheila Bair said a claims commission could be modeled on those created to compensate victims of the BP oil spill and the September 11, 2001, attacks.
The biggest U.S. mortgage servicers, including Bank of America, Wells Fargo and JPMorgan Chase & Co, have been accused of using improper procedures in some foreclosures, such as using "robo-signers" to sign hundreds of documents without review in a single day and advancing foreclosures without proof they held the mortgages.
The companies, whose reputations have suffered under the allegations, are facing repurchase demands from investors in mortgage-backed securities and multiple probes from bank regulators and all 50 state attorneys general.
PROTESTERS INTERRUPT MORTGAGE BANKERS
The conference on Wednesday drew a raucous group of more than 100 union-backed protesters who interrupted a panel, demanding "Where are the jobs?"
READ MORE HERE
READ MORE HERE
Getting A Obama Loan Modification Approval Under The HAMP Plan
Getting a loan modification approval under the home affordable modification program (HAMP) might not be that easy considering the complicated requirements which the entire process demands. Most of the borrowers who apply for the HAMP often end up facing a denial for their request on account of inaccurate paperwork which needs to furnished along with the loan modification application. This happens because applicants do not have understanding of the HAMP guidelines. Nevertheless, statistically it has been proven that borrowers who taken advantage of expert helps have much enhanced chances of getting approved for the HAMP plan.
USLoanz offers professional services to guide borrowers in thoroughly understanding the HAMP loan modification requirements and process which is vital to get an early HAMP approval.
Click here to know more about the HAMP home loan modification plan now!
Typically, the HAMP federal government loan modification plan is a structured program which has been initiated by the Obama administration to financially help struggling homeowners to save their homes from possible foreclosures. The HAMP mortgage modification program provides unique opportunity to distressed borrowers to get their existing monthly mortgage payments lowered to 31% of their gross monthly income. Nevertheless, to derive the benefits of the HAMP, loan modification applicants are needed to meet few requirements that have been stipulated by the Obama stimulus plan guidelines.
To qualify for the Obama federal loan modification or HAMP plan,
- Home needs to primary residence and not an investment or commercial property.
- Value of the current home mortgage has to be less than or equal to $ 729,750 for a single-unit family residence. It could be more for more number of units.
- Existing home mortgage loans should have originated on or before 1st January, 2009.
- Borrowers need to demonstrate financial hardship situation along with valid reasons.
- Present monthly mortgage installments have to be more than 31% of gross monthly income.
These are just few basic requirements. When you are exploring your loan modification options, it is always desirable to seek expert legal advice from competent loan modification lawyers who are well thoroughly versed with guidelines and procedural requirements.
Remember, you do not have to be delinquent on your mortgage payments or wait for your financial situation to further worsen. You can use a free evaluation to analyze your circumstances and explore any real chances of getting a HAMP home loan modification.
Remember, you do not have to be delinquent on your mortgage payments or wait for your financial situation to further worsen. You can use a free evaluation to analyze your circumstances and explore any real chances of getting a HAMP home loan modification.
Our professionally qualified and highly experienced mortgage loan modification attorney in your local area would provide you with free consultation to help you understand the HAMP requirements and process. And if can fulfill the HAMP eligibility criteria, you could be actively assisted in preparing correct and accurate documentation which is crucial to get an early approval.
Wednesday, January 19, 2011
Wells Fargo Reports Record Quarterly Profit on New Loans, Reserve Release
Wells Fargo & Co., the largest U.S. home lender, posted a record profit as lending expanded for the first time in at least a year.
Net income rose 21 percent to a $3.41 billion, or 61 cents a diluted share, from $2.82 billion, or 8 cents, in the same period a year earlier, the San Francisco-based bank said today in a statement. Results were helped by $850 million released from reserves as loan losses eased, and Wells Fargo told investors to expect more in the future.
“Wells Fargo saw solid growth in a variety of businesses, with record net income for the full year as well as the fourth quarter,” Chief Executive Officer John Stumpf said in the statement.
Stumpf, 57, used the 2008 purchase of Wachovia Corp. to push Wells Fargo to the top spot in U.S. mortgage lending as the financial crisis drove competitors out of the business. With profit growing, he’s under pressure from investors to restore the dividend, which was cut during the financial crisis, and fend off claims stemming from faulty mortgages and foreclosures.
Wholesale banking, the division that includes the investment bank and commercial lending and real-estate divisions, reported $1.6 billion of net income, up 11 percent from the third quarter. Total loans increased less than 1 percent to $757.3 billion from $753.7 billion in the third quarter.
Loan Growth
“Wells posted some loan growth and that’s certainly a positive,” said Shannon Stemm, an analyst with Edward Jones & Co. in St. Louis who rates the stock “buy.” “Loan demand will continue to recover as the economy recovers and Wells Fargo is positioned to capture that improvement”
Wells Fargo fell 68 cents, or 2.1 percent, to $31.81 at 4:15 p.m. in New York Stock Exchange composite trading. The stock gained 2.7 percent so far this year.
Profit for the full year advanced 1 percent to a record $12.4 billion. Total revenue declined 5 percent in the quarter to $21.5 billion, and income before taxes and provisions slid 17 percent to $8.15 billion.
Wells Fargo collected $2.8 billion in mortgage banking income, a drop of 19 percent from the same period of 2009. The bank reported $2.5 billion of mortgage banking income in the third quarter of 2010.
Refund Demands
The extra market share in mortgage lending came with added scrutiny as state officials probed the industry’s foreclosure practices and concern mounted among investors that banks will be forced to buy back billions of dollars in faulty home loans, draining their reserves.
The lender may “face some risks related to the industry’s foreclosure and servicing issues and additional regulatory scrutiny,” John McDonald, a Sanford C. Bernstein & Co. analyst, wrote in a Jan. 7 report. The bank’s “exposure to mortgage repurchases is mitigated by its better underwriting standards pre-crisis.”
McDonald estimates the lender may face another $2 billion in losses tied to so-called mortgage putbacks. Paul Miller, an analyst at FBR Capital Markets, estimates that repurchase losses at Wells Fargo may range from $3.1 billion to $5.3 billion, with $2.7 billion already taken as of his Nov. 29 report.
Demands for Wells Fargo to repurchase mortgages tied to both agency and non-agency securitizations declined, according to a presentation. The company had $506 million of losses in the quarter and set aside $464 million in provisions.
State Probes
Net interest margin, the difference between what the bank pays for funds and what it charges for loans, narrowed to 4.16 percent from 4.25 percent in the third quarter. Wells Fargo is the second-largest U.S. mortgage servicer after Bank of America Corp., according to industry newsletter Inside Mortgage Finance.
Among Wells Fargo’s biggest competitors, New York-based JPMorgan Chase & Co., the second-largest bank by assets, last week reported record quarterly profit of $4.83 billion, a 47 percent increase, which was boosted by a reduction in reserves. Citigroup Inc., also based in New York, posted a profit of $1.31 billion yesterday that missed analysts’ estimates.
Bank of America, the largest by assets in the U.S. and second-biggest home lender, plans to announce results on Jan. 21. It’s based in Charlotte, North Carolina.
Net loan charge-offs fell to $3.8 billion from $4.1 billion in the third quarter, led by housing and credit card losses.
Stock Performance
Wells Fargo, which briefly surpassed JPMorgan as the largest U.S. bank by market value during the quarter, has trailed the 24-company KBW Bank Index. Wells Fargo’s shares gained 15 percent in 2010, while the KBW index rose 22 percent.
In the last month, analysts for at least four firms, including Credit Suisse Group AG and Raymond James Financial Inc. raised their target price for the stock by an average of $3.43. The average target of 26 analysts is $36.62.
Wells Fargo, which slashed its dividend to 5 cents a share from 34 cents in May 2009, may be one of the first banks allowed by regulators to raise its payout, analysts said.
Stumpf told a Goldman Sachs Group Inc. investor conference in December he was “in violent agreement” that an increase to the payout was necessary. The bank will announce an increase of the payout to 10 cents in April, analysts surveyed by Bloomberg estimate. It may also repurchase shares or retire its trust- preferred securities in the second half of this year, McDonald wrote.
http://www.bloomberg.com/news/2011-01-19/wells-fargo-reports-record-quarterly-profit-on-new-loans-reserve-release.html
Net income rose 21 percent to a $3.41 billion, or 61 cents a diluted share, from $2.82 billion, or 8 cents, in the same period a year earlier, the San Francisco-based bank said today in a statement. Results were helped by $850 million released from reserves as loan losses eased, and Wells Fargo told investors to expect more in the future.
“Wells Fargo saw solid growth in a variety of businesses, with record net income for the full year as well as the fourth quarter,” Chief Executive Officer John Stumpf said in the statement.
Stumpf, 57, used the 2008 purchase of Wachovia Corp. to push Wells Fargo to the top spot in U.S. mortgage lending as the financial crisis drove competitors out of the business. With profit growing, he’s under pressure from investors to restore the dividend, which was cut during the financial crisis, and fend off claims stemming from faulty mortgages and foreclosures.
Wholesale banking, the division that includes the investment bank and commercial lending and real-estate divisions, reported $1.6 billion of net income, up 11 percent from the third quarter. Total loans increased less than 1 percent to $757.3 billion from $753.7 billion in the third quarter.
Loan Growth
“Wells posted some loan growth and that’s certainly a positive,” said Shannon Stemm, an analyst with Edward Jones & Co. in St. Louis who rates the stock “buy.” “Loan demand will continue to recover as the economy recovers and Wells Fargo is positioned to capture that improvement”
Wells Fargo fell 68 cents, or 2.1 percent, to $31.81 at 4:15 p.m. in New York Stock Exchange composite trading. The stock gained 2.7 percent so far this year.
Profit for the full year advanced 1 percent to a record $12.4 billion. Total revenue declined 5 percent in the quarter to $21.5 billion, and income before taxes and provisions slid 17 percent to $8.15 billion.
Wells Fargo collected $2.8 billion in mortgage banking income, a drop of 19 percent from the same period of 2009. The bank reported $2.5 billion of mortgage banking income in the third quarter of 2010.
Refund Demands
The extra market share in mortgage lending came with added scrutiny as state officials probed the industry’s foreclosure practices and concern mounted among investors that banks will be forced to buy back billions of dollars in faulty home loans, draining their reserves.
The lender may “face some risks related to the industry’s foreclosure and servicing issues and additional regulatory scrutiny,” John McDonald, a Sanford C. Bernstein & Co. analyst, wrote in a Jan. 7 report. The bank’s “exposure to mortgage repurchases is mitigated by its better underwriting standards pre-crisis.”
McDonald estimates the lender may face another $2 billion in losses tied to so-called mortgage putbacks. Paul Miller, an analyst at FBR Capital Markets, estimates that repurchase losses at Wells Fargo may range from $3.1 billion to $5.3 billion, with $2.7 billion already taken as of his Nov. 29 report.
Demands for Wells Fargo to repurchase mortgages tied to both agency and non-agency securitizations declined, according to a presentation. The company had $506 million of losses in the quarter and set aside $464 million in provisions.
State Probes
Net interest margin, the difference between what the bank pays for funds and what it charges for loans, narrowed to 4.16 percent from 4.25 percent in the third quarter. Wells Fargo is the second-largest U.S. mortgage servicer after Bank of America Corp., according to industry newsletter Inside Mortgage Finance.
Among Wells Fargo’s biggest competitors, New York-based JPMorgan Chase & Co., the second-largest bank by assets, last week reported record quarterly profit of $4.83 billion, a 47 percent increase, which was boosted by a reduction in reserves. Citigroup Inc., also based in New York, posted a profit of $1.31 billion yesterday that missed analysts’ estimates.
Bank of America, the largest by assets in the U.S. and second-biggest home lender, plans to announce results on Jan. 21. It’s based in Charlotte, North Carolina.
Net loan charge-offs fell to $3.8 billion from $4.1 billion in the third quarter, led by housing and credit card losses.
Stock Performance
Wells Fargo, which briefly surpassed JPMorgan as the largest U.S. bank by market value during the quarter, has trailed the 24-company KBW Bank Index. Wells Fargo’s shares gained 15 percent in 2010, while the KBW index rose 22 percent.
In the last month, analysts for at least four firms, including Credit Suisse Group AG and Raymond James Financial Inc. raised their target price for the stock by an average of $3.43. The average target of 26 analysts is $36.62.
Wells Fargo, which slashed its dividend to 5 cents a share from 34 cents in May 2009, may be one of the first banks allowed by regulators to raise its payout, analysts said.
Stumpf told a Goldman Sachs Group Inc. investor conference in December he was “in violent agreement” that an increase to the payout was necessary. The bank will announce an increase of the payout to 10 cents in April, analysts surveyed by Bloomberg estimate. It may also repurchase shares or retire its trust- preferred securities in the second half of this year, McDonald wrote.
http://www.bloomberg.com/news/2011-01-19/wells-fargo-reports-record-quarterly-profit-on-new-loans-reserve-release.html
The Mortgage Industry's Reputation Challenge
There is a "trust deficit" in the housing market today, according to FHA Commissioner Dave Stevens, speaking at a Mortgage Bankers Association conference on loan servicing in Washington DC today.
No kidding.
We've talked plenty on this blog about lack of consumer confidence in housing, mainly in the context of falling home prices. His point, though, is that loan servicing is just as much to blame.
Stevens told the conference that you cannot understate the "reputation challenge" facing the mortgage industry, as echo boomers who should be buying new homes but now choose to rent. This generation has been hearing all sorts of stories about troubled borrowers unable to reach their banks, paying on mortgages that have already been foreclosed, Robo-signers sitting in tiny cubicles pushing papers, or the latest about JP Morgan Chase overcharging members of the military on their home loans. It's not an enticing market to enter, no matter what generation you're assigned.
Today FDIC Chairman Sheila Bair proposed a foreclosure "claims commission" to deal with borrowers who were wrongly foreclosed upon. She suggested it be "modeled on the BP or 9/11 claims commissions" and that it be funded by servicers. That went over like a lead balloon in the room full of mortgage bankers, and Bair knew it.
"Many in the servicing industry will resist a settlement such as this because it would impose much of the immediate financial cost on the major servicers themselves, but this would be shortsighted," noted Bair.
There's no question that more Americans are turning to rental housing over home ownership, whether by necessity or by choice. All you need do is look at today's housing starts numbers from the Commerce Department. Single family starts fell 9 percent month to month, while Multi-family surged 25 percent. Permits for Multi-family buildings, a sign of future construction, rose over 50 percent. Builders know where the demand is and where it will come.
The nation's home ownership rate has dropped precipitously from the height of the housing boom, and while fear of home prices and credit availability are the driving factors, distrust of the mortgage industry is right up there with them.
"Servicers did not build their operational capabilities; they're not treating consumers fairly with the right trained staff with the right processes to help them get through a very difficult time and deal with the large number of defaulting loans going on today," argues Stevens.
Banks would argue that they have built their ranks, adding hundreds or even thousands of workers to answer calls and help troubled borrowers, but we've seen the outcome of a lot of that. Untrained employees, lawyers paid extra incentives to ram foreclosures through the system, and a loss mitigation process that no matter how "streamlined" it now claims to be, is far from it.
Confidence comes from believing a system works, in good times and in bad. We're not there yet.
SOURCE
No kidding.
We've talked plenty on this blog about lack of consumer confidence in housing, mainly in the context of falling home prices. His point, though, is that loan servicing is just as much to blame.
Stevens told the conference that you cannot understate the "reputation challenge" facing the mortgage industry, as echo boomers who should be buying new homes but now choose to rent. This generation has been hearing all sorts of stories about troubled borrowers unable to reach their banks, paying on mortgages that have already been foreclosed, Robo-signers sitting in tiny cubicles pushing papers, or the latest about JP Morgan Chase overcharging members of the military on their home loans. It's not an enticing market to enter, no matter what generation you're assigned.
Today FDIC Chairman Sheila Bair proposed a foreclosure "claims commission" to deal with borrowers who were wrongly foreclosed upon. She suggested it be "modeled on the BP or 9/11 claims commissions" and that it be funded by servicers. That went over like a lead balloon in the room full of mortgage bankers, and Bair knew it.
"Many in the servicing industry will resist a settlement such as this because it would impose much of the immediate financial cost on the major servicers themselves, but this would be shortsighted," noted Bair.
There's no question that more Americans are turning to rental housing over home ownership, whether by necessity or by choice. All you need do is look at today's housing starts numbers from the Commerce Department. Single family starts fell 9 percent month to month, while Multi-family surged 25 percent. Permits for Multi-family buildings, a sign of future construction, rose over 50 percent. Builders know where the demand is and where it will come.
The nation's home ownership rate has dropped precipitously from the height of the housing boom, and while fear of home prices and credit availability are the driving factors, distrust of the mortgage industry is right up there with them.
"Servicers did not build their operational capabilities; they're not treating consumers fairly with the right trained staff with the right processes to help them get through a very difficult time and deal with the large number of defaulting loans going on today," argues Stevens.
Banks would argue that they have built their ranks, adding hundreds or even thousands of workers to answer calls and help troubled borrowers, but we've seen the outcome of a lot of that. Untrained employees, lawyers paid extra incentives to ram foreclosures through the system, and a loss mitigation process that no matter how "streamlined" it now claims to be, is far from it.
Confidence comes from believing a system works, in good times and in bad. We're not there yet.
SOURCE
When to Refinance Home Loans
It is all the rage right now to refinance home loans. For millions of Americans, the ability to refinance their first or second mortgage has meant the ability to keep up with their payments and avoid foreclosure. For others, the decision to get my home loan refinanced means cashing in on interest rates at their record lows.
How do you know if you should jump on the band wagon and refinance your home?
Are you moving soon?
If you are thinking about refinancing your home loan, one of the first questions you need to ask yourself is how long you are planning to be in your current home. In most cases, if you are planning a move within 3-5 years from the time your loan would close, it is better to stick with your current loan.
This is because the closing costs take about 3-5 years to recoup.
Are you nearing a balloon payment?
Does your current loan call for a balloon payment? Is the balloon payment looming near, and you don’t have the money to cover it? If that is the case, you should probably be looking at your home loan refinance options.
Do you need to lower your interest rate?
Interest rate is not the only factor which creates a good or a bad loan, but it is a major component. Does the new loan enable you to lower your interest rate? Unless you see a net drop of .5%, then you should either skip the refi or find a better deal.
Is your current loan a fixed rate loan?
If your current loan is an adjustable rate mortgage which is set to increase, you should schedule a face-to-face with a mortgage broker as soon as you can. These adjustable rate loans are the main cause of the skyrocketing foreclosure rates our economy has been enjoying these last several years.
An adjustable rate loan in and of itself does not mean you need to refinance your home loan, but it does mean you need to sit down and figure out just how much the adjustments will affect your ability to keep pace with the payments.
Does the new loan lower your payment?
It would be a real bummer to go through the cost and hassle of a refinance home loans process just to find out the net change to your mortgage is negligible or worse – an increase! Make certain of your numbers before you sign.
What does the refinance mortgage calculator say?
If these answers seem to place your mind into more of a fog, consult a home loan refinance calculator. Crunching the numbers in real time can clear out the fog in a hurry.
What are your reasons to refinance?
When contemplating refinancing your home or second mortgage, ask yourself why you want to do it? Do you want to restructure the debt to pay it off more quickly or lower the payment by spacing the loan out over a longer period of time? Do you want to lower your interest rate? Do you need to lower your monthly mortgage payment? Do you need to consolidate debt? Do you want to increase the debt load on your home?
If the refinance loan package you are looking at does not accomplish each of your goals in the refinance, don’t do it. Find a loan that gets you what you need in every aspect of your list.
Where are you in your current loan?
If you are nearing the end of your payoff cycle in your first or second mortgage, it is not usually the best financial decision to refinance the loan. There are exceptions, like financial hardships which make it difficult to keep up with the bills, but generally it is best to keep the same mortgage when its time is short.
Will the new loan significantly increase your debt load?
Debt consolidation may look good on paper, but in practice it is not always the best choice. If you are having difficulty making credit card payments, hitching them to your home might mean you end up heading to foreclosure — all because of that shopping spree in the summer of ’09. Better to let the credit card companies destroy your credit report than to lose your home over it.
SOURCE
How do you know if you should jump on the band wagon and refinance your home?
Are you moving soon?
If you are thinking about refinancing your home loan, one of the first questions you need to ask yourself is how long you are planning to be in your current home. In most cases, if you are planning a move within 3-5 years from the time your loan would close, it is better to stick with your current loan.
This is because the closing costs take about 3-5 years to recoup.
Are you nearing a balloon payment?
Does your current loan call for a balloon payment? Is the balloon payment looming near, and you don’t have the money to cover it? If that is the case, you should probably be looking at your home loan refinance options.
Do you need to lower your interest rate?
Interest rate is not the only factor which creates a good or a bad loan, but it is a major component. Does the new loan enable you to lower your interest rate? Unless you see a net drop of .5%, then you should either skip the refi or find a better deal.
Is your current loan a fixed rate loan?
If your current loan is an adjustable rate mortgage which is set to increase, you should schedule a face-to-face with a mortgage broker as soon as you can. These adjustable rate loans are the main cause of the skyrocketing foreclosure rates our economy has been enjoying these last several years.
An adjustable rate loan in and of itself does not mean you need to refinance your home loan, but it does mean you need to sit down and figure out just how much the adjustments will affect your ability to keep pace with the payments.
Does the new loan lower your payment?
It would be a real bummer to go through the cost and hassle of a refinance home loans process just to find out the net change to your mortgage is negligible or worse – an increase! Make certain of your numbers before you sign.
What does the refinance mortgage calculator say?
If these answers seem to place your mind into more of a fog, consult a home loan refinance calculator. Crunching the numbers in real time can clear out the fog in a hurry.
What are your reasons to refinance?
When contemplating refinancing your home or second mortgage, ask yourself why you want to do it? Do you want to restructure the debt to pay it off more quickly or lower the payment by spacing the loan out over a longer period of time? Do you want to lower your interest rate? Do you need to lower your monthly mortgage payment? Do you need to consolidate debt? Do you want to increase the debt load on your home?
If the refinance loan package you are looking at does not accomplish each of your goals in the refinance, don’t do it. Find a loan that gets you what you need in every aspect of your list.
Where are you in your current loan?
If you are nearing the end of your payoff cycle in your first or second mortgage, it is not usually the best financial decision to refinance the loan. There are exceptions, like financial hardships which make it difficult to keep up with the bills, but generally it is best to keep the same mortgage when its time is short.
Will the new loan significantly increase your debt load?
Debt consolidation may look good on paper, but in practice it is not always the best choice. If you are having difficulty making credit card payments, hitching them to your home might mean you end up heading to foreclosure — all because of that shopping spree in the summer of ’09. Better to let the credit card companies destroy your credit report than to lose your home over it.
SOURCE
Sunday, January 16, 2011
Bank Rate on Reverse Mortgages
Bank Rate takes a look at reverse morgages and the tradeoffs that come along with the loans.
The loan can help borrowers generate cash flow, pay expenses, and achieve financial and estate planning objectives. Those goals are all “legitimate, if done wisely,” says Barbara Stucki, vice president of home equity initiatives at the National Council on Aging, a nonprofit advocacy and service organization for older Americans based in Washington, D.C.
On the minus side, these loans aren’t appropriate for every borrower or situation. Nor are they the free money they might appear to be. In fact, the upfront fees, mortgage insurance costs and deferred interest on a reverse mortgage can add up to a sizable sum.
Don’t borrow more than you need. Seniors may be tempted to take out a reverse mortgage for peace-of-mind purposes, but a lump sum in a bank account won’t generate enough income to offset the loan’s deferred interest expense, says Susanna Montezemolo, vice president of federal affairs at the Center for Responsible Lending in Washington, D.C.
“For the majority of people, it makes more sense to take out a minimum amount upfront, and then have access to a line of credit. They will owe less in interest over time,” she says.
SOURCE
The loan can help borrowers generate cash flow, pay expenses, and achieve financial and estate planning objectives. Those goals are all “legitimate, if done wisely,” says Barbara Stucki, vice president of home equity initiatives at the National Council on Aging, a nonprofit advocacy and service organization for older Americans based in Washington, D.C.
On the minus side, these loans aren’t appropriate for every borrower or situation. Nor are they the free money they might appear to be. In fact, the upfront fees, mortgage insurance costs and deferred interest on a reverse mortgage can add up to a sizable sum.
Don’t borrow more than you need. Seniors may be tempted to take out a reverse mortgage for peace-of-mind purposes, but a lump sum in a bank account won’t generate enough income to offset the loan’s deferred interest expense, says Susanna Montezemolo, vice president of federal affairs at the Center for Responsible Lending in Washington, D.C.
“For the majority of people, it makes more sense to take out a minimum amount upfront, and then have access to a line of credit. They will owe less in interest over time,” she says.
SOURCE
Bloomberg Nuveen Plans to Raise Credit Fund to Invest in Corporate Debt
Nuveen Investments Inc., the asset manager owned by Madison Dearborn Partners LLC, plans to start a fund to buy corporate debt, the firm said in a prospectus filed today with the U.S. Securities and Exchange Commission.
The Nuveen Short Duration Credit Opportunities Fund will invest at least 70 percent of its assets in adjustable-rate senior loans and second-lien debt. The fund may also purchase high-yield debentures and collateralized loan obligations, according to the filing.
CLOs are a type of collateralized debt obligation that pool high-yield, high-risk loans and slice them into securities of varying risk and return.
Nuveen Fund Advisors Inc. will determine and implement the investment strategy, while Symphony Asset Management LLC will be responsible for investing the fund’s assets, according to the filing.
Kathleen Cardoza, a Nuveen spokeswoman, declined to comment.
SOURCE
The Nuveen Short Duration Credit Opportunities Fund will invest at least 70 percent of its assets in adjustable-rate senior loans and second-lien debt. The fund may also purchase high-yield debentures and collateralized loan obligations, according to the filing.
CLOs are a type of collateralized debt obligation that pool high-yield, high-risk loans and slice them into securities of varying risk and return.
Nuveen Fund Advisors Inc. will determine and implement the investment strategy, while Symphony Asset Management LLC will be responsible for investing the fund’s assets, according to the filing.
Kathleen Cardoza, a Nuveen spokeswoman, declined to comment.
SOURCE
Better Approaches to Home Loans?
Bethany McLean is correct that the 30-year mortgage is an outdated product (“Who Wants a 30-Year Mortgage?,” Op-Ed, Jan. 6). It was created in the 1940s, back when Americans lived in the same house for most of their lives. Today, the average American either moves or refinances every five to seven years.
As Ms. McLean argues, financial institutions should keep their mortgages on their books. Up north, Canadian banks hold more than two-thirds of their loans. And their rates are fixed for a statutory maximum of five years.
During the recent recession, while about 14 percent of American mortgages were in arrears, fewer than 1 percent of Canadian mortgages were in foreclosure or delinquent.
Today, the 30-year mortgage is undermining our economy. Shorter-term mortgages with lower rates and payments make better sense for both banks and borrowers.
SOURCE
As Ms. McLean argues, financial institutions should keep their mortgages on their books. Up north, Canadian banks hold more than two-thirds of their loans. And their rates are fixed for a statutory maximum of five years.
During the recent recession, while about 14 percent of American mortgages were in arrears, fewer than 1 percent of Canadian mortgages were in foreclosure or delinquent.
Today, the 30-year mortgage is undermining our economy. Shorter-term mortgages with lower rates and payments make better sense for both banks and borrowers.
SOURCE
Saturday, January 15, 2011
Seniors finding reverse mortgages more appealing
Older homeowners tend to be more likely to own their homes outright, without a mortgage. They also tend to be conservative and want to “save something for the kids.”
They also tend to run out of money deep into retirement, lacking the funds to maintain their homes.
Enter the reverse mortgage. If the owner owns the home outright, or with a small mortgage, and is at least 62, the lender pays them each month, rather than the other way around. The lender is paid back, with interest, when the senior moves out of the house, or dies and “the kids” sell it.
According to the Mature Marketing Institute, reverse mortgages, also known as “home-equity conversion mortgages” (HECMs), are becoming more popular with senior homeowners. Reporting on 55-plus housing trends at the International Builders Show here, the MMI said:
– There is a consistent increase in seniors using HECM and reverse mortgages.
– Sixty percent of 55-plus owners don’t have mortgages; 12.3 percent have some sort of mortgage. Just 241,000 have reverse mortgages, but that is a big increase from 150,000 or so in 2007. Experts say seniors need to look at home equity for income in retirement.
– The people who are using reverse mortgages tend to be older single females who have been in their homes for quite some time.
– Seven percent of reverse mortgages are held by people in active-adult communities. That is trending upward.
– Of seniors with a mortgage, the average age is 63 years. Of seniors with no mortgage, 71 years. Of seniors with reverse mortgage, 77.
Also:
– People are using sale of a prior home to fund the sale of a new home. In 2001, 71 percent used sale of previous home to finance a 55-plus home. That was 55 percent in 2009. There is an increase in people using savings or cash on hand — clearly one impact of the fall in home values and home equity.
Demand for home loans strong
India’s largest mortgage lender, Housing Development Finance Company (HDFC), has turned in a good set of numbers for the December 2010 quarter. While growing the loan book by 27% year-on-year, the firm managed to bring down non-performing loans for the 24th consecutive quarter to 0.85%. Given its strong capital adequacy of 14%, Keki Mistry, vice chairman and CEO, HDFC tells The Financial Express that although interest rates are rising, the underlying demand for housing remains strong and therefore, HDFC is targetting a loan growth of 20-25% next year.
With interest rates rising what could be the impact on net interest margins?
Our net interest margin for the nine months to December has been 4.4 %. However, in the context of rising interest rates, we prefer to focus on our spreads, which have come in at 2.33% for the December quarter, in the September quarter they were at 2.34%. We should be able to maintain our spreads at these levels.
Do you see demand for loans getting impacted by higher interest rates?
The underlying demand for housing loans has remained strong so if interest rates rise by even another 25-50 basis points, over the 75 basis points in December, demand should not get hurt. Home loan rates were at 11% a couple of years back so if they head up to those levels, it is unlikely to hurt demand. Yields too should not suffer. Of course our loans to the construction sector have come off and these attract yields of 13-14% which is about 300 basis points higher than yields from individuals, but then the risks in lending to companies is far higher.
Know About Benefits Of Home Refinance With Poor Credit
As a homeowner, you can avail the best deals in mortgage refinance loan as well as manage your budget with lower interest rates. This is possible by taking up a home mortgage refinance loans. It will enable you to pay your loan quickly, which will save money for present and future. We provide you with the latest cash out refinance rates at usloanz. There are however, some major points, which you should know before you avail this loan listed as below:
Advantages of mortgage refinance loan
- Your rate of interest is lowered which in turn lowers your monthly payment.
- You can be smart enough to capitalize on your equity and put money back in your pocket.
- Pay off your multiple debts with one single payment especially those who have a bad credit, by availing bad credit home refinancing.
- You can lower down your interest rate largely if you have recently improved your credit score.
- Refinancing will enable you to stop rising payments per month. You can avail financial as well as physical ease because of this.
The big question- should you choose to refinance? Ask yourself the following:
- Do you wish to replace an older secured loan with a new home loan pledged by some assets?
- Is the refinance decreasing your interest rates and payments?
- Is the saved amount of money worth it for you?
When should you choose for home mortgage refinancing loan?
- When there is a decrease in the cash out refinance rates
- If your financial condition has changed recently
- For consolidating high interest debts
- Need to enhance current finances
In addition to the above situations, you should also check out whether mortgage refinance makes sense to you by evaluating your account.
How to begin?
Start your research online. Ask as many questions as you can. Know about the latest bad credit home refinancing rates. Check out the various available refinancing programs in the market and choose the one which best suits your needs and budget.
Start your research online. Ask as many questions as you can. Know about the latest bad credit home refinancing rates. Check out the various available refinancing programs in the market and choose the one which best suits your needs and budget.
Tuesday, January 11, 2011
Reverse mortgage: The bank pays you the EMI
Reverse mortgage has so far been a lousy product that senior citizens didn’t want. But that’s about to change.
In 2007, P Chidambaram, the then finance minister, announced a rather novel scheme called reverse mortgages, which promised to give senior citizens an income stream based on the value of property they owned. Many who are past their sixties suddenly find themselves in a piquant situation: Salaries have shrunk to pensions, the risk of sudden medical expenses is higher and inflation simply unbearable.
Reverse mortgages give them a chance to convert their one big asset — their home — into a regular income stream, without sacrificing its ownership. However, till now, only about 7,000 reverse mortgages have been sold, though over 20 banks offer the product. The predominant reason is cultural. “Most elderly see residences as entitlements of bequeaths for their offspring as in many cases they have also come to inherit them from their parents,” says Ravi Nawal of Celent, a financial advisory firm.
There are other reasons too. The loan tenure, maximum of 20 years, is a drawback. After 20 years, the borrower will either have to repay or let the bank take possession (to be sold after the person’s death). The borrowers were concerned about low valuations that banks gave to their houses. The bank, of course, was taking a risk that the property price could have fallen below the loan amount. The result: Bankers were not too keen to promote or sell the product, and the potential customers did not give enough thought to reverse mortgage as a financing option.
Things might change going forward. The main reason: The product is evolving. The earlier reverse mortgage product ran for 20 years, after which the income stream stopped. A new product (launched in early 2010) born out of a bank-insurance company tie-up, combines annuity with reverse mortgage, which means the income stream will continue throughout the lifetime of a customer. The amount the customers get is also more by 50% to 75%, because insurance companies with actuarial skills understand the risk better and price the products better, says RV Verma, chairman and managing director of National Housing Bank.
Central Bank of India, which has tied up with Star Union Dai-ichi Life Insurance to launch an annuity product called Cent Swabhiman Plus, has already garnered 25% share. Verma believes that more life insurance companies will enter the market in 2011, and the customers will have more products to choose from. LIC has already shown interest, he says.
The new product is not without a pain point. It’s not clear how this product will be treated by the tax authorities. While reverse mortgages are exempt from tax, annuities are not.
In the long run, demand for reverse mortgages is likely to go up. There are broader social changes — growth of nuclear families, elderly people living alone, children settling abroad or in bigger cities — that will drive the growth of the product. “The market opportunity is growing. Senior citizens living alone or with only spouse are expected to grow to 25% by 2015 from 15% now. We estimate the target market of 6 million households by 2015 for the RML offering,”says Nawal.
SOURCE
In 2007, P Chidambaram, the then finance minister, announced a rather novel scheme called reverse mortgages, which promised to give senior citizens an income stream based on the value of property they owned. Many who are past their sixties suddenly find themselves in a piquant situation: Salaries have shrunk to pensions, the risk of sudden medical expenses is higher and inflation simply unbearable.
Reverse mortgages give them a chance to convert their one big asset — their home — into a regular income stream, without sacrificing its ownership. However, till now, only about 7,000 reverse mortgages have been sold, though over 20 banks offer the product. The predominant reason is cultural. “Most elderly see residences as entitlements of bequeaths for their offspring as in many cases they have also come to inherit them from their parents,” says Ravi Nawal of Celent, a financial advisory firm.
There are other reasons too. The loan tenure, maximum of 20 years, is a drawback. After 20 years, the borrower will either have to repay or let the bank take possession (to be sold after the person’s death). The borrowers were concerned about low valuations that banks gave to their houses. The bank, of course, was taking a risk that the property price could have fallen below the loan amount. The result: Bankers were not too keen to promote or sell the product, and the potential customers did not give enough thought to reverse mortgage as a financing option.
Things might change going forward. The main reason: The product is evolving. The earlier reverse mortgage product ran for 20 years, after which the income stream stopped. A new product (launched in early 2010) born out of a bank-insurance company tie-up, combines annuity with reverse mortgage, which means the income stream will continue throughout the lifetime of a customer. The amount the customers get is also more by 50% to 75%, because insurance companies with actuarial skills understand the risk better and price the products better, says RV Verma, chairman and managing director of National Housing Bank.
Central Bank of India, which has tied up with Star Union Dai-ichi Life Insurance to launch an annuity product called Cent Swabhiman Plus, has already garnered 25% share. Verma believes that more life insurance companies will enter the market in 2011, and the customers will have more products to choose from. LIC has already shown interest, he says.
The new product is not without a pain point. It’s not clear how this product will be treated by the tax authorities. While reverse mortgages are exempt from tax, annuities are not.
In the long run, demand for reverse mortgages is likely to go up. There are broader social changes — growth of nuclear families, elderly people living alone, children settling abroad or in bigger cities — that will drive the growth of the product. “The market opportunity is growing. Senior citizens living alone or with only spouse are expected to grow to 25% by 2015 from 15% now. We estimate the target market of 6 million households by 2015 for the RML offering,”says Nawal.
SOURCE
How home equity loans have surged with low interest rates
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Home equity loans surge
Home-equity lines of credit and loans have surged in Canada, rising at almost twice the pace of mortgages over the past decade to account now for 12 per cent of overall household debt.
"Since these secured loans are offered at a lower interest rate than unsecured loans, consumers have used part of the funds to pay down other debts," Bank of Canada deputy governor Agathe Côté said today.
"Microdata suggest that roughly one-third of the loans are used to that effect, while about 20 per cent are used to invest in financial assets. The remaining half is spent on current consumption and renovating or purchasing another property."
These lower rates, coupled with rising house prices, have helped pump up credit levels, Ms. Côté said as the central bank again sounded alarm bells over high consumer debt levels.
"The main channel through which increases in house prices can raise household spending is called the financial-accelerator effect," she said in a speech in Kingston, Ont.
"When the value of a house rises, the owner can borrow against the increased equity through a home equity line of credit, a home equity loan or by simply increasing the size of the mortgage (an option for homeowners when they renew their mortgage, provided they have sufficient equity). The funds can be used to finance home renovations, a second house, or other goods and services.
"Such expenditures can accelerate the increase in house prices, reinforcing the growth in collateral values and access to additional borrowing, thus leading to a rise in household spending."
Household spending was key to Canada's recovery, but household finances have become "increasingly stretched."
Debt now stands at a record 148 per cent of disposable income, she said, while gains in house prices won't likely contribute to household wealth as they have recently.
"This, combined with the fact that the level of household debt has reached a record high, leads us to expect that the growth of household expenditures will slow to a pace closer to that of income," she said.
Ms. Côté noted the risks to the outlook for spending, and how that could ripple through the economy.
A sudden weakening in the housing industry could have "sizable spillover effects" through the economy, in areas such as spending, given such high debt levels.
"While residential investment declined in the second half of 2010, it still remains near historically high levels," she added. "The Bank expects some further weakening into 2011, reflecting subdued income growth and declining affordability, but not a major correction."
FULL ARTICLE HERE
Home equity loans surge
Home-equity lines of credit and loans have surged in Canada, rising at almost twice the pace of mortgages over the past decade to account now for 12 per cent of overall household debt.
"Since these secured loans are offered at a lower interest rate than unsecured loans, consumers have used part of the funds to pay down other debts," Bank of Canada deputy governor Agathe Côté said today.
"Microdata suggest that roughly one-third of the loans are used to that effect, while about 20 per cent are used to invest in financial assets. The remaining half is spent on current consumption and renovating or purchasing another property."
These lower rates, coupled with rising house prices, have helped pump up credit levels, Ms. Côté said as the central bank again sounded alarm bells over high consumer debt levels.
"The main channel through which increases in house prices can raise household spending is called the financial-accelerator effect," she said in a speech in Kingston, Ont.
"When the value of a house rises, the owner can borrow against the increased equity through a home equity line of credit, a home equity loan or by simply increasing the size of the mortgage (an option for homeowners when they renew their mortgage, provided they have sufficient equity). The funds can be used to finance home renovations, a second house, or other goods and services.
"Such expenditures can accelerate the increase in house prices, reinforcing the growth in collateral values and access to additional borrowing, thus leading to a rise in household spending."
Household spending was key to Canada's recovery, but household finances have become "increasingly stretched."
Debt now stands at a record 148 per cent of disposable income, she said, while gains in house prices won't likely contribute to household wealth as they have recently.
"This, combined with the fact that the level of household debt has reached a record high, leads us to expect that the growth of household expenditures will slow to a pace closer to that of income," she said.
Ms. Côté noted the risks to the outlook for spending, and how that could ripple through the economy.
A sudden weakening in the housing industry could have "sizable spillover effects" through the economy, in areas such as spending, given such high debt levels.
"While residential investment declined in the second half of 2010, it still remains near historically high levels," she added. "The Bank expects some further weakening into 2011, reflecting subdued income growth and declining affordability, but not a major correction."
FULL ARTICLE HERE
Improve Your Home Equity
A mortgage refinance loan is secured with the same asset that is the same home which you have purchased initially through a home mortgage loan. The increased equity in your home can serve as collateral for a FHA Mortgage Refinance which can get you some extra cash to use for other needs.
A mortgage refinance loan is secured with the same asset that is the same home which you have purchased initially through a home mortgage loan. The increased equity in your home can serves as collateral for a FHA Mortgage Refinance, which can get you some extra cash to use for other needs. To make a choice of a mortgage refinance however, you must be aware that the principal amount of your new home mortgage will increase proportionately. This can prove to be a serious burden to families who cannot increase their income over the years. To avoid this financial trap, it is better to be prepared and ensure that you have an affordable monthly payment you can be consistent with. Loans Store offers professional help to get the lowest rates on FHA Streamline Refinance with affordable repayment plans and terms that allow you the time you need to repay without pressure.
In the recent economic recession and the Home Affordable Refinance Program, mortgage rates saw a period of continued decrease and are now considerably lower than the past years. A decision to refinance may appear to be reasonable for some because a longer term and a lower interest rate means lower payments per month which will not significantly increase what your current mortgage payment is now. When refinancing, not being aware of all the numbers involved may land you in a costlier situation ending up paying more on your total mortgage. Far better to seek counsel from experienced specialists who can highlight the pros and cons of your particular mortgage refinance.
Refinancing a home loan can prove to be a sound decision a homeowner can make under fair market conditions which may create a better financial budgeting situation and simplifies matters of future credit. For homeowners wanting to refinance a mortgage you must know the FHA Refinance Rates suitable for your needs and what you are looking for in order not to regret a decision mortgage refinancing later. A homeowner can decide to take a refinance home mortgage when he wants to purchase or settle debt, when he wants a long-term loan to decrease the monthly payments, when the mortgage is of a high ARM or fixed rate, converting from an ARM to fixed rate and when two different loans can be consolidated. It is understood that a homeowner should choose refinancing only if fulfills their long-term plans and not just for some instant cash.
Short-term loans for homeowners who would like to build up equity in their homes are also available at affordable interest rates. improvements done to your home may increase speed of equity built up in your home and you can then rely on a future FHA Home Mortgage Refinance for financing planned events like weddings, education etc.
SOURCE
A mortgage refinance loan is secured with the same asset that is the same home which you have purchased initially through a home mortgage loan. The increased equity in your home can serves as collateral for a FHA Mortgage Refinance, which can get you some extra cash to use for other needs. To make a choice of a mortgage refinance however, you must be aware that the principal amount of your new home mortgage will increase proportionately. This can prove to be a serious burden to families who cannot increase their income over the years. To avoid this financial trap, it is better to be prepared and ensure that you have an affordable monthly payment you can be consistent with. Loans Store offers professional help to get the lowest rates on FHA Streamline Refinance with affordable repayment plans and terms that allow you the time you need to repay without pressure.
In the recent economic recession and the Home Affordable Refinance Program, mortgage rates saw a period of continued decrease and are now considerably lower than the past years. A decision to refinance may appear to be reasonable for some because a longer term and a lower interest rate means lower payments per month which will not significantly increase what your current mortgage payment is now. When refinancing, not being aware of all the numbers involved may land you in a costlier situation ending up paying more on your total mortgage. Far better to seek counsel from experienced specialists who can highlight the pros and cons of your particular mortgage refinance.
Refinancing a home loan can prove to be a sound decision a homeowner can make under fair market conditions which may create a better financial budgeting situation and simplifies matters of future credit. For homeowners wanting to refinance a mortgage you must know the FHA Refinance Rates suitable for your needs and what you are looking for in order not to regret a decision mortgage refinancing later. A homeowner can decide to take a refinance home mortgage when he wants to purchase or settle debt, when he wants a long-term loan to decrease the monthly payments, when the mortgage is of a high ARM or fixed rate, converting from an ARM to fixed rate and when two different loans can be consolidated. It is understood that a homeowner should choose refinancing only if fulfills their long-term plans and not just for some instant cash.
Short-term loans for homeowners who would like to build up equity in their homes are also available at affordable interest rates. improvements done to your home may increase speed of equity built up in your home and you can then rely on a future FHA Home Mortgage Refinance for financing planned events like weddings, education etc.
SOURCE
Sunday, January 2, 2011
Reverse mortgages get more affordable
These loans, which allow seniors to spend their home equity without selling their home, have historically been cumbersome and expensive. But new options empower seniors to tap smaller amounts of equity in a more affordable way, according to Peter Bell, president of the National Reverse Mortgage Lenders Association, a group in Washington, D.C., that represents lenders and investors.
The biggest change is the introduction of a new reverse mortgage, called the Home Equity Conversion Mortgage Saver option, or HECM Saver. It has a cheaper upfront mortgage insurance premium, or MIP, compared with the traditional HECM reverse mortgage, now known as the standard option.
Mortgage insurance protects lenders from loan losses, though borrowers pay the cost. Most reverse mortgages are insured through the Federal Housing Administration.
The trade-off, due to the lower MIP and other program changes, is a 10 percent to 18 percent reduction in the maximum loan amount allowed on the saver option, and 1 percent to 5 percent on the standard option, depending on the borrower's age and interest rate, Bell says. The lower loan amount allowed on the saver option means the FHA's risk exposure is lessened.
"In exchange for taking less money, the borrower gets to pay a 0.01 percent upfront MIP instead of a 2 percent upfront MIP," he says.
The upfront MIP is based on the value of the house, not the loan amount. But still, the savings are clear. On a home worth, say, $250,000, the upfront MIP on the saver option would be just $25, while the upfront MIP on the standard option would be $5,000.
Borrowers also pay an annual MIP of 1.25 percent of the outstanding loan balance on either the saver or standard option.
Another change is that many lenders have reduced or eliminated their origination fees on reverse mortgages, according to Barbara Stucki, vice president of home equity initiatives at the National Council on Aging, a nonprofit service and advocacy group for older Americans in Washington, D.C. The maximum loan origination fee was capped by law at $6,000 several years ago, but lower fees are now commonplace.
READ MORE | For Reverse Mortgage Advice, visit ExplainReverse.com
The biggest change is the introduction of a new reverse mortgage, called the Home Equity Conversion Mortgage Saver option, or HECM Saver. It has a cheaper upfront mortgage insurance premium, or MIP, compared with the traditional HECM reverse mortgage, now known as the standard option.
Mortgage insurance protects lenders from loan losses, though borrowers pay the cost. Most reverse mortgages are insured through the Federal Housing Administration.
The trade-off, due to the lower MIP and other program changes, is a 10 percent to 18 percent reduction in the maximum loan amount allowed on the saver option, and 1 percent to 5 percent on the standard option, depending on the borrower's age and interest rate, Bell says. The lower loan amount allowed on the saver option means the FHA's risk exposure is lessened.
"In exchange for taking less money, the borrower gets to pay a 0.01 percent upfront MIP instead of a 2 percent upfront MIP," he says.
The upfront MIP is based on the value of the house, not the loan amount. But still, the savings are clear. On a home worth, say, $250,000, the upfront MIP on the saver option would be just $25, while the upfront MIP on the standard option would be $5,000.
Borrowers also pay an annual MIP of 1.25 percent of the outstanding loan balance on either the saver or standard option.
Another change is that many lenders have reduced or eliminated their origination fees on reverse mortgages, according to Barbara Stucki, vice president of home equity initiatives at the National Council on Aging, a nonprofit service and advocacy group for older Americans in Washington, D.C. The maximum loan origination fee was capped by law at $6,000 several years ago, but lower fees are now commonplace.
READ MORE | For Reverse Mortgage Advice, visit ExplainReverse.com
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