Reverse Mortgage Rates

Affluent Using Reverse Mortgages to Take Advantage of Distressed Property Values

2009-10-28T00:41:00.000-07:00

While we continue to hear about reverse mortgages as a last resort, more are turning to it as a tool for the affluent marketplace as a vehicle for advanced planning. Paul Savery, a reverse mortgage consultant with Wells Fargo told the Norwich Bulletin that some people are using a reverse mortgage to buy or improve a second home.

With housing prices at record lows, some wealthy homeowners are going bargain hunting with their reverse mortgage credit line as a way to close quickly on homes that are being sold at distressed prices.

The article also describes other strategies of how you can use a reverse mortgage as an estate-planning tool which is something that will eventually be more common, but so much attention being brought on people using reverse mortgages to purchase shady investment products, I was surprised to see the article.

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House Proud: Elders refuse to buy reverse mortgage

2009-10-28T00:32:00.000-07:00

NEW DELHI: Reverse mortgage, a popular model allowing senior citizens to take money out of their homes, is failing to find an abode in India.

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Senior bank officials that SundayET spoke with have confirmed that the product has failed to find takers during the last two and half years of its existence in India.

Till now, less than 500 applicants have availed this loan in India since its inception in 2007, a senior bank official, who did not wish to be identified, said.

The reasons for the model not taking off in India are manifold. From an emotional attachment with one’s house to real estate price correction; from an absence of clear guidance against legal complications to inadequate marketing, the plan has been unable to meet the expectations of financial institutions.

Reverse mortgage is a plan through which senior citizens can avail loans from either banks or other financial institutions by mortgaging one’s home.

If a senior owns a house and has a mortgage on the house, he might get a reverse mortgage to pay off the existing loan and then have some money left over to take care of his expenses for the rest of his life. The homeowner could get that as a lump sum or a line of credit, and wouldn’t have to pay it back until he moved or died and the house was sold.

The banks can sell off the property to realise the loan amount. However, there is a provision that the legal heirs can acquire the property back by paying off the loan to the bank.

Dewan Housing, which is one of the largest housing finance companies, has been able to sell only 4-5 reverse mortgage loans during the last two years. Two large financial institutions, HDFC, which incidentally is one of the largest home loan lenders in the country, and Kotak Mahindra do not have reverse mortgage in their portfolios.

In fact, several other players in the segment are also facing difficulties in selling reverse mortgage products. Says Sujan Sinha, senior V-P and head of retail liabilities, Axis Bank, “The product has not done well. In India, you can count the number of cases of reverse mortgage on your finger tips.”

There are some very basic reasons that have worked against this product which has taken off rather well in international markets. The psyche of Indians does not make them comfortable with the idea of selling their home.

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Reverse Mortgage Calculator

2009-10-15T00:01:00.000-07:00

August 17, 2009 - (RealEstateRama) — It is a good idea to understand what a reasonable amount of income to expect is from your reverse mortgage, based on your age, equity in your home and other financial variables in your life. You can use an online calculator to estimate what your reverse mortgage will look like.
The online calculator helps you to derive information about the amount you will receive from a lender for your reverse mortgage. It is only an estimate based on current interest rates and your particular situation, including your age and that of your spouse, the value of your home, and the loans currently associated with your home. The interest rate may change by the time you set up your reverse mortgage, thus the calculation by the lender may vary. It is important that you enter all of the information into the online form as accurately as possible to determine if you qualify for a reverse mortgage based on your age and the equity in your home. Stating your location helps the calculator determine which programs are available to you in your area and what fees will be rendered on your reverse mortgage. Plugging in the value of your home and the mortgage balance remaining into the calculator will help determine how much you will receive from your reverse mortgage after you’ve paid off your current mortgage with the funds. It will also indicate whether you will even qualify for this program. If you haven’t yet paid off your mortgage, you will need to use some of your reverse mortgage income to do so. This means that you may not end up with as much money as it seems when you are estimating your reverse mortgage benefits. The details matter when it comes to calculating a reverse mortgage for your particular circumstances, so it is best to enter all of your information into the reverse mortgage calculator.
With all the varieties of reverse mortgages available, you can expect there to be even more variety in the amounts and terms of individual reverse mortgage cases. When your are determining which one is best for you, or whether you need one at all, you consider the reverse mortgage in terms of your own situation, your short and long-term goals, and your priorities, like lifestyle, family, location, medical and other needs. Do not take out unnecessary reverse mortgage loans, because overall they are a costly way to borrow money. Think about your reasons for requesting the loan, and whether the outcome will be worth the costs.
Reverse mortgages can be confusing programs, and it essential that you understand how they work, how they will affect your home and your life, and the limitations they have. Take the guidance of an unbiased and well-informed counselor to guide you through the steps of obtaining a reverse mortgage and keep in touch with your lender throughout the life of your loan to stay abreast of importance developments in the reverse mortgage market.

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HUD Lowers Principal Limit Factors for FHA Reverse Mortgage Program

2009-10-04T22:53:00.000-07:00

The U.S. Department of Housing and Urban Development posted Mortgagee Letter 09-43, which announced a new set of principal limit factors for the Federal Housing Administration (FHA) HECM program. The changes will lower the principal limits for the HECM by 10%.

According to the ML, the new principal limit factors must be used for all HECMs which the FHA case number is assigned on or after October 1, 2009.

All loans for which the FHA case number has already been assigned as of September 30, 2009 may be processed as usual. The lender need not change any of the calculations of principal limit or re-disclose to borrowers any changes in the HECM proceeds that the borrower will receive.

The announcement comes after the National Reverse Mortgage Lenders Association worked directly alongside AARP and FHA about what the industry’s options were. FHA felt that since the appropriations process is unlikely to provide credit subsidy, program changes are the only viable route for keeping the program operating past September 30, said a statement from NRMLA.

Since an appropriations bill hasn’t been passed yet, NRMLA told RMD that an interim measure known as a “continuing resolution” is being brought up in Congress. This will continue the suspension of the authorization cap on the HECM program, allowing HUD to continue insuring HECMs, but provides no credit subsidy.

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Reverse Mortgages, Simplified

2009-10-03T22:52:00.000-07:00

The Office of the Comptroller of the Currency (OCC) issued a consumer advisory warning consumers 62 years of age or older of the drawbacks and dangers associated with taking out a reverse mortgage — and outlining the benefits of these “complex loans.”

The bulletin comes at a time when getting back to “plain vanilla” financial products continues to be a huge topic of discussion, especially among lawmakers conducting hearings over financial regulatory reform. The House Financial Services Committee this week is hearing testimony regarding the Administration’s proposed reforms, including a consumer financial protection agency that may regulate the types of loans banks can sell to consumers. Committee chairman Barney Frank (D-Mass.) has opposed the “plain vanilla” requirement that lenders would be allowed to market and sell only simple loans.

The “plain vanilla” language was mirrored in comments by American Securitization Forum deputy executive director Tom Deutsch to Forbes, when he compared the mortgage-backed securities (MBS) of the future to vanilla ice cream as opposed to past ‘Baskin-Robbins flavors.’

If reverse mortgages — or home equity conversion mortgages (HECMs) under the Federal Housing Administration’s lending program — were a flavor of ice cream, they might be chocolate.

They certainly would be appealing to qualifying homeowners looking for additional income to supplement their retirement plans or meet health care costs. Reverse mortgages typically bear low interest rates and do not require monthly payments. In fact, they are not due until the borrower ceases using the home — either sells it, moves out or passes away.

But just like that single-scoop of fudge-ripple, double-churned dark chocolate ice cream is likely to go straight to your thighs, reverse mortgages pose some drawbacks. The OCC points out mortgage insurance premiums and other up-front costs tend to make reverse mortgages more expensive over the long-term, and payments received are added to the loan balance over time, which also increases due to interest charged.

Plus, borrowers that neglect to pay property taxes, insurance and reasonable home repairs may find their loans become payable prematurely. Reverse mortgages are typically repaid by surrendering the collateral — the home itself. That works best when the borrower has passed away or moved into a retirement or assisted living facility.

But a reverse mortgage that becomes due when the borrower is not yet ready is a huge risk. If the borrower (or the borrower’s family in the case of the borrower passing away) wishes to keep the home, the mortgage must be repaid in full, plus all accumulated interest and fees.

So when the sugar high of a reverse mortgage wears off and the reality of the expense crashes down, borrowers might wish for a more “plain vanilla” loan. The OCC suggests in its bulletin that consumers consider other options — like standard mortgages and home equity lines of credit — that might not pose as large a risk.

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Fixed Rate vs. Monthly Adjustable Reverse Mortgage

2009-10-02T22:51:00.000-07:00

When looking to get a FHA reverse mortgage, you now have the option to choose between a fixed rate mortgage and an adjustable rate mortgage. Not long ago, you only had one option - an adjustable rate reverse mortgage. Just recently, however, HUD has now provided a way to have another choice for your Home Equity Conversion Mortgage (HECM), or reverse mortgage.

Here are some reasons why a fixed rate reverse mortgage may be the better choice for you.

You Know How Much Money You Have

With an adjustable rate reverse mortgage, you never really know just how much money you have left available to you. Since the interest rate will change on either a monthly or annual basis, you could end up with a lot less money overall than what you had anticipated.

A fixed rate reverse mortgage, however, gives you a lump sum of all money coming to you. You receive it all at closing. There are no unseen elements in the plan that can affect changes in the amount you have later. It is all yours from the very start.

There Are No Surprise Interest Rate Hikes

Our nation's economy has seen a lot of changes recently, and there may still be unforeseen problems yet to come. Problems in it will affect your interest rates - either for good or bad. If you recently suffered loss of money in some investment you had, you have already experienced what could happen. Hopefully, it will not happen again anytime soon.

On an adjustable rate reverse mortgage, interest rates are protected by HUD and limited to a 10% increase from the starting point. No matter how you look at it, though, many people could not afford that kind of a raise in their interest. While no payments are made during the lifetime of the owner of the reverse mortgage, it is charged to the account and it will be paid later.

A fixed rate reverse mortgage does not have any changes in the interest rate. It is set from the start, which is why they can give it all to you as soon as the ink is dry.

You Can Make Better Plans for Your Money

An adjustable rate reverse mortgage is often a good way to go. There is, however, the potential for a rapid and unexpected drain of your money through increased interest rates.

A fixed rate mortgage gives you all your money from the start. This enables you to know exactly how much money you have allowing you to make better plans with it. This can also make your relatives - your heirs - happier because they know that more of it will probably come their way if you do not use it all yourself. Of course, if you do live longer than anticipated, it also means that your money will possibly last longer than an adjustable rate reverse mortgage which may experience higher than expected interest rate changes.

You can start looking into whether or not a fixed rate HUD reverse mortgage is what you need by using an online reverse mortgage calculator. Counseling is required by law and will also have to be provided in order to help you make the right financial decisions.

A thirteen-year veteran of the mortgage industry, Robert Griffin specializes in reverse mortgages and has helped over 3000 Americans find financial security with a reverse mortgage. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, Texas, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). Robert Griffin is also co-author of “62 Senior Moments.” If you would like more information, please call (866) 683-3690 or complete our online Reverse Mortgage Information.

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GAO Report Says Reverse Mortgage Changes Have Mostly Positive Effect

2009-09-28T00:23:00.000-07:00

The US Government Accountability Office released a new report which found that reverse mortgage policy changes from the Housing and Economic Recovery Act have had mostly positive effects on lenders and borrowers. However, recent market changes and developments have increased HUD’s risk.

In order to examine how the HERA changes affected lenders and borrowers, the GAO surveyed a representative sample of HECM lenders, analyzed loan-level HECM data, and reviewed HUD estimates and analysis of HECM program costs.

Overall, the GAO found that current economic conditions have had a moderate upward influence on lenders’ plans but secondary market conditions have had a downward influence on about one-third of lenders’ plans to start or continue offering HECMs.

Some industry participants that the GAO interviewed stated that the changes were a good compromise that benefited borrowers by limiting the origination fee and increasing the loan limit. Additionally, officials at NRMLA and MBA said the changes benefited lenders by making the product more attractive to individuals with higher-value homes.

The report also addresses the Fannie Mae pricing changes and estimates that approximately 90 percent of lenders viewed secondary market pricing requirements and the transition to live pricing as important factors in recent margin rate increases on HECMs.

Fannie officials explained that as the price they pay lenders for HECMs falls, the margin rate the lenders charge the consumers generally increases. Some lenders we surveyed noted that margin rate increases stemming from pricing changes could make HECMs less attractive to borrowers because they would not be able to obtain as much cash from their HECM.
Some lenders noted that live pricing complicates their relationship with borrowers because the interest rate can change between loan application and closing, which may result in the senior being able to receive less money from their HECM than originally quoted.

Ginnie Mae is discussed as an alternative to Fannie Mae but because of certain provisions, lenders are exposed to extra risk on the loans as compared to selling HECMs to Fannie Mae.

Ginnie Mae requires HMBS issuers to buy back the HECM when the loan balance reaches 98 percent of the loan’s maximum claim amount.15 Second, issuers are required to pay interest shortfalls to investors when the loan is terminated mid-month.

The GAO found that in recent years there has been a rapid increase in the number of lenders participating in the HECM program. However, the bulk of HECM business is concentrated among a relatively small percentage of lenders. In fiscal year 2008, roughly 80 percent of all HECMs were originated by fewer than 300 lenders, or about 10 percent of HECM lenders says the report.

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RBS Looking to Package Reverse Mortgage Products

2009-09-23T10:30:00.000-07:00

Reverse mortgage lending in the United States isn’t the only country getting special attention from consumer groups. Martin Lynch, head of reverse mortgages, RBS Reverse Mortgages in Australia told Lending Central that consumer advocacy group CHOICE is still not a fan of reverse mortgage products.

CHOICE is the largest consumer organization in Australia, which aim is to tackle the issues that really matter to consumers, arming them with the information to make confident choices and lobbying for change when consumers are getting a raw deal says their website.

Lynch maintains that the view adopted by CHOICE is “old fashioned” and does not take into account the current checks and balances (such as the stipulation that all customers consult with a legal or financial representative) and the respective guarantees of lifetime tenancy and customers never owing the bank more than the value of their property.

“CHOICE still has the perception that there’s a lot of predatory lenders out here waiting to get their hands on little old ladies’ money. “That view was out of date ages ago,” he declares. Lynch developed and launched RBS Reverse Mortgages (formerly ABN AMRO) in 2005.

According to the article, the reverse mortgage market in Australia is vastly different to reverse mortgage markets in the UK and US. “The primary driver in Australia is the achievement of low interest rates. In the US and UK the competitive driver is maximizing the amount that can be lent,” says Lynch.

“Here consumers borrow very conservative amounts by comparison. Typically in Australia 60-year olds can borrow less than half of what they could if they lived in the US or UK, which means the compounding issue here is less severe.”

“We’re also noticing that the age people take the product out is very different. The average age of our customers is 74 (40% of which are couples, 40% single women and 20% single men); whereas in the UK the average age is 68. Here people are encouraged to explore other avenues before turning to a reverse mortgage.”

RBS Reverse Mortgages is currently looking at diversifying by bringing packaged products into the equation. A car leasing package as well as healthcare solutions are being considered. “These packages are an ideal adjunct to the monthly income feature because suppliers need to know that monthly payments will be forthcoming,” he says.

“Many reverse mortgagees don’t have an income and therefore they can’t get credit for these things. But with the Royal Bank of Scotland behind the reverse mortgage suppliers know that the income will keep coming.”

I think it’s a interesting idea but with so much attention being put on cross selling here in the US, I don’t think we are anywhere close to these types of packaged products.

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Your Finances: Retirees should consider reverse mortgage

2009-09-16T23:23:00.000-07:00

For some retirees, their financial plan centers on selling their home, downsizing to an apartment or smaller home, and using the remaining proceeds to help fund their retirement. Sounds like a good plan, until you retire and the housing market slows. Unfortunately, for many retirees, this is a current reality. If you find yourself in this situation, then you may want to consider a reverse mortgage.

A reverse mortgage enables homeowners, age 62 and older, to convert the equity in their homes to cash, without selling the property. The homeowner retains title and all the responsibilities of home ownership, such as taxes, insurance and maintenance. The homeowner or their estate ultimately has to repay the amount borrowed, plus interest and fees. But that repayment is not required until the homeowner dies, sells the home or stops living there permanently (perhaps to live in a nursing home). At no point is the borrower or their estate responsible for more than the price for which the home is sold. However, if the borrowers' heirs decide to retain the home, the entire outstanding loan balance will be required to be repaid.

Flexible financial options

Reverse mortgages offer the flexibility of financial options. The borrower can receive money as a lump sum payment, fixed monthly payments, a line of credit, or any combination of these. Additionally, funds from a reverse mortgage aren't taxed, since they are loan proceeds, not income. Homeowners may change their financial choice as their needs change. Borrowers can never be forced to leave their homes, as long as the property taxes and insurance payments are maintained. The amount of reverse mortgage equity you qualify for depends on factors such as your age, current interest rates and the value of your home. Income and credit history are not considered during the underwriting process. This is a great advantage for seniors who have trouble qualifying for traditional loan products.

Another often overlooked benefit is there are never any monthly payments due and you can stay in the house you have come to call home. The emotional peace of mind of being able to remain in your house is truly priceless. Of course, there are trade-offs. Compared to a regular mortgage or home-equity loan, the closing costs are usually higher. Therefore, reverse mortgages are not for everyone and should not be entered into lightly.

As is the case with any product, you may encounter people seeking to take advantage of you. That is why it is important to work with a reputable lender. One way to protect yourself is by working with a company that is a member of the National Reverse Mortgage Lenders Association. Members of NRMLA subscribe to a code of ethics focused on protecting the homeowner.

If you are interested in exploring a reverse mortgage, ask your lender to educate you on your options. Do not sign anything unless the process is clear to you. If you are unsure, invite a friend or family member to be part of the process. The goal here is peace of mind.

Laura Medigovich is a financial planner and assistant vice president for M&T Bank's Hudson Valley region. Her column appears Sundays.

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Mortgages what Can I afford? Would debt consolidation help?

2009-09-15T23:24:00.001-07:00

The better your credit, the easier it is for you to qualify for a loan. Can I afford a home? How much money can I qualify for? As a general rule , your buying power is calculated by multiplying your annual gross income by two and a half (2 ½).

What Can I Afford?

The better your credit, the easier it is for you to qualify for a loan. Can I afford a home? How much money can I qualify for? As a general rule , your buying power is calculated by multiplying your annual gross income by two and a half (2 ½). For example, if you have a household income of $45,000, you might be able to qualify for a $112,500 home. You could actually qualify for more or less, depending on your individual debt, credit history and amount that you have for a down payment.

Debt-to-Income Ratio

Your buying ability will be affected by factors such as your income, down payment, debt, and credit history. Your debt payments, such as credit card bills, car loans, and other expenses such as housing expenses, alimony and child support, should not exceed 36% of your gross income.

To calculate your debt-to-income ratio, divide your total monthly debt expenses by your total monthly income.

Mortgage Types/Lenders

Mortgage types, rates and lenders are usually published daily in the business section of your daily newspaper. Today's homebuyer has more financing options than ever before.

From traditional mortgages to adjustable-rate and hybrid loans, there are financing packages designed to meet the needs of virtually everyone.

While the different choices may seem overwhelming at first, the overall goal is really quite simple: you want to find a loan that fits both your current financial situation and your future plans. Ask your lenders for a "good faith estimate" so you can compare all of your costs and make the decision that will fit into your budget.

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Fixed Rate Mortgages

If you plan to own your home for five or more years, a fixed rate mortgage can protect you from inflation. Since your principal and interest payments are fixed, your monthly payment stays the same.

Long-term loans (20-30 years) make it easier for a person to qualify for a loan by giving you a lower monthly payment but at a higher interest rate. This means you are paying more interest for the full term of the loan.

Short-term loans (10-15 years) give you higher monthly payments but the interest rate is lower, which helps you build equity in your home much faster because less of the payment goes to interest.

Adjustable Rate Mortgages (ARM)

ARMs are popular because their interest rates are lower than a fixed rate mortgage, giving you a lower monthly payment. This helps the consumer qualify for a larger mortgage, but the interest rate and monthly rate may change within a given time and to a predetermined amount.

Understand the consequences to your budget by looking at each scenario. Make sure that you can afford your new monthly amount if the rate goes up.

Bi-Weekly Mortgages Recently banks have come up with creative ideas to help the consumer pay their mortgage on a bi-monthly basis instead of the traditional once a month method. Through this method of payment, you can pay off your home in less time with less money. By simply paying half of your monthly payment every 2 weeks, you will subtract 7-9 years off an average 30-year loan. You will earn equity in your home faster because more of your payment is being applied to the principal of the loan instead of the interest. At the same time, if you have Private Mortgage Insurance (PMI), those premiums will also be eliminated in a shorter period of time, which will result in a greater savings over the life of the loan. Your lender, interest rate, escrow payments, etc. all remain the same.

Balloon Mortgages

Balloon mortgages are short-term loans that have some of the features of a fixed mortgage. The loans provide a level payment feature during the term of the loan, but as opposed to the 30 year fixed rate mortgage, balloon loans do not fully amortize over the original term. Balloon loans can have many types of maturities, but most balloons that are first mortgages have a term of 5 to 7 years. At the end of the loan term, there is still a remaining principal loan balance and the mortgage company generally requires that the loan be paid in full or refinanced.

Reverse Mortgages

A reverse mortgage is a complex home loan designed for senior homeowners who have built up substantial equity in their property.

In a reverse mortgage, the lender loans you money based on the value of your home, the amount of equity you have in the home, and your age at the time of the loan application. The lender pays you the money either in a lump sum, in monthly installments, or as a line of credit. Unlike a traditional home equity loan or second mortgage, repayment is not required until you sell your home, move out permanently, or die. The amount of money you owe increases over time because you do not make payments. If you sell your home, you can keep any proceeds from the sale of your home in excess of what you owe the lender. To qualify for a reverse mortgage you must be at least 62 years old and the mortgage on your home must be completely or nearly paid off. You can get a reverse mortgage regardless of your current income.

F.H.A. Home Loans

The "203B" F.H.A home loan requires 3% from the borrower and permits 100% of the money needed for closing costs to be a gift from a relative, non-profit organization or a government agency. F.H.A. home loans do not have strict borrowing criteria. Someone may have had a few credit problems and still be able to qualify for this "203B" loan. For more information on F.H.A. loans go to the website www.hud.gov/offices/hsg and review the different information capsules they have available to the public.

View more info -- http://www.anewhorizon.org

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What should you know before your think about a reverse mortgages

2009-09-15T00:18:00.000-07:00

The number of reverse mortgages backed by the government jumped nearly 20 percent in March and April alone from the same period in 2008. At a time when seniors have seen their retirement assets depleted by market losses, tapping home equity has been a safety net. But it can be a risky one.

If your parents are at least 62 years of age and have significant equity in their home, a reverse mortgage can turn that equity into tax-free cash without forcing them to move or make a monthly payment.

If it’s right for them, it’s a worthwhile financial tool. If not, they could make some serious mistakes with their financial future.

A reverse mortgage gets its name because of the way it works. Instead of the borrower making payments to the lender, the lender releases equity to the borrower in a number of forms:

• A lump sum cash payment;

• A monthly cash payment;

• A line of credit (which tends to be the most popular option);

• Some combination of the above.

When the owner dies or moves away, the house can be sold, the loan paid off and any leftover equity value can go to the living owner or the designated heirs. Heirs don’t have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance within six months with the option of two 90-day extensions that must be applied for.

There are three basic types of reverse mortgages:

• Single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations;

• Home Equity Conversion Mortgages (HECMs) are federally insured reversed mortgages backed by the U. S. Department of Housing and Urban Development (HUD);

• Proprietary reverse mortgages are private loans that are backed by the companies that develop them.

The size of a reverse mortgage is determined by the borrower's age, the interest rate and the home's value. The older a borrower, the more they can borrow, but the amounts are capped by the maximum FHA loan limit for each city and county.

Reverse mortgages have traditionally been chosen by older Americans who can’t cover everyday living expenses or who otherwise need cash for such things as long-term care premiums, home healthcare services, home improvements or to pay off their current mortgage or credit card greater than their income can support. More recently, though, they’ve become popular with individuals who see them as a better alternative to home equity lines. Some use the proceeds to supplement monthly income, buy a car, fund travel and second homes and evaluate with the help of a financial adviser if reverse mortgage funds can be used to restructure estate taxes.

Elderly borrowers will have to consult with a HUD Counselor or financial advisor before they’re granted this loan – that’s one of the requirements. They should consider a Certified Financial Planner ™ professional to do this because reverse mortgages can be complex and risky. This step can be completed within the first few days of the process. The basic loan closing now takes place in about 30-40 days from the date of application. Generally the only out-of-pocket cost is an appraisal fee ranging from $300- $500.

Here are other things to consider:

Cost can be substantial: Reverse mortgages are generally more expensive than traditional mortgages in terms of origination fees, closing costs and other charges. The basic FHA-backed HECM loan finances these fees into the initial loan balance, and they can run between $12,000-$18,000. The loans are based on anticipated home value appreciation of 4 percent a year, so if the housing market is healthy, those costs are generally recovered in a short period of time. But if the housing market sours, it will definitely take longer to recoup those fees.

They’ll need to make sure they’re not endangering their Federal retirement benefits: The basic FHA HECM is designed as tax-free income to the senior receiving their Social Security income. However, if their total liquid assets exceed allowable limits under federal guidelines, they might endanger your benefits. This is another critical reason to work with a financial adviser on this decision.

Rates can be higher: Reverse mortgages have rates that are typically higher than those charged on conventional mortgages. Interest is charged on the outstanding balance and added to the amount they owe each month. Again, check the total annual loan cost.

Their mortgage can be called: The homeowner or estate always retains title to the home, but if they fail to pay your property taxes, adequately maintain their home, pay their insurance premiums, or change their primary residence, the lender can declare the mortgage due or reduce the amount of monthly cash advances to pay those overdue amounts.

The family needs to talk. If your parents’ house is their major asset, getting involved in a reverse mortgage may not leave much to the next generation – if it appreciates, there may be some difference that the kids can have. That’s why that in addition to discussing a reverse mortgage with a financial adviser, parents and their adult children need to talk with their family.

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There's No Place Like Home

2009-09-13T00:07:00.000-07:00

Retirees have many housing options available

People are enjoying longer and healthier lives. As a result, seniors are living independently for greater periods of time. The decision on where to live after retirement is one that every retiree will have to make. However, these days there are many options available to retirees.

Staying in the Family Home

For many retirees, staying in the family home is a priority. Carrie Schonlaw, aging program coordinator for the Five County Association of Governments, says this option often requires some modifications to ensure safety and comfort.

“People want to age in place and stay in their homes for as long as they can,” Schonlaw says. “There are a few very simple and inexpensive things that can be done to help people maintain as much independence as possible.”

Easy Home Adaptation:
✔ Widen doors to accommodate wheel chairs.
✔ Install ramps or do stair modification.
✔ Put grab bars in bathrooms and non-skid decals in shower.
✔ Buy a shower chair.
✔ Get a raised toilet.
✔ Install anti-scald devices.
✔ Brighten dark spaces.
✔ Remove slick surfaces or tripping hazards like throw rugs.
✔ Put sturdy rails throughout the home.
✔ Take advantage of fire prevention technology.

Reverse Mortgage

Surviving in today’s economy can be a challenge for seniors living on a fixed income. For some, a reverse mortgage is a simple way to remain in the family home. A reverse mortgage allows borrowers 62 years and older to spend the equity in their home, but still retain ownership.

Alan Crooks, certified mortgage specialist, says the lender collects the interest on the home when it is sold or the person dies. “You can never owe more than the home is worth,” Crooks says. “The estate will gain on the appreciation and lose on the mortgage.”

With a reverse mortgage, homeowners have the choice of taking a single lump sum of cash, getting a monthly loan advance, establishing a line of credit or using a combination of these options. The amount that can be lent depends on the age of the homeowner, the current interest rate and the appraised value of a home or the Federal Housing Administration’s mortgage limits for a specific area.

Before receiving a reverse mortgage, borrowers are required to take an informational class. Crooks says the advantage of a reverse mortgage is that the homeowner never has to make a payment as long as they continue to live there. The loan is due when the owner dies, sells or moves away from the home. If there is equity left over when the property is sold, the homeowner or estate gets that money back.

Downsizing

As people age, routine house and yard maintenance becomes more challenging. For some, moving into a smaller home is the perfect solution. John Houston, Realtor for ERA Brokers Consolidated, says there are endless housing choices for seniors who wish to live in Washington County.

“The availability of properties is wonderful,” Houston says. “With interest rates being as low as they are and inventory being as high as it is, there are great opportunities to buy and downsize.”

However, Houston says downsizing is only a good option if seniors get into a home that is right for their needs and budgets. Houston advised considering the following issues before making a purchase:

✔ Association Dues — Fees go up as the cost of insurance and grounds keeping increase. People with a limited budged should remember the price they pay when they move in won’t stay the same forever.

✔ Stairs — These can present a problem for seniors as they age. Fortunately, there are numerous single level units available in Washington County.

✔ Amenities — Each area features different options. Check to see if a property offers what a person desires such as a pool, exercise room or club house. For those who don’t want these amenities, consider areas where they are not offered and therefore not included in the purchase price.

✔ Association Rules — Some associations don’t allow owners to rent their property after they move out. Other places have rules against upgrades or landscape changes. Storage of recreational vehicles, off-highway vehicles and boats are sometimes prohibited.

✔ Pets — Not all places allow pets or have spaces for them to play.

✔ Demographics — Some neighborhoods are geared towards a younger population and have children playing outside or higher noise levels.

✔ Proximity — Check to see if the property is close to shopping facilities, medical care, churches and other places the homeowner may frequent.

✔ Social Connections — Many retirement communities offer group activities and places for residents to gather.

✔ Income — Find out how the purchase of a home will affect trusts, wills and estates.

Sensational Senior Living

St. George is a Mecca for senior citizens, sporting an endless array of unique housing opportunities. For many, retirement signals a chance to ramp up activity rather than a time to slow down. Places like SunRiver St. George were developed with this personality type in mind.

Billed as “an active adult golf course facility for people 55 and better,” SunRiver was designed for seniors on the go. However, SunRiver is about more than beautiful homes in a golf course setting. SunRiver marketing director Micheal Green says the emphasis is on a community center where residents can enjoy a wide range of sports, educational classes, art and leisure activities.

“The community center really is the hub of activity,” Green says. “We have an environment that fosters social contacts, physical activity and educational opportunities.” Seniors who no longer feel comfortable driving their cars have no problem getting around SunRiver — golf carts are welcome throughout the development.

Assisted Living

Aging baby boomers are looking for more than a traditional nursing home. Each person has different needs, so the “one size fits all” form of assisted living has gone by the wayside. Today, seniors can choose their level of care based on individual needs. Some developments such as Beehive Homes offer housing for all stages of life.

On the most basic level, the Beehive Cottages has individual condos based around a community center where residents can go for meals, exercise and leisure activities. Administrator Mary Sanders says the cottages are designed for people who don’t need supervised care but are attracted to the amenities and community lifestyle.
“Studies of aging baby boomers have found the more active they remain — physically and mentally — the better their quality of life,” Sanders says.

Beehive Homes has two levels of more intensive care based in group home settings. Level One offers help with things such as showering, laundry and supervision of medication. Level Two is more intensive and features a certified nursing assistant on staff at all times. Beehive also has an Alzheimer’s Unit within its system.

Brenda Harrison, house manager at Beehive Homes, says the modern day group home is tailored to the individual. All meals are home cooked and served in a casual setting. Residents who are able to care for a pet are welcome to have them. Activities and special events are part of the package.

“We try to put ourselves in our residents’ position,” Harrison says. “We treat our residents with the utmost respect and dignity.” sgm

Source

NRMLA Questions Validity of Consumer Reports Reverse Mortgage Investigation

2009-09-12T00:06:00.000-07:00

When researching a product, be it a flat-screen television or a car, many of us often turn to Consumer Reports for an evaluation of what is available. But after reading their reporting on reverse mortgages in the September 2009 issue (“Reversals of fortune: The next financial fiasco? Can it be reverse mortgages”), one has to question whether there is any validity to anything that ever appears in the magazine.

The piece (which appears without a byline) was reported and we can assume written by Andrea Rock, who recently appeared on a local Los Angeles television newscast further knocking the product. The combination of Ms. Rock’s unbalanced reporting, the frightening headline and the photo of a sad widower holding his recently deceased wife’s photo, combine to scare seniors who are potential borrowers away from reverse mortgages. The piece is largely comprised of inaccuracies, a perfunctory level of research that misinterprets many of the facts and does not touch on recent improvements in the product, and three real life stories used as examples that are a few years old and probably could not reoccur given recent regulations adopted both in the states and federally. People tend to turn to Consumer Reports to help investigate a product that they are interested in purchasing, but the information in this article is comparable to reporting on televisions and ignoring that flat screens exist.

There are now over 400,000 reverse mortgage loans outstanding in the United States. Reports from both AARP and our large banker members indicate that upwards of 93% of the borrowers feel the product has improved their lives. They have primarily utilized these loans to pay off mortgages and reduce their monthly expenses, to avoid foreclosure, to afford in-home health care. But where is even one of these hundreds of thousands of success stories in Consumer Reports?

Instead or running the photo of the desolate Ernest Minor holding his deceased wife’s photo and facing foreclosure, for example, the magazine could well have run a photo of James Clark from the state of Washington whose wife passed away recently and could not stay in his home and meet his monthly expenses without her pension and social security. Mr. Clark took out a reverse mortgage, paid off his forward mortgage, and now not only can afford to remain in his home, but also has a line of credit that provides him with some financial breathing room for the first time.

The article reports (and inaccurately) that “Reverse mortgages started out as a niche product to give cash-strapped seniors supplemental income.” Actually the product was conceived by senior advocates and FHA to allow seniors to utilize the equity in their homes to stay in their homes. Among the product’s intentions (and now its achievements) was keeping health care costs to taxpayers down by reducing hospital and nursing home stays. (HUD is currently proposing a study aimed at quantifying the positive effect of reverse mortgages on individuals and also on our society.)

Consumer Reports’ five and a half page article is so full of misinformation and bias that it calls for a detailed refutation. So let us go through some of the story’s specifics:

Causes for concern

The article opens by acknowledging reverse mortgages “can be valuable” but as “a last resort” for seniors who want to stay in their homes. But, it reads, “those loans can be terrible for customers who don’t understand the complicated rules governing them and how quickly high fees and interest charges can balloon.”

Frankly, the only thing “terrible” about reverse mortgages is the doling out of misleading information to seniors, be it from a grandstanding politicians or poor magazine reporting.

The fees and interest charges, which are misunderstood and miscalculated in Consumer Reports, are comparable to any mortgage product. In fact, the fees and costs associated with an FHA Home Equity Conversion Mortgage (HECM) are similar to those incurred with a traditional FHA forward mortgage. And the largest part of the fees is to pay for FHA insurance, a valuable concept actually that protects borrowers if their lender’s operations are disrupted for any reason or if their home value decreases over the life of the loan and that provides seniors with more money than any non-insured product would.

There is no mention in the article that reverse mortgages may be the only product in the country that requires counseling before you purchase it, that both counselors and lenders must be approved by HUD, that a new counseling protocol is about to be issued that will require continuing education and testing every three years, or that a lender is required to provide a Total Annual Loan Cost (TALC) disclosure that projects all the possible costs over varying durations for the loan. One would think that anyone who reports to consumers on the product has a responsibility to provide that information. Consumer Reports chose not to.

As far as not understanding the complicated rules, the Consumer Reports piece throughout demonstrates a complete lack of respect for the intelligence of America’s seniors. The counselors and lenders in this field consistently demonstrate profound concern for their clients, provide reams of information and are always available to answer questions. This is a service business.

The hyperbole continues:

The article reports that “the use of loans is exploding,” which might be good news for the industry– were it true. But a growth of 5% in 2008 and another 5% in 2010 is not an explosion by anyone’s imagination.

It reports that lenders take no risks and push the loans on seniors for spending on “vacations, new cars and more.” Given the amount of regulation (HUD, FHA and half a dozen regulatory agencies) and NRMLA’s Ethics review process, anyone who sells the product inappropriately is taking perhaps the hugest risk of all—ruining their professional reputation. And all indications are that since the financial crisis hit, the vast majority of borrowers are using their loans to pay mortgages, keep up on their monthly bills, or, as NRMLA President Peter Bell says, use the funds to cover bills as they wait for their portfolios to regain some of what has been lost.

The article then says that “Lawmakers and regulators are getting worried.” Well, we count five in the whole country who have expressed concern—Senator Claire McCaskill, California assemblyman Mike Feuer, Minnesota Attorney General Lori Swanson, HUD Inspector General Kenneth Donohue and Comptroller of the Currency John Dugan, whom, despite some specific criticisms, has said he is a fan of the product. While the others have spewed scary rhetoric, none can provide details that back up their claims of widespread senior abuse when challenged by us or by the press. Without facts, this rhetorical barrage has been irresponsible—and reporting it as fact is even more irresponsible. With the exception of Dugan’s OCC STAFF, none of these people have become involved in the ongoing reexamination and retooling of the product being lead by FHA and supported by six other banking and other regulatory agencies in collaboration with associations such as AARP and NRMLA.

As a result of these rather lurid but under researched assumptions, Consumer Reports then states its investigation has found “more cause for concern.” The article argues:

–“Loan bailouts have soared.” It reports that the FHA federal insurance fund has taken over $381.3 million in loans based on a study of more than 500,000 loans over two decades. But it ignores the fact that the FHA insuring these 500,000 loans has taken in over $7 billion of income from the HECM program in that time as recently reported by the Congressional Budget Office.

The ability to assign loans to FHA when the loan balance grows to 98% of the maximum claim amount is a feature that was designed into the HECM program to entice lenders to participate. It assures a lender that there is a definite point at which it can exit the transaction – without impacting the senior homeowner. Assignment of loans is ordinary and expected. It does not mean that the FHA insurance fund is losing money on payouts for loan assignments. Interest continues to accrue and servicing fees continue to be assessed and added to the loan balance and will ultimately be collected by FHA when the loan is finally terminated. In many cases, there is a substantial amount of equity remaining in the property after a loan has been assigned.

The article also fails to report that among the three payment options for borrowers—lump sum, life tenure or term payments, or line of credit—only those who take lump sums typically end up with loan balances that might exceed the value of the property at disposition. As Jerry Wagner of Ibis Software, one of the leading industry analysts, recently reported, “No one has ever lost money on a tenure payment loan or line of credit.”

–“Taxpayers are being tapped to subsidize reverse mortgages for the first time” referring to the $798 million appropriation called for by the President’s Office of Management and Budget, which our research indicates is based on a further, extremely pessimistic projection of future decline in home values. In addition to the $7 billion in mortgage insurance revenue collected in previous years, thorough research of current events by Consumer Reports would have revealed that the predicted shortfall is now being questioned and still an unsettled issue in Congress.

–“Marketing can be misleading,” which we all agree with. In response, the HUD Inspector General, GAO and FTC are keeping an eye on industry advertising. In addition, NRMLA has recently expelled or suspended members for advertising deemed in conflict with our Code of Ethics and Professional Responsibility and referred inappropriate actions by non-members to the appropriate authorities for further follow-up.

–“Unsuspecting borrowers have become cash cows for lenders and others who encourage them to use their mortgage proceeds to buy financial products such as deferred annuities.” There was an earlier period in the product’s history of cross-selling of reverse mortgages by insurance salesmen who had an ulterior motive of using loan proceeds to fund the purchase of other products. But that issue was addressed by a provision in the Housing and Economic Recovery Act of 2008, implemented by HUD in October, 2008 that requires any individual involved in a HECM reverse mortgage transaction to be an employee of an FHA-approved lender or correspondent. Yet again, Consumer Reports makes am alarming statement without researching and calling attention to the good work and new regulations in this area under discussion or on the table at HUD and within many state legislatures.

All of this indicates the reporting in this piece seems to be lacking in the kind of rigorous research one would expect of a well-reputed national publication, even more surprising since all the players in this sector are accessible and all the new information is readily available. Instead, the Consumer Reports article lazily relies on the easiest and most clichéd criticisms of a complex situation.

Outdated Stories

The Consumer Reports article provides three slanted stories as examples written to horrify interested borrowers, or anyone else who does not examine the facts provided. Let’s look at them one at a time:

The first story is of Ernest and Norma Minor who took a reverse mortgage on their Marysville, California home in 2005 to cover the health care expenses of her multiple medical problems. At the time, the loan was the only option for the Minors to remain in their home and cover their medical bills, a fact that is not reported in the Consumer Reports story. The lender was Financial Freedom and the Minors went through counseling with a HUD-approved counselor and signed a document to confirm this.

Norma Minor was 68 at the time, but Ernest was not yet 62, below the age required for a HECM. He chose to remove his name from the deed. The Minors solved their immediate problems, using $70,000 to pay off their existing mortgage and lower monthly expenses and $91,700 to pay her medical bills, fix their roof, and for other expenses.

In July of 2007, Norma died. Since she was the exclusive borrower, Financial Freedom called her loan to be due and payable, as is required under HUD rules. But the housing market took a dive and value of the house had shrunk to $130,000. The only way for Minor to satisfy the loan was to put the house up for sale.

Consumer Reports writes, “Minor was surprised to receive a letter from Financial Freedom saying that (his wife’s) death made the mortgage payable.” And also that, “he and his wife never understood that he risked losing the home.” But in addition to the counseling session in which this was explained, Financial Freedom insists both borrowers sign a Non-Borrower Spouse Ownership Interest Certification which states clearly that in the event of the borrower’s death, the non-borrower would have to pay off the loan or sell the house. The Minor case was no different. One would assume that if Consumer’s Reports researched this, they would have been made aware of such signed certificates. But the magazine chose to ignore the existence of documents which would have altered their portrayal of the Minor story.

In addition, even elementary research should have revealed to Consumer Reports that revisions in counseling over the past two years would now assure anyone taking out a HECM today that they would be advised of the possibility of non-borrower occupants having to vacate the home upon the death of the person whose name is on the deed.

Despite the requirement by HUD regulations that under these circumstances the loan was required to be paid back within one year from Mrs. Minor’s passing, Financial Freedom held off foreclosing on the property for an additional two years to give Ernest the opportunity to find alternative resources.

The second story described by Consumer Reports is of Brett and Cathy Palmer who received a notice from the Wilmington Savings Fund Society Bank that as heirs they were responsible for the balance on a reverse mortgage Cathy’s mother had taken. The amount that had been drawn down had been $77,000 in 1993, but the balance requested in 2007 was $588,000.

How could that possibly be, you ask? A HECM purchased in 1993 at that amount would have a balance of about $200,000 today at the interest rates over the past 14 years. But Cathy’s mother did not take out an FHA-insured HECM. In fact, Cathy’s mother had purchased a proprietary reverse mortgage with a shared appreciation feature – a product that has not been available anywhere for nearly a decade now. With that type of product, the lender is eligible to receive a payment representing a percentage of the home’s increase in value over the life of the loan – in exchange for providing a larger benefit to the borrower than would have been available without the equity share. Cathy’s mother agreed to give the lender 100% of the house’s appreciation. Shared appreciation reverse mortgages were an early product introduced before the advent of the FHA HECM — and in a period of considerably higher interest rates than are available today — that gave the lender a participation in the growth in value of the home as an additional protection. In exchange for that equity share, the borrower received a larger benefit than would have been available without it. In any case, those types of products no longer exist, which is why it is an inappropriate example in a magazine story on reverse mortgages published in 2009. It’s the “flat screen case.”

The third story is about Miguel and Laura Posada who took out a $100,000 reverse mortgage on their Sacramento home in 2005 from U.S. Financial Mortgage. The loan officer at U.S. Financial allegedly pushed the Posadas to put the proceeds into an annuity that he claimed would help qualify them for extended care health coverage under Medical. This is another outdated example from 2005. But it is now 2009 and U.S. Financial Mortgage no longer exists. The secondary market, which buys the loans and securitizes them, caught onto their scheme and stopped doing business with them, which pushed them out of business. And an insurance brokerage set up to pull such schemes would be precluded by HUD from being involved in the sale of reverse mortgages today.

While Consumer Reports was digging out these outdated, no longer applicable stories, we have been focusing on current stories: Like the one about the lender in Central Florida who kept 30 families out of foreclosure in the month of March alone. Or the 83 year old woman outside Miami who needed a hip replacement, was turned down five times by her insurance company that was waiting for her to die, took out a reverse mortgage, paid for the surgery, then used the balance to hire a lawyer and sued the insurance company, which then paid her back for the surgery. Or the gentleman outside of Denver who was suffering from diabetes, lost a leg and needed transportation to his dialysis, who could not keep up on his real estate taxes and whose bathroom had failed and was using his sink for everything. He took out a reverse mortgage, paid up his taxes, fixed his bathroom and now can afford transportation to his weekly dialysis treatments.

Errant Calculation

Consumer Reports calculates that a 74 year old borrower who takes out a HECM on a $300,000 house with a monthly adjustable interest rate in the New York City area would receive $182,541. It goes on to report that the loan would cost $15,000 in closing fees plus another $15,000 over the life of the loan in insurance premiums and monthly servicing fees. It then calculates the cost is one sixth of the amount borrowed.

This is not accurate. Since the costs are actually a part of the loan, the amount borrowed in this scenario would actually be $197,541 ($182,541 plus $15,000), so the percentage of the costs is lower than reported. In addition, the article fails to mention that if the loan is taken as a line of credit, the untapped balance continues to grow, which lowers the percentage of the costs even further.

Furthermore, a significant component of the $15,000 in closing costs was the 2% upfront mortgage insurance premium ($6,000) paid to the federal government, to FHA, on this loan. In return for paying that mortgage insurance premium, the 74 year old borrower received over 60% of the value of the home in initial reverse mortgage proceeds. A loan without such mortgage insurance might have saved the $6,000 in upfront mortgage insurance premium, but would also have provided a benefit that would have been less than 45% of the value of the property, a difference of over $50,000.

NRMLA would have been and still is happy to share the model that demonstrates this with Consumer Reports.

In addition, the article fails to report that closing costs vary from state to state and in many locations they are less expensive than in New York.

The Future

The Conclusion of the Consumer Reports article looks to the future and expresses concern that proprietary reverse mortgages, which are not currently available and which are not insured by FHA, will make a comeback. Because proprietary products do not involve the government, they are free of some of the regulations. But the NRMLA Code of Ethics and Professional Responsibility sets the same standards for proprietary products as for HECMs, including counseling and restrictions on cross selling. And over 95% of the proprietary mortgages offered before the funding disappeared were offered by NRMLA members.

Consumer Reports says that its publisher, the Consumers Union, believes that sellers of reverse mortgages should be required to make sure the loan is suitable to the borrower. FHA, working hand in hand with the industry, AARP and other interested parties, recently designed and is currently implementing a new counseling protocol to help prospective borrowers determine if a reverse mortgage is suitable for their own individual circumstances. Because every case is completely different, it is the senior homeowner, with assistance from an independent, objective HUD-approved counselor, who can best decide if a reverse mortgage fits his or her needs. Additionally, HUD is implementing a financial assessment, to be done by both counselors and lenders, to help prospective borrowers determine whether they will be able to sustain themselves in the home and pay taxes, insurance and home maintenance costs, if they follow through with the reverse mortgage.

This is not reported. The Consumers Union asks for proprietary loans to require one-on-one counseling, which all of our members already do.

At its core, as NRMLA has said before, the reverse mortgage is a compassionate financial product. Those who conceived it found the means to provide hundreds of thousands of American seniors with comfort at a difficult time in their lives. That is not to say that the product is yet perfect or that there are not swindlers out there trying to take advantage of seniors with cash. But there are many people in and out of the government working together on a daily basis to improve the product and police the industry. And, we are making great strides.

It is not too much of a stretch to expect a publication like Consumer Reports that wants to be depended upon, to vigorously explore and report on the entire present situation rather than to publish an incomplete view of the industry full of unsubstantiated fear-mongering. They should know better.

Source

Reverse mortgage strategies come of age

2009-09-11T00:04:00.000-07:00

Reverse mortgage products in Australia have traditionally been met with scepticism and even outright criticism from the media and prominent financial industry figureheads.

Just recently, the Australian Securities and Investments Commission (ASIC) in its Reverse Mortgage Guide raised concerns that reverse mortgages could potentially see seniors borrow more than needed.

However, the reality is that most seniors are actually using reverse mortgage products sensibly and with measured caution.

We recently conducted the largest study of reverse mortgage users in Australia to identify how these products are being used by seniors.

The results, which were derived from over 425 interviews with reverse mortgage customers, revealed the majority of seniors are well informed about how to use a reverse mortgage and are only using small amounts of the funds available to them.

Predominantly, reverse mortgage funds are being used by Australian seniors to make living on the pension less of a struggle.

According to the study, the most frequent use of reverse mortgages was for home renovations and improvements – creating the double advantage of making the home more pleasant to live in, while increasing the value of the property.

The primary uses of reverse mortgage funds can be seen in the graph below.

Taking a closer look, our study also found that the types of home repairs customers undertook ranged from basic maintenance, such as a coat of paint, to making the property more suitable for retirees to stay in for longer.

In addition to physical comfort, these renovations and improvements can have a significant mental benefit for seniors.

Those reverse mortgage customers who opt to utilise the monthly income option find that amounts as small as $200 per month can transform their quality of life.

Similarly, having a line of credit in reserve removes the fear of unexpected bills. Many customers refer to a line of credit option as a ‘rainy-day facility’, with no interest charged or monthly fees if it is not used.

Another interesting use of funds has been helping family members.

Reverse mortgage customers have assisted their family by paying deposits on properties for children, assisting grandchildren with education or helping elderly relatives in aged care.

A new breed of borrower

Over the past few decades Australia’s baby boomers have been toiling away at work, with many setting aside a nest egg for their retirement.

For most, the bulk of that nest egg is tied up in their home – an asset that financial planners have typically excluded when developing financial planning strategies.

Only one-third of Australians actually have enough in savings to comfortably fund their retirement.

According to ASIC, a ‘comfortable’ retirement income of $38,000 per annum requires a senior to have at least $722,000 in savings at the age of 55. Many have suffered losses to those savings as a result of the global financial crisis and two consecutive years of negative super growth.

Traditionally, reverse mortgage products have appealed to asset-rich, cash-poor retirees.

However, in the current financial climate many seniors with mixed retirement portfolios (super and additional assets) are seeking a more sophisticated and longer-term approach to their financial planning.

We’ve noted that many borrowers are now in need of the support of a financial planner to assess how they can get the maximum benefit from their super returns by utilising other assets (such as the family home) via financial products like reverse mortgages.

The average loan life for a reverse mortgage is approximately 14 years. Throughout this time, borrowers will seek support to maximise the use of their super, assets and reverse mortgage loan to get the best results (eg, drawing on their reverse mortgage loan when rates are lower to give their super returns time to improve).

Borrowers are also seeking guidance about how they should receive their money from their reverse mortgage loan, as either a lump sum, monthly income or line of credit.

As more Australians transition into retirement, it seems the traditional approach of ignoring the family home as an asset in financial planning is coming to an end.

Reverse mortgages at a glance

* The average reverse mortgage size in Australia is $66,000 (Deloitte/SEQUAL).

* Australia’s reverse mortgage market is currently worth $2.5 billion (Deloitte/SEQUAL).

* The reverse mortgage industry is growing at a rate of 23 per cent per year.

* By 2020, 18 per cent of Australians will be aged over 65 (McCrindle Research, Australia in 2020: A Snapshot of the Future).

* Number of financial planners and brokers currently distributing reverse mortgage products: 2,500.

Source

Home advantage: Reverse mortgages

2009-09-10T00:02:00.000-07:00

Reverse mortgages are little understood as a wealth accumulation strategy and source of credit.

The idea of taking out a reverse mortgage on your principal home was a strategy many Australians viewed with wariness and, until now, the majority of financial planners has largely ignored.

But with up to 60 per cent of Australians’ wealth locked up in the family home and with their investment assets crashing, that view is beginning to change.

In the past, reverse mortgages flew under the radar of many financial planning firms, with planners preferring more traditional avenues of wealth accumulation for pre-retirees.

Since 2005, the use of reverse mortgages as an investment strategy has been typically restricted to a small segment of retired workers who wanted a source of credit to fund an improved lifestyle in retirement, according to Kevin Conlon, the executive director of the Senior Australians Equity Release Association of Lenders (SEQUAL).

But with the financial crisis biting into clients’ investments, there is growing interest in the strategy from investors who need a source of credit to supplement their investment incomes.

“What we’re seeing emerge in the current [environment] is a broader base of consumers, even consumers that the market didn’t expect to see, and these are self-funded retirees,” Conlon said.

“Their exposure to a narrow risk space has become obvious to them and they are increasingly making enquiries as to how an equity release strategy may suit their changed circumstances.”

John Thomas, chairman of both Australian Seniors Finance (ASF) and SEQUAL, said financial planning clients, particularly super investors, are suffering from poor investment returns and planners are increasingly considering reverse mortgages to bridge the gap.

“Financial planners haven’t to date been the biggest source of reverse mortgages; [but] they are now increasingly looking at a reverse mortgage,” he said.

For an industry focused to a large extent on those approaching retirement – the baby boomer generation – a client’s home is a relatively untapped source of wealth.

Senior financial analyst at Canstar Cannex Harry Senlitonga said the baby boomer generation would retire in the next five to 10 years, and the majority of their wealth assets were locked in the home.

A Reserve Bank of Australia bulletin of household wealth earlier this year corroborated his comments. It showed that residential property accounted for 60 per cent of the value of a household’s total assets, up from 54 per cent seven years ago.

Conlon said the ageing demographic of the baby boomer generation will spur further growth in reverse mortgages as a financial planning strategy.

“It is clear that the dealer groups, if not the industry body, are recognising that their practice has to extend to serve the needs of their ageing clients.

“My belief is that reverse mortgages will form an important part of the financial services industry as the demographics start to show itself in a more obvious way than it has today,” he said.

Martin Lynch, head of reverse mortgages at Royal Bank of Scotland (RBS), said for a strategy as prone to demographics as reverse mortgages, financial planners were beginning to recognise it as within the sphere of wealth accumulation.

“Aged care planning tends to be something that financial planners see as their bread and butter,” he said.

However, Lynch noted that the greatest number of users of reverse mortgages were about 74 years old, and the expected interest from baby boomers was still some years away.

“The number of people aged over 80 in Australia doubles in the next 15 years, so that’s when the growth is going to soar.”

Lynch also attributed increasing interest in reverse mortgages to aged care facilities, which were becoming more aware of the strategy for future residents.

In the past, those heading for aged care accommodation typically sold their homes to pay for their entry into, and costs of, the facilities.

With the increasing use of reverse mortgages, potential clients could utilise a reverse mortgage product to purchase an accommodation bond for an aged care home without making a decision to sell their home.

Education and awareness

Despite the increasing interest, there is a lack of awareness and education among both consumers and financial planners about how to use reverse mortgage products.

Paul Intagliata, a financial planner at Aged Care Financial Services, said criticism of reverse mortgages in the media stemmed from a lack of information about what sort of clients were suited to the strategy.

“I think, in general, there’s been a lot of inaccurate information put out in the media over the last three or four years about reverse mortgages,” Intagliata said.

“For the right person who gets the right advice, they can certainly be a valuable asset as part of a package to help with retirement or aged care. But the important part is the advice – they’re certainly not suitable for everybody. People need to plan correctly in utilising them,” he said.

The Australian Securities and Investments Commission (ASIC) warned earlier this year of the misuse of reverse mortgages, and released research showing that consumers found it difficult to understand home equity release products.

At the time, ASIC chairman Tony D’Aloisio said while equity release products offered benefits, there were also significant risks, including consumers being encouraged to borrow more than they needed against the value of their house.

However, ASIC based its research on data from 2005, and possibly even earlier, according to Lynch.

“I had presented to [the regulator] hard evidence that people are using reverse mortgages wisely and borrowing what they need, rather than what they qualify for,” Conlon said.

Research from RBS revealed that consumers were only borrowing up to 17 per cent of the value of their home when they qualified for a loan of up to 30 per cent, he added.

Despite this apparent wariness, Conlon said there was a poor level of understanding among financial planners about the nature of reverse mortgages.

“I worry about the risk of a financial plan reflecting the preferences of the adviser rather than the client. Much of what I have heard in financial planning forums has been opinion based. The fact is they’re not even considering the family home as existing exposure to property.”

Industry consultant Paul Resnik said the suitability of a reverse mortgage depended on the client’s circumstances.

“It is always better to do things knowing the consequences. In the hands of a good adviser who understands how clients’ needs or circumstances change over time, it may be a good idea or a bad idea,” he said.

“We don’t sneer at downsizing the house; somehow we sort of sneer at reverse mortgages, as if there’s something inherently bad about them,” he added.

Credit crunch

One of the issues financial planners face if they recommend a reverse mortgage to a client is the tightening credit environment.

“It’s very difficult. Virtually no provider is able to get unlimited funding [at the moment],” Thomas said.

“Some providers are not writing any business, some providers have gone out of the business, and most providers are limiting their lending.

“It’s affecting the [reverse mortgages] sector fairly dramatically,” he said.

Eight reverse mortgage lenders have withdrawn from the market in the space of six months to January this year, according to research released by Canstar Cannex, with many reverse mortgages falling victim to funding shortfalls.

Intagliata said lenders had become stricter in approving certain loans.

“We’ve certainly seen a bit of tightening of LVRs [loan to value ratios] of certain loans that perhaps 12 months ago would have been fine, and now there’s been a reduction in the amount of money [for loans].”

Across the board, most mortgage providers have been “pretty rigid” in terms of their LVRs, with lenders only willing to lend up to 40 per cent of the value of the house, he said.

Lenders may look at loosening that down the track, but it’s too hard to determine if that would be the case, Intagliata added.

According to Senlitonga, both banks and consumers are taking on risk because of the compounding effect of the interest on the loan without repayments from the borrower.

Reverse mortgage lenders may be willing to lend up to 30 to 40 per cent of the value of the house, but no higher than that in the current environment.

According to Senlitonga, current property prices and interest rates are factors that financial planners will have to take into account.

Lenders factor current property prices into loans, so any change in property prices was an important issue for lenders to consider, he said.

However, lenders typically look at house prices over a 10 to 15-year range as the basis for their pricing models, he added.

But, according to RBS’ Lynch, the property sector did not affect reverse mortgages “particularly significantly”. While lenders’ valuations were conservatively estimated, which would “ruffle a few feathers”, as long as borrowers were getting the amount of money they needed, there was no reason they would be concerned, he said, adding that the average LVR of his bank’s customers was approximately 18 per cent.

He also believed that because LVRs were so cautious in the current market, the risk from rising interest rates and house prices was negligible.

SEQUAL’s Conlon believes the “key issue” for consumers is that the market remains liquid.

He said the real risk was to the level of competition and the benefits that flow to consumers from the competition.

Despite the issues the sector is currently facing, Conlon believes it will recover and expand.

“I do think this is a market worth watching,” he said.

Source

Home-based Mortgage Broker Businesses, a Growth Industry

2009-09-06T00:47:00.000-07:00

With today's job losses and downsizing, plus increased cost of living, many people are looking for business opportunities that enable them to work from home. We, here at Professional Financial Associates, have a proven opportunity that provides both training and support to anyone willing to learn.

Dana Point, CA (PRWEB) August 29, 2009 -- Professional Financial Associates (www.pfa.com) announces the launch of its "New" Home-based Mortgage Broker Business program to assist those who are looking for career opportunities in home-based mortgage lending.

Due to increased unemployment and concerns about the loss of income due to downsizing as well as the skyrocketing cost of living, many people are exploring the possibilities of operating a business from home. Today, more and more people are looking for a business that will enable them to earn an executive income from home. They are looking for a business plan that gives them several avenues for generating income. Although there are many options available to people wishing to run a home-based business, one that has proven to be successful and profitable over many years has been the home-based mortgage broker business.

Like many home-based businesses, the home-based mortgage broker business is simpler if you have someone who can lend you a guiding hand and get you off on the right foot. Professional Financial Associates (PFA) has more than thirty years experience in this business and can now offer you the training and support necessary to enter into this lucrative field. All you need is to be willing to learn!

The Home-based mortgage broker business is not dependent on managing outside employees, purchasing inventory, and doesn't incur large start-up costs. Plus, with interest rates and real estate values extremely low, now is the perfect time to take advantage of career opportunities in home-based mortgage lending. PFA understands that the biggest road block to starting your own business is getting the needed training and support. The PFA Registered Loan Broker Home Training Program will provide you with all the tools you need to move forward.

One of our customers, J.C., an insurance agent who was already working from home, watched as his business began to decline due to today's economic climate. He applied and received training through PFA's home-based mortgage broker business program (http://www.pfa.com). J.C. began offering FHA, VA, Conventional, and Reverse mortgage loans to homeowners wishing to refinance at lower rates, as well as home buyers wanting to take advantage of the lower real estate prices and interest rates. Today, J.C. has not only replaced his lost income from reduced insurance commissions, but has generated a new and very profitable income stream that well exceeds what he was making on his insurance business alone.

So, with foreclosure rates on the rise, short sales looming and property values and interest rates both at record lows, there is no time like the present to take advantage of the career opportunities in home-based mortgage lending. By opening your home-based mortgage broker business and completing our Registered Loan Broker Home Training Program, you will receive all the training and support you require to guide you down the path to a successful career in your own home-based mortgage broker business.

Source

Reverse mortgage defined

2009-09-05T00:46:00.000-07:00

Before reverse mortgages came into the market, the only way to receive any money from your home was to sell it, or to borrow against it, requiring monthly loan repayments. Reverse mortgages allow homeowners to get money from their home while still living in it, and making no payments.

The reverse mortgage loan is against your home that you do not have to pay back for as long as you live there. The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage program insured by the Federal Housing Administration. It can be paid to you all at once, as a regular monthly advance, or at times and in amounts that you choose. Rates are estimated by a margin, which is, in the HECM program, the amount added to the one-month Libor index to determine the initial and current interest rate. You pay the money back plus interest when you die, sell your home, or permanently move out of your home. The Federal Housing Administration (FHA), part of the U. S. Department of Housing and Urban Development (HUD) that insures HECM loans, requires lenders to offer an adjustable rate mortgage, which is an interest rate that changes based on changes in the market-rate index.

To qualify for a reverse mortgage, a prospective borrower must be at least 62 years old and own his or her residence. They must also submit an application to the lender and have the property inspected. In some cases, certain repairs may be required before the lender will approve the loan.

The size of a reverse mortgage depends on many factors, including the borrower's age, the type of mortgage sought, the value and location of the property, the borrower's equity, and current interest rates. As with a traditional mortgage, lenders typically charge an origination fee, an appraisal fee, and other miscellaneous fees.

Generally, borrowers may elect to receive their payments in one of three ways: through a lump sum payment, a series of fixed payments, or as a line of credit which can be drawn upon when the borrower needs the money, letting the borrower decide when and how much money to take out. Occasionally, homeowners will choose some combination of these methods. A reverse mortgage usually comes due when the borrower no longer lives on the property.

Under FHA insured reverse mortgages the borrower receives a guarantee that payments will continue to be made even if the lender defaults. For this reason, a FHA reverse mortgage may offer smaller loan amounts than other programs. This type of reverse mortgage remains in effect as long as the borrower lives in the house.

Reverse mortgages can be a useful planning option for elderly homeowners in need of extra cash. Not only do they provide a steady stream of money, but they also remove what is often the largest monthly expense. Typically, no house notes are due while a reverse mortgage is in place. Furthermore, because reverse mortgages are technically considered loan advances, they are generally not subject to taxes. Most importantly, though, they allow borrowers that might have otherwise been forced to move an opportunity to remain in their homes.

A thirteen-year veteran of the mortgage industry, Robert Griffin specializes in reverse mortgages and has helped over 3000 Americans find financial security with a reverse mortgage. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, Texas, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). Robert Griffin is also co-author of “62 Senior Moments.” If you would like more information, please call (866) 683-3690 or complete our online Reverse Mortgage Information.

Source

Another way to look at reverse mortgages

2009-09-04T00:45:00.000-07:00

In the business world, it is common practice to initiate a product for one purpose, then try to increase sales by marketing that same product to a wider group and, at the same time, changing the purpose. It now seems that reverse mortgages are falling into that category.

Reverse mortgages were initiated some years ago for the purpose of assisting elderly homeowners to live out their later years more comfortably. With a reverse mortgage, homeowners who were strapped for income could not only pay down their existing mortgage, but could also have extra cash to provide for their needs. Now they had no more mortgage payments and the cash to stay in the home for the rest of their lives. The government liked the idea so much that it guaranteed reverse mortgages in a few ways, taking the lender entirely off the hook insofar as risk goes:

o If the value of the home dropped to below the amount of the mortgage, taxpayer money reimbursed the lender.

o If the homeowner failed to pay the taxes and maintain the home, the Government, and not the lender, took the property in foreclosure.

Reverse mortgages were intended to bail out older homeowners. It was a way to allow them to keep and live in their own homes in their old age.

The purpose of reverse mortgages has not changed. It is a good way for elderly homeowners to remain in their homes--but only as a last resort and only when no other avenues exist. A reverse mortgage is expensive and complex--it is not as simple as a conventional mortgage.

According to Consumer Reports, "unsuspecting borrowers have become cash cows for lenders and others who encourage them to use their mortgage proceeds to by financial products such as deferred annuities that can be inappropriate for their situation. And the required counseling can be skimpy." To me, such a practice is reminiscent of what was touted as a "pension-maximization plan" back in the 1980s. Here, a married wage earner was encouraged to choose the higher single-life pension and with the difference (between the higher single-life and lower joint-and-survivor pensions) buy a life-insurance contract on the pensioner. While it may have worked for some who had many options, this was usually a way to sell more life-insurance products.

How does a reverse mortgage work? Only homeowners older than age 62 are eligible. You apply for a loan amount that will pay off the existing mortgage plus some extra to cover living expenses. Of course, maximums apply. According to Consumer Reports, "for a $300,000 home in the New York City area, the maximum available was $152,074 for a 64-year-old and $182,541 for a 74-year-old." So, even if the amount received is only enough to pay off the existing mortgage, just this relief from monthly mortgage payments can tip the balance in favor of the homeowner's staying in the home.

Fees for reverse mortgages are not like those of conventional ones. Fees are steep and are added to the loan amount up front. In addition, interest rates are usually adjustable, and the interest simply keeps getting added to the loan amount over time.

A reverse mortgage is just a mortgage, so the homeowner still continues to own their home--as long as they maintain the property and pay the taxes. When the homeowner dies, the mortgage must be repaid and the home can go to your heirs. But what if the mortgage amount exceeds the value of the home and there are no funds in the estate to pay down the mortgage? The property is foreclosed and then owned by the government, not your heirs.

Reverse mortgages are an expensive way to pull money out of a home for purposes other than day-to-day living expenses. Not for lavish spending--and certainly not for investing. Consider what would happen if you took a reverse mortgage and spent or lost the extra funds. Would it be enough to live in a house without any mortgage payment? Could you afford the increasing taxes and maintenance?

Some things work well on paper with simple illustrations and assumptions. Real life adds the complications that were never considered in the simple illustrations. Before signing up for a reverse mortgage, it would be a good idea to seek the advice of a trusted friend or counselor--or an independent financial adviser. A reverse mortgage can be just the right product for those in dire straits and nowhere else to turn. But for those with somewhere else to turn, it would be better for them to do so.

Source

Banking Regulators to Start Collecting Reverse Mortgage Data

2009-09-03T00:43:00.000-07:00

The Office of Thrift Supervision within the Department of the Treasury is soliciting comments on a proposed new schedule for Annual Supplemental Consolidated Data on Reverse Mortgages for its Thrift Financial Report (TFR).

With the volume of reverse mortgage activity expected to dramatically increase, the agencies said they need to collect information from financial institutions involved in the reverse mortgage activities to monitor and mitigate risks.

Specifically, the OTS sounds more concerned with proprietary products:

For example, proprietary reverse mortgages structured as lines of credit, which are not insured by the federal government, expose borrowers to the risk that the lender will be unwilling or unable to meet its obligation to make payments due to the borrower. Additionally, in those circumstances in which housing prices are declining, there is the risk that the reverse mortgage loan balance may exceed the value of the underlying collateral value of the home.

The U.S. Department of Housing and Urban Development provides a monthly report for reverse mortgages endorsed for federal insurance, by fiscal year, for those loans that are part of the federally sponsored HECM program.

While this monthly report provides information such as average expected interest rates, average property values, average age of the borrower, and the number of active insured accounts, there is no aggregate monthly data nor is there institution-specific information that identifies the institutions participating in the program.

For proprietary reverse mortgage loans, there is no known data on the volume of reverse mortgages, dollar amounts outstanding, or the institutions offering these products.

Therefore, OTS is proposing that a new Schedule RM—Annual Supplemental Consolidated Data on Reverse Mortgages be added to the TFR to collect reverse mortgage data on an annual basis beginning on December 31, 2010.

The other federal banking agencies are similarly proposing new items for the Call Report to collect reverse mortgage data on an annual basis beginning on December 31, 2010.

Collecting this information will provide the agencies the necessary information for policy development and the management of risk exposures posed by institutions’ involvement with reverse mortgages.

Source

Using a Reverse Mortgage Calculator

2009-08-27T00:08:00.000-07:00

Using a reverse mortgage calculator is a great place to start if you are trying to see if you have enough home equity to qualify for a reverse mortgage loan. A reverse mortgage calculator will give you an approximation of your reverse mortgage loan amount eligibility.

Using a reverse mortgage calculator is the easiest way for senior homeowners to find out if they have enough equity in their home to qualify for a reverse mortgage. If you have been thinking about tapping into your home equity through this unique type of home loan, you might be wondering how much money you could actually get from your home and still continue living there without monthly payments.

The easiest way to get an approximate idea of what you might be able
to qualify for, is to utilize an online reverse mortgage calculator tool. A reverse mortgage calculator is very simple to use. You only have to input a couple of personal details into the reverse mortgage calculator and it will estimate approximately how much money you are eligible for.

The required details consist of your zip code, the dates of birth of all persons on the title to your home, what you think your home value is, and what your current mortgage balance is, if any. Once these details are entered, the reverse mortgage calculator will then show you the approximate loan amounts for several loan programs that you are eligible for.

FIXED INTEREST RATE VS. ADJUSTABLE

Each loan choice displayed by the reverse mortgage calculator will offer slightly different loan amounts because they have slightly different interest rates and margins. In most cases, the reverse mortgage calculator will also show you a fixed rate loan choice along with several adjustable choices. Sometimes there is a fairly large difference in the amount of money you can get from a fixed rate reverse mortgage versus an adjustable. Current market interest rates will dictate these differences.

INTEREST RATES AFFECT LOAN AMOUNTS

One noteworthy thing to keep in mind, is that interest rates are constantly changing with market conditions. Consequently, a reverse mortgage calculator must be re-programmed whenever interest rates change. Usually changes are made each Tuesday, if there has been a fluctuation in the indexed rates that these loans are tied to.

If you are using a reverse mortgage calculator, please be aware that it is strictly a tool for you convenience and will give you an approximation of how large a loan you might be able to qualify for. If the numbers provided from the reverse mortgage calculator are attractive to you, you will definitely want to take the next step and get a customized loan benefit summary from a lender. The summary that a lender can provide will be much more comprehensive and will be a more accurate presentation than what can be provided by a simple online reverse mortgage calculator.

The lender's benefit summary will provide a complete cost breakdown of the fees that will be involved in obtaining a reverse mortgage. It will also give you an amortization schedule so that you can estimate years into the future what the loan balance will be compared to your home value in later years. This is something that many people are interested in seeing because they want to know how a reverse mortgage will impact their estate over the long term.

START WITH A REVERSE MORTGAGE CALCULATOR

So if you are just starting to look into the possibility of getting a reverse mortgage, using a reverse mortgage calculator is a great first step. Because, if you are not even close to having enough equity in your home to qualify, you might as well find out right away and be done with it. On the other hand, if the reverse mortgage calculator displays numbers that you like, you will probably want to do further investigation and request a full blown benefit summary from a reverse mortgage lender.

Source

Affluent Using Reverse Mortgages to Take Advantage of Distressed Property Values

2009-08-19T22:42:00.000-07:00

Banking, Money and Finance : Live Well Financial: Getting a Reverse Mortgage Online: Dos and Don’ts

2009-08-18T22:45:00.001-07:00

(Prudent Press Agency)--- Looking for a company that handles reverse mortgages online is easy, just type in “reverse mortgages” in your search engine and the results that will come back to you are quite staggering. However, looking for a good reverse mortgage company online, such as livewellfinancial.com is quite a challenge, and there are many pitfalls that you should avoid at all costs.

Here is a list of dos and don’ts that can help you both find a very good and reliable reverse mortgage company, and at the same time avoid those thieves and scammers just trolling around cyberspace, looking to make a quick buck. True, these are sound, basic advice, but you’d be surprised just how many people can forget these things in the face of a really good deal.

DO: Scout around and canvass

Like when buying a car or looking for a good school for your kids, you won’t just get the first one that comes by. These are big decisions in life, and getting a reverse mortgage is also a big financial decision. You should look around the Internet, ask your local Better Business Bureau, or simply ask friends and family whether they can refer someone to you. Online, if a website has a lot of referrals and testimonials, like Live Well Financial, this can be a very good sign, however, it won’t hurt to still be a little careful with whom you do business with.

DO: Get all the needed information first

You never charge into a war without a loaded gun, and so you should never get into a reverse mortgage contract before making sure that you know what you need and what you’re getting into. Thieves and crooks will often use your ignorance to slip one over you, whether it is an unnecessary charge or consultation, so it’s best to come prepared.

Livewellfinancial.com will not only give you the basic information that you need free on their website, but should you have any other questions, you can either contact their customer support team online, or get a free financial counseling session from them.

DON’T: Give away sensitive information on the Internet

There are two pitfalls that you have to avoid when giving out sensitive information on the Internet, such as complete name, addresses, SSS numbers, credit card numbers and the like. Reputable company would never ask those kinds of information online, as there are a lot of hackers and cyber thieves out there who are great at extracting this kind of information, even if the data is encrypted and secure. Also, companies that ask for this kinds of information can be quite dicey, because there are times when they are really just hackers looking to make a quick buck off your credit card number.

Livewellfinancial.com is a site that requires you to become on-premises when you get a reverse mortgage to give your sensitive information. This is to ensure a quick and secure transaction between you and the company.

DON’T: Sign anything that you don’t understand completely

A lot of reverse mortgage companies employ a really old trick in the book. Use a lot of complicated jargon and terms to confuse the client, and then slip in a clause or two about very high fees, interest rates and other such things. Don’t ever put your signature on a contract that has even one part that you don’t understand, and always, always, always read the fine print.

Livewellfinancial.com offers you a service that is direct-to-the-point and very easy to understand, so that you know what you’re getting into, and what you’re going to get.

Source

Reverse Mortgages = Subprime? Unfortunate Comparison says HUD Economist

2009-08-16T00:33:00.000-07:00

What seems like an increasingly negative impression of the reverse mortgage business - among some consumers, media outlets and government representatives - has several practitioners wondering what can be done to counter these beliefs - and who might take the lead in such an effort. One reverse originator reportedly has asked an industry trade association to collect special fees from members to mount a counter-offensive, including but not limited to a significant marketing campaign.

It seems that subtly yet powerfully, there even has developed a growing notion that the reverse mortgage business is akin to (now-discredited) subprime lending, which is blasphemed for a wide-range of ills, not the least sparking a worldwide recession.

“It’s an unfortunate comparison,” asserts Ed Szymanoski, noted economist with HUD, in conversation with RMD. He points out that the FHA, principal guarantor for nearly all reverse mortgages today, “has lot of protections built in.”

Jeff Foody agrees. He is corporate education liaison, EquiPoint Financial Network, and regards any equation of reverse mortgages to subprime as nothing more than “sensationalism. People fear what they don’t know,” he says. Foody figures reverse mortgages have been “obscure for some time, so it’s easy to make [false] comparisons.”

One secondary market trader adds that the two mortgage sectors are “not anything at all alike. Reverse is all government-based lending, no one can compete on LTVs, and the rates are floored,” he points out.

Source

Reverse Mortgages – What should you know before applying?

2009-08-15T00:31:00.000-07:00

The number of reverse mortgages backed by the government jumped nearly 20 percent in March and April alone from the same period in 2008. At a time when seniors have seen their retirement assets depleted by market losses, tapping their home equity has become an attractive but potentially risky option. A reverse mortgage can turn your home equity into tax-free cash without forcing you to move or make a monthly payment. This can be a worthwhile financial tool if used in the right situations. If not, you can end up with serious complications to your financial future.

A reverse mortgage gets its name because of the way it works. Instead of the borrower making payments to the lender, the lender releases equity to the borrower in a number of forms, including:
- A lump sum cash payment;
- A monthly cash payment;
- A line of credit;
- Some combination of the above.

To qualify for a reverse mortgage a borrower generally needs to own a home, reside in it as their principal residence, be at least 62 years of age, and have significant equity in the home. When the owner dies or moves away, the house can be sold, the loan paid off and any remaining equity value can go to the living owner or the borrower’s designated heirs. Heirs don’t have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance within a certain amount of time after the owner dies or moves away.

There are three basic types of reverse mortgages:
- Single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations;
- Home Equity Conversion Mortgages (HECMs) are federally insured reversed mortgages backed by the U. S. Department of Housing and Urban Development (HUD);
- Proprietary reverse mortgages are private loans that are backed by the companies that develop them.

The size of a reverse mortgage is determined by the borrower's age, the interest rate and the home's value. In general, older borrowers can borrow more but the amounts are capped by the maximum Federal Housing Administration (FHA) loan limit for each city and county.

Reverse mortgages have traditionally been chosen by older Americans who can’t cover everyday living expenses or who otherwise need cash for such things as long-term care premiums, home healthcare services or home improvements. Reverse mortgages have also been used to pay off a current mortgage or credit card debts. More recently, though, they’ve become popular with individuals who see them as a better alternative to home equity lines.

Here are some of the other things to consider:

- Reverse mortgages can be complex and risky: Borrowers should consider discussing the appropriateness of a reverse mortgage given their current financial situation and the other options available to them before applying for a reverse mortgage. Borrowers of HECMs are required to consult with a counselor from a HUD approved agency before they are granted this loan.

- Cost can be substantial: Reverse mortgages are generally more expensive than traditional mortgages and home equity lines of credit in terms of origination fees, closing costs and other charges. The basic FHA-backed HECM loan finances these fees into the initial loan balance but they can run between $12,000 - $20,000 dollars. The loans are based on anticipated home value appreciation of 4 percent a year, so if the housing market is healthy, those costs are generally recovered in a short period of time. But if the housing market sours, it will definitely take longer to recoup those fees.

- Borrowers need to make sure they are not jeopardizing their Federal retirement benefits: The basic FHA HECM is designed as tax-free income to the senior receiving their Social Security income. However, if a borrower’s total liquid assets exceed allowable federal limits, the borrower’s federal retirement benefits may be negatively impacted.

- Interest Rates can be higher: Reverse mortgages have rates that are typically higher than those charged on conventional mortgages. Interest is charged on the outstanding balance and added to the amount they owe each month.

- The mortgage can be called: The homeowner or estate always retains title to the home, however, the lender can declare the mortgage due or reduce the amount of monthly cash advances to pay those overdue amounts if the borrower fails to pay the property taxes on the home, fails to adequately maintain the home, fails to pay the home insurance premiums, or changes their primary residence.

- Estate Planning Implications: Repayment of a reverse mortgage will impact the borrower’s estate and potentially reduce the asset being passed on to the borrower’s heirs. It is important to factor in the potential effects of a reverse mortgage on the borrower’s estate plan to ensure that the borrower’s estate planning goals are met.

Source

What should you know before your think about a reverse mortgages

2009-08-14T00:29:00.000-07:00

Reverse mortgages growing in popularity

2009-08-13T00:26:00.000-07:00

More than a year ago, Dee Lewis was struggling to afford her escalating property taxes, plus pay the mortgage on the small Glenville farmhouse where she's lived since 1982.

Lewis, now 64, had been considering a reverse mortgage, which allows senior citizens to tap into the equity of their homes, providing them access to money without the burden of monthly payments. The loan is repaid when the borrower sells the house or dies.

Last April, Lewis took the plunge, becoming one of a growing number of people to take advantage of the government-backed program.

Last month nationwide, there were 9,830 reverse mortgages endorsed by the Federal Housing Administration, which insures most of the loans. That's up from 9,484 loans endorsed in July of last year, according to the U.S. Department of Housing and Urban Development. In March, there was a national monthly record of 11,261 FHA-endorsed reverse mortgages, a jump of 17 percent from the same month in 2008.

Lewis borrowed about $230,000, a portion of which went toward paying off her mortgage and car. If Lewis were to sell her house now, she estimates she would owe about $200,000.

"If I pay both my property tax and my mortgage, I would have a couple hundred a month to live on," said Lewis, who works as a cook at Greenwich High School. "I really felt I didn't have any other option."

D. Steve Boland, senior vice president and reverse mortgage executive for Bank of America, said lenders have recently seen an increase in popularity in reverse mortgages because people's retirement accounts are losing money and people want to maintain their standard of living.

Also, as part of the economic stimulus package, the lending limit for reverse mortgages was increased from $417,000 to $625,500 through the end of 2009.

"Before, it was considered a last resort," Boland said. "Now, it's part of retirement."

Sara Cornwall, a Southport-based reverse mortgage specialist with Wells Fargo, said some people are taking out reverse mortgages to wait out the sluggish real estate market.

In order to qualify for a reverse mortgage, a borrower must be 62 or older, the home must be the person's primary residence and they must own the property outright, or pay off the existing mortgage with the proceeds from the loan.

Borrowers have four options, used in any combination, when taking out a reverse mortgage: They can take the money in a lump sum; get fixed monthly amounts for a set period of time; receive funds in equal monthly allotments for as long as at least one homeowner lives in the house; or have access to a line of credit.

Senior advocates say some people shy away from the program because they want to leave their home to their children. Lewis, a divorced mother of two adult daughters, said her children were supportive. In fact, Lewis' younger daughter lost her job earlier this year and moved back home, which she couldn't have done if Lewis had downsized to a one-bedroom condo.

Lewis had considered selling the house, which was valued at $1 million.

"I wanted to be there for my children," Lewis said. "In hindsight, I did do the right thing. Given the economy right now, if I had waited and put my house on the market, it wouldn't have been a good time."

There are also high closing costs involved, which include title insurance, attorney fees and an appraisal. They vary according to the value of the home, and can range from $15,000 to $18,000. Lewis's loan included $17,000 in fees.

The Federal Housing Administration, which insures most reverse mortgages, mandates that interested seniors receive financial counseling from a HUD-approved agency before getting the loan.

Should someone owe more than value of home at end of the loan, the FHA insurance covers that gap.

Richard Fisher, an attorney who works in the elder law and estate planning field for Cacace, Tusch & Santagata in Stamford, said seniors should explore their alternatives, such as getting a home equity loan, which doesn't have the high fees of a reverse mortgage and generally has lower interest rates, or selling the house and moving to a smaller accommodation.

One concern is that some financial professionals have been aggressively marketing investments to seniors for their reverse mortgage proceeds, such as deferred annuities, that are inappropriate for many older people because they tie up retirement savings, but Fisher said none of his clients have run into that.

Christina Crain, director of programs for the Bridgeport-based Southwestern Connecticut Agency on Aging, has worked with seniors who have taken out reverse mortgages, and advises people to take a close look at their situation before going forward.

"I think people really need to do their homework, go and talk to multiple lending sources and do their own research," Crain said. "I think the important thing is people ask a lot of questions and know all the costs up front."

Reverse mortgages can be good for seniors who want to stay in their homes, and don't have family members to help financially support them, Crain said. But, they're not for everyone, such as seniors who want to leave their home -- without the burden of paying off the loan -- to their children or grandchildren. The loan also could affect a person's eligibility for need-based programs, such as Medicaid.

"It's really a personal decision," Crain said. "I think it is a good option for some people. I think people should at least explore it as an option because for some people it could be a way to remain in their homes and get the resources they need.

Source

Reverse Mortgage Subsidy or Principal Limit Factor Reduction?

2009-08-09T02:18:00.000-07:00

On a daily basis, we hear about the economic crisis and the hardships plaguing our country, from the loss of jobs, to high unemployment rates, crashing property values and companies closing up shop. It’s disconcerting to say the least. What I find to be more disturbing is that our lawmakers would reject a $789 million dollar subsidy to FHA for the HECM product, a product which actually helps our seniors during such tough times to get cash from the equity in their homes and maintain independence. Instead, the House recommends FHA reduce the principal amount a senior can borrow.

In these tough times, it is bad enough that our aging population has lost astronomical amounts in sustainable income through investments, to now have appropriator’s in the House rejecting the subsidy and offering up recommendations that only add to the hardship. What message does that convey to the people of our country? That our government is willing to hand out stimulus monies to companies or to other subsidy requests that have no bearing or impact on our current crisis, but not to a program designed to help our aging population, a protected class.

Since the inception of the HECM product in 1989, FHA has operated on a negative (positive profit) subsidy until now. Perhaps as an alternative solution, offer up a recommendation that would help our seniors during such hardships. For instance, paying the $789 million subsidy and recommending that FHA come up with a plan thereafter to conduct any necessary annualized analysis that would decrease the principal limit factors based on any economic shortfalls with the HECM product for sustainability.

Let me be clear when I say that I am not opposed to a reduction in FHA’s principal limit factors for HECMs, I see value in doing so in the future. As for now, I feel this not the time to implement such a process for the aforementioned reasons.

My views are shared with many when I state that we would like to see our government take a different position and change the message they are currently sending to the public. There benefits to the reverse mortgage product are numerous, it seems however, this understanding has not been fully embraced by all members of the Legislative Branch. I feel it would be a great discredit to our senior population to have uninformed decision making and comments result in repercussions adversely affecting perspective reverse mortgage borrowers who could truly benefit from the product.

Source

Reverse Mortgages Climbing, So Are Scams

2009-08-08T02:16:00.000-07:00

Many of us are aging and finding that has affected our savings, investments, and income, and is putting pressure on our daily living expenses. Should you use your home’s equity to pay those bills?

When you buy a home, most people get a loan. Later in life, you may have paid off the mortgage on your home or have substantial equity in the home with a small mortgage balance. This equity has value and can be used in various ways to help pay unexpected or regular expenses.
Reverse Mortgages

The reverse mortgage is not a new financing tool. It is said that they were first used 50 years ago.

Before applying for a reverse mortgage, the most popular is the federally insured Home Equity Conversion Mortgage (HECM), you should do your homework or spend some time with an independent financial counselor to determine which plan (there are several) is best for your situation. American Association of Retired Persons (AARP) and other reputable organizations also provide information and services that can be of value in making this decision.

A reverse mortgage allows you to use your home's equity as security for an equity line of credit—an increasing mortgage, but have no payments with a rate of interest usually lower than using other types of financing. Sounds great doesn’t it!

There are several major drawbacks to this type of mortgage. Like mortgage loans used to buy a home, reverse mortgages are also very costly. This is an area that should be carefully investigated. There are also limits to how much equity you can use, depending on interest rates, your age, and how much money you need during the early years of the mortgage.

All interest and principle is payable when the borrower(s) deceases or is no longer living in the home. Make sure to review with your tax preparer any regulations that may affect your ability to use this type of mortgage.

The current median age for people using these reverse mortgages is around 74 years according to a report from AARP.

Before the recent collapse of the mortgage market, new reverse mortgage originations were growing in number annually. FHA has continued to insure these mortgages to make them attractive to those companies that buy them. Fannie Mae (Federal National Mortgage Corporation), the mortgage giant was the main purchaser of these mortgages, but its future remains unclear. This may affect interest rates as well as other factors.

Mortgage rates are currently low and provide an excellent opportunity for this type of mortgage.
Reverse Mortgage Scams Are Increasing

Many homeowners over age 62 are vulnerable to reverse mortgage scams because they do not understand all the factors involved in this type of transaction. This has become an area of concern for regulators.

Many low-cost federally insured HECM providers are city and state governments. Many banks and other providers of these loans are also very reputable, but there are companies or representatives that take advantage of unknowing customers.

The FBI reports that there are numerous scams by “unscrupulous professionals” to take advantage of people. Read the FBI/HUD report to the public on this matter.

Reverse mortgages are not for everyone. Each family’s situation is different. Become informed and consider carefully all alternatives before proceeding.

Source

Reverse Mortgage Insider Has Some Advice for Senior Citizens on Using These Loans

2009-08-07T02:15:00.000-07:00

July 31, 2009 - I was contacted recently by a freelance writer who wanted to get some dirt on reverse mortgages. He said he could find people all over the place who could sing the praises of the reverse mortgage, but he wanted to find someone who could give him the pitfalls and things to watch out for. This got me thinking…there are a number of times I do not recommend the usage of a reverse mortgage and there are several things to watch for, but I would not necessarily call them “pitfalls.”

A reverse mortgage is a complex financial transaction and it is not an inexpensive loan, but when used correctly and under the right circumstances, it can greatly enhance the lives of the senior borrowers who obtain one.

So my advice to senior borrowers revolves around education and not the ominous “beware” tone that it appeared this writer was prepared to take.

Choose Option to Meet Need

First, I say to borrowers, "Choose the correct option to meet your needs."

Borrowers can choose a fixed rate or an adjustable rate and fixed rates sound great, but they are what is called a “closed end instrument” and require the borrower to take the entire loan at the very beginning of the transaction.

For borrowers who are paying off an existing mortgage and need all their funds to pay off the current loan, this is no problem. For a borrower who has no current lien on their property or a very small one, this would mean that they would be forced to take the entire eligible mortgage amount on the day the loan funds.

This might give a borrower $200,000, $300,000 or more in cash from the very first day that they do not need at the time and on which they are accruing interest. This can also have an adverse affect on some seniors with needs-based programs.

Seniors on Medicaid and some other needs-based programs would impact their eligibility by having the sudden addition of the liquid assets and the senior would wind up funding their own Medicaid with the equity in their home.

For these seniors, a careful consultation with family members and a financial counselor is advised to be certain that they chose an option such as the line of credit where funds can be made available to them during times of need, but they never have excess funds sitting in accounts to affect their eligibility.

A borrower who is planning on using only a portion of their funds monthly need not pay interest on the entire amount from the very start, eroding the equity unnecessarily fast. An adjustable rate will accrue interest at a much lower rate at today’s rates, but has a 10% cap and can go much higher if rates rise in the future. However, the adjust rate program allows for more options for borrowers to receive their money.

They can choose a lump sum; a line of credit against which they can draw at any time and which cannot be frozen like many of the bank Home Equity Lines of Credit (HELOC’s) are going through now and which grows on the unused portion annually; a monthly payment for a set term or for life; or a combination of all of the options. The adjustable rates are currently much more flexible to meet borrowers’ needs.

One of the things that can determine the amount for which borrowers will ultimately qualify is the rate at which the loan accrues interest. When the margins on the adjustable rates were lower and the fixed rate was higher, the adjustable rates gave borrowers more money in their pockets in the form of eligibility.

Now, most borrowers we run through the reverse mortgage calculator receive more money on the fixed rate program. This is extremely important to know if you are trying to get as much as possible to pay off an existing lien. It also means that the higher the margin, the less money the borrower will receive and the faster interest on the loan will accrue.

So the thing to look for in a reverse mortgage here is definitely the rate on a fixed rate or the margin on an adjustable rate that is being quoted.

Watch for Fees Being Charged

Another thing seniors need to look out for in their reverse mortgages is the fees being charged. The fees are highly regulated by HUD and therefore, the lenders cannot charge fees like processing fees, administration fees and things like that, but there are some things borrowers can watch to help themselves!

First is the servicing fee. The amount of the servicing fee will determine the servicing set aside, which ultimately determines how much money goes to the borrower.

The servicing fee set aside is not a fee at the time you close your loan, it is money that is not made available to you and is left in the equity of your property that is meant to go toward the payment of the monthly servicing fee.

On a regular or forward mortgage, you don’t see this fee, you simply pay anywhere from .25% to .50% higher rate which goes to the servicing company and is built into the rate you pay.

Reverse mortgages use a flat dollar amount instead, and the set-aside is determined up-front due to the fact that the balance of the loan is increasing, not being paid down by the borrower.

The maximum origination fee is set by HUD, but they do not require every lender to charge only the maximum! Check around and see if you might be able to get a better origination fee.

Watch for Long-Term Annuity Pitches

Finally, one of the biggest things for seniors to watch out for with their reverse mortgage has nothing to do with the actual mortgage at all…it’s becoming aware that there are those who are going to try to get you to part with your money!

Do not consider investment strategies which include long term annuities which will not allow you access to your funds for long periods of time without penalty.

Be wary of reverse mortgage originators who seem overly-anxious to help you invest your loan proceeds. Always remember that this is your home equity and with some careful stewardship, it should take care of you but if not guarded, can be taken away, leaving you with a loan on your home and nothing to show for it.

It seems most of the time I see a “reverse mortgage horror story” it is usually due to what happened to the money and not the reverse mortgage itself. With some careful planning by the senior borrowers, getting the family and/or a trusted financial advisor involved and knowing what to watch for, a reverse mortgage can be a viable retirement tool for many borrowers.

It’s just a matter of making sure you put the seniors’ best interest first and knowing what to look out for when doing reverse mortgages for senior homeowners that keep those horror stories from happening in the first place.

Source

Seniors should know all about reverse mortgages

2009-08-06T02:13:00.000-07:00

As reverse mortgages become more popular, seniors need to understand how these loans work. Counselors for Consumer Credit Counseling Service (CCCS) of East Tennessee, a member of the CredAbility Network, which is one of the nation's largest nonprofit reverse mortgage counseling agencies, say homeowners often have misconceptions about major features of these loans.

CCCS is one of the leading nonprofit counseling agencies in the United States with housing counselors who are certified in reverse mortgage counseling. The agency helps homeowners by providing objective information about reverse mortgages, including the advantages and disadvantages, so a homeowner can decide if this loan is right for them.

"Reverse mortgages can provide needed additional funds for senior citizens on fixed incomes," said Daru Burdge, president of Consumer Credit Counseling Service of East Tennessee (CCCS). "But they aren't for everyone. Understanding the benefits, the risks and the costs involved is an important first step when considering a reverse mortgage."

Below are some important facts about reverse mortgage loans:

A reverse mortgage is a rising debt, falling equity mortgage.

Homeowners often believe there will still be plenty of equity remaining when they pass away, and that they will be able to leave money to their heirs. While that may be true, it's also possible there will be no equity remaining as the rising debt wipes out the remaining equity. This most often occurs when the homeowner lives to their normal life expectancy or beyond. In addition, homes may not appreciate and interest rates on an adjustable rate loan can rise and be higher than expected. These factors can cause the balance on the loan to equal, or even exceed, the equity in the home.

A reverse mortgage loan may include higher closing costs than a forward mortgage.

While closing costs are financed as part of the loan, these costs reduce the home's equity and leave fewer funds for the homeowner. For all Home Equity Conversion Mortgages (HECM), borrowers are charged a mortgage insurance premium. Approximately one-third to one-half of the amount of the closing costs is to pay for FHA mortgage insurance.

Counselors explain to the homeowner that if they plan on selling their home within a short period, a reverse mortgage may not be a good use of their equity. Our counselors provide a HUD-approved Total Annual Loan Cost analysis (TALC), which expresses the average annual cost of a reverse mortgage at four future dates. The average cost becomes lower the longer the loan is in effect.

A surviving spouse younger than 62 years old automatically keeps the house once their spouse passes away.

A person must be 62 years old or older to qualify for a reverse mortgage. Some couples include one person who is younger than 62 at the time of the reverse mortgage application. In this case, the younger person must be removed from the deed for the older person to receive the reverse mortgage.

The surviving person younger than 62 years old, however, may be allowed to keep the house when their spouse or partner passes away. Once the older person passes away, the reverse mortgage must be paid back. The surviving person has the option to sell the house, refinance the balance with a forward mortgage or, if age 62 or older at the time of the death, refinance the old reverse mortgage with a new reverse mortgage and take advantage of any increase in the home's equity.

Source

Home Equity Loans vs. Reverse Mortgages

2009-07-31T00:16:00.000-07:00

Are you 62 years or older and looking to tap into the equity in your home but are unsure if a reverse mortgage or a home equity loan is the way to go? There are big differences between a reverse mortgage and a home equity loan.

Home equity loans or a home equity line of credit are considered a second mortgage on your home. To qualify for a home equity loan or line of credit, you have to have enough income to pay back the loan on your mortgaged home.

In addition, there are debt to income ratios that banks consider when giving you a home equity loan or home equity line of credit (HELOC). Not to mention, a HELOC is a variable rate line of credit, meaning the interest rate you pay isn’t a set rate and can go up. Home equity loan rates are also a lot higher than mortgage rates these days so you will be paying more interest than with a traditional mortgage.

A reverse mortgage is different from a loan or line of credit. The difference is that a reverse mortgage pays you, the mortgagee. The amount of money you can borrow depends on the equity in your home, your age, the prevailing interest rate, and the appraised value of your home or Federal Housing Administration’s mortgage limits for your area, whichever is less.

You can use a reverse mortgage calculator to see how much you qualify for but the general rule of thumb is the more valuable your home is, the older you are, the lower the interest rate, the more you can borrow.

Reverse mortgages may be a great way to tap into the equity in your home. As long as the home is your principal residence, you don’t have to make payments on the money you receive with a reverse mortgage. Keep in mind that as with a regular mortgage, the loan becomes due in full when you move or sell the house.

Source

Lenihan urged to reverse rate rise

2009-07-30T00:14:00.000-07:00

FINANCE Minister Brian Lenihan was under growing pressure last night to force Permanent TSB to reverse its decision to raise its mortgage interest rate by 0.5 per cent, a move which industry experts believe will almost certainly be followed by other lenders.

As public anger over the rate hike intensified, leading business and political figures called on Mr Lenihan to act swiftly to force Permanent TSB to reverse its decision, and to prevent other institutions supported by the taxpayer to the tune of billions from following its lead.

Leading the charge, aviation tycoon Ulick McEvaddy slammed the move by Permanent TSB. "It's counter-productive isn't it, really? Raising interest rates when the ECB bank in Europe is bringing them down? It's certainly not good for the economy," Mr McEvaddy said.

Asked what the potential fallout would be were Permanent TSB's move to be replicated by other Irish banks, he said: "The more we increase interest rates and the more impediments we have to borrowing, the worse it's going to get in the economy."

He added: "I think the whole idea was that we had to stabilise the banks, but that doesn't mean the banks are allowed to engage in profiteering. The banks should be lending, and lending for the essential requirements of small business."

In a direct challenge to Minister Lenihan, Mr McEvaddy dismissed his contention that he could not intervene to prevent Permanent TSB raising its interest rates.

"That's why he [Mr Lenihan] has a regulator there, you know. I mean this is the same regulator that stood idly by while banks were giving 100 percent mortgages. Now they should be giving 100 percent mortgages while the economy is stagnating. But they made a mess of it all because they allowed 100 percent mortgages when the market was overheated."

Disquiet over Permanent TSB's move to increase its interest rates was growing in Government circles too with Minister of State at the Department of the Taoiseach Dick Roche expressing his "disappointment" at the interest rate hike.

Newly-appointed Minister of State for Enterprise Dara Calleary, meanwhile, described the interest rise as "completely inappropriate".

"Permanent TSB has justified it on the basis of the cost of funds. But I would really question why they are going for such a big hike at a time when people are under so much pressure," said Mr Calleary. "There seems to be a certain disconnect between the upper echelons in the banks and the real world." Mr Calleary added there appeared to be no mechanism to prevent the hike going ahead.

But Fianna Fail TD, and Chairman of the Oireachtas committee on Economic and Regulatory Affairs, Michael Moynihan, called on the minister to act.

"Something has to be done. The banks have been abusing their powers for some time," he said. "I understand the difficulties the minister is facing but he has to look at this very closely. He has to be fair to the taxpayer," Mr Moynihan added.

As fears grew last night that other financial institutions would follow Permanent TSB's lead, Bank of Ireland Chief Executive Richie Boucher pointedly refused to rule such a move out.

Speaking to the Sunday Independent, Mr Boucher said simply: "We are just constantly reviewing all our products and we're not going to comment any further than that."

A spokeswoman for AIB Bank, meanwhile, told the Sunday Independent: "Given the continuing high cost of funding we have to keep the rates under review."

Mr Lenihan has rejected a call from trade union boss Jack O'Connor of Siptu that the Government withdraw its guarantee on bank liabilities for any lender that raises rates.

"The proposal to withdraw the state guarantee from banks that increase their interest rate costs would mean even higher costs for mortgage holders. This illustrates the benefits of the state guarantee to mortgage customers. Permanent TSB are paying the State for the benefit of this guarantee," the minister said.

On a typical mortgage of €300,000, the 0.5 per cent increase will add an additional €70 a month to the borrower's current repayments.

Permanent TSB, a unit of Irish Life Permanent, said that the measure was required to support its business at a difficult time.

Source

How to borrow cash for that $75,000 kitchen you’ve always coveted

2009-07-26T00:47:00.000-07:00

When it comes to financing your renovation, you have several options, some better than others. Your best bet is to sit down with your financial advisor and discuss which suits your individual situation, and how much you can reasonably afford to borrow.

Cash Great if you have it, especially for small projects. But if you have a substantial sum in a high-interest investment account or mutual fund, withdrawing it for a reno may not always be your best option: You should measure the loss in compound interest that the money would have earned in the savings account against the cost of an equivalent loan. In some cases, the loan might actually be cheaper, especially if it's secured.

Personal loan, line of credit Often have flexible repayment terms and fixed or variable interest rates. Loans are fixed for a set number of years with regular payments; PLCs have more flexible terms, allowing you to borrow up to a prearranged limit, paying all or a portion of the balance each month above a minimum (which is usually fairly small).

Secured line of credit, home equity loan Similar to loans and PLCs, but with lower interest rates, since your home is used as security or collateral. This can be an economical source of low-cost funds, but it's really a type of second mortgage, with all the drawbacks that entails - including the possibility of foreclosure if you default.

Mortgage refinancing Refinancing your existing mortgage allows you to spread out the payments over a much longer period of time, usually at a lower rate even than a secured PLC, and gives you access to as much as 80% of your home's appraised value. Costs may include legal and appraisal fees, and sometimes penalties, which you should weigh against the cost of other borrowing options. Another option is to allow extra funds for renovations when you take out a new mortgage, such as when you purchase a new home.

Reverse mortgage Financial advisors generally advise against these mortgages, as they are really nothing more than highly restrictive regular mortgages that you don't make payments on, so interest on them compounds unhindered - to the advantage of the lender. If you wish to borrow against the equity in your home, you're much better off with a new mortgage, home equity loan or secured line of credit.

Source

Michigan Home Equity Loan Rates Turns To Technology

2009-07-26T00:45:00.000-07:00

Detroit, MI – Home owners who are looking for ways to save money will want to take note of this new resource. The Metro Detroit based http://www.getmelowrates.com/ has been established to help Michigan home owners get a lower mortgage during these rough economic times. The new website has launched in July 2009 and covers the following areas: low mortgage rate quotes, auto insurance, home owners insurance, reverse mortgages, and life insurance quote.

The site pulls in quotes from over 2,000 resources and delivers the most compatible ones for the online searcher. Get Me Low Rates.com comes to us at a great time in this rocky market. Last March, the Detroit Free Press announced that the residents of Michigan were leaving in massive numbers. Even though there is a serious population decrease Michigan has several great things going for it such as emerging markets. These include, the rising Film Industry, Alternative Energy and new manufacturing of green products.

Economists are hopeful that there will be a boom in the Michigan economy in the months to come. Those who are already living here in homes will want to take notice of this new online resource. Here they can apply for a second mortgage. For those who qualify, (age 60 or older) can apply for a reverse mortgage and have extra money to spend on essentials such as food, lights, and transportation.

“The site is designed to cover major areas of financial interest,” says Internet marketer Ted Cantu. “The recent need to refinance is something that is on everyone’s mind at the moment. GM and Ford have been in the news and the bailout situation has a lot of folks nervous. This site stands as a resource to Michigan home owners who find that they need to refinance and get a home equity loan. Right now, this is our chief concern. We want to make sure that enough Michigan home owners know about the many programs this state has to offer. Home equity loans can provide emergency funds in the same way that a reverse mortgage can.”

Source

Your money: Pensions, savings bonds, mortgages

2009-07-25T00:44:00.000-07:00

With government playing a bigger role in the economy, it's hard to keep track of all the changes affecting our personal financial lives. The flagging economy has lead to a barrage of questions. Are public sector employee pensions safe? With inflation so low, do savings bonds make sense now? And what about reverse mortgages, are they a smart move now that new rules are in place? AP personal finance writers tackle those questions in this installment of "Your Money." If you have a question you want answered, e-mail it to yourmoney(at)ap.org.

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Q: When a pension goes bankrupt, I know there's a government guarantee on the obligations. How about when a government entity runs out of money, however, as my state and city are starting to do? If they can't fund their obligations, does someone else step in to pick up the check?

A: For public sector workers, there's no pension backstop comparable to the Pension Benefit Guaranty Corp., the federal agency that steps in when private plans can't meet obligations. Public pension sponsors — say, state or city governments — have contractual obligations to keep pensions fully funded.

That may be of little comfort when many local and state governments are stretched thin, such as California, which is struggling to close a $26 billion deficit. However, public pensions have a stellar record. Robert Klausner, a pension law attorney and counsel to the National Conference on Public Employee Retirement Systems, said he's unaware of any public pension failing to meet its obligations since the 1930s. In the case of Orange County, California's bankruptcy in 1994, retirees received full pension benefits throughout the financial crisis, Klausner said.

Public pensions have proved more durable than private plans in part because governments have the flexibility to make up for pension shortfalls by raising taxes — an option corporate pension sponsors lack. Klausner also said independent actuaries review the nation's 2,700 public pension plans to ensure they can meet obligations. In instances when a government failed to contribute enough to keep a pension fund healthy, legal challenges have succeeded in restoring full funding, Klausner said.

— Mark Jewell

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Q: Do savings bonds make more or less sense in an economy like this one, where interest rates and inflation are low? What about when inflation rises?

A: Savings bonds make sense for the investor who doesn't need much cash flow and wants safety. But they're not particularly attractive right now if you're looking to make a savvy investment for the long term.

A Series EE bond purchased between now and the end of October earns just 0.7 percent per year for as long as you hold it. The exception would be if you hold the bond for 20 years, in which case the value is guaranteed to double. In that instance you'd be assured a return of 3.5 percent. But if you're investing for that long a timeframe, you should probably aim higher.

You could also purchase Series I savings bonds, which have some inflation protection. But if you buy one now you'll earn nothing for inflation for as long as you hold the bond, due to the fact the inflation rate is currently below zero. This will be a better investment as inflation rises.

Depending on your time horizon, other alternatives to consider are high-yield savings accounts, CDs or Treasury Inflation Protected Securities (TIPS), advises Greg McBride of bankrate.com.

— Dave Carpenter

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Q: I understand there were some changes in the reverse mortgage program recently. What were they and who do they help?

A: As part of stimulus legislation signed by President Obama in February, the loan limit on reverse mortgages was temporarily raised to $625,500 from $417,000, subject to renewal by Congress at the end of the year. That helps senior homeowners (reverse mortgages are for homeowners age 62 and older) who have homes with higher values.

Under other changes in the past year, reverse mortgages can now be used on a condominium and, for the first time, to purchase a new home.

Eric Bachman, founder of Oakland, Calif.-based Golden Gateway Financial, says the changes make reverse mortgages even more compelling for older Americans interested in downsizing or moving to another location. It also means, he says, that seniors in financial distress or those simply planning ahead can put more of their home equity to work for them because of the higher loan limits.

Some other changes this year aren't perceived as so consumer-friendly.

Fannie Mae, the government-backed mortgage company, made changes in April that allow for higher margins for reverse mortgage lenders. Margins are the interest rate spreads a lender makes on the loan, so higher margins mean higher interest rates. Also, the margin can change from the time a borrower submits an application and the loan is funded, which can be up to 120 days.

— Dave Carpenter

Source

The New “R” Word: Reset

2009-07-24T00:42:00.000-07:00

The New “R” Word: Reset

Over the past 18 months, we have been inundated with bleak tales of economic strife. Inevitably, the media has worn us all thin with their never-ending string of bad news. Yes, we are stuck in the thick of a very painful recession. Unemployment rates are flirting with double digits, fears of inflation are beginning to handcuff the government and their financial actions, political parties are torn and bulls are all but extinct on Wall Street. Instead of sitting on the sidelines and waiting for struggling newspapers to drop good news on our porch, I argue it is time for us to stop fearing our economy. I argue it is time for a reset.

After someone has a disease that is critical, but not terminal, they take a reset of their life and gauge what they have to work with. Although this would classify as more of an emotional reset, the same principle can be applied to our current financial struggles in terms of an economic reset. This is where we are right now, both here in the United States and in many parts of the world. Prices have reset. The sooner we realize this and the sooner we gauge what we have to move forward with, the faster we will regain the confidence our capital needs to move forward.

Our economy will recover, but it will not sporadically jump to pre-recessionary levels. Our core growth will be more conservative. Cheap credit will become a thing of the past. The availability of extreme financial leverage will be nonexistent. Instead of returning to business as usual, we will work to create a new world. One with regulations that help our economy, not inhibit it. We will all return to spending, but accountability will be involved. We will assess what tools we have and what tools we need. At that time, we will be able to help our economy grow responsibly. It is not something to fear, but something to embrace. And there is no time better than now to begin.

Much more on resetting our economy in future Powell Perspectives.

Start Your Own Business, Just Don’t Expect to Buy a House

Unable to find steady employment, many Americans are starting their own businesses out of necessity. Small businesses help create new jobs. Nationally, small businesses comprise half of all private-sector employment and they have created about 70 percent of new jobs each year over the last 10 years. Simply put, entrepreneurs drive our economy. But, when it comes to acquiring a home loan, self-employed business owners might as well be lepers.

The qualifications for obtaining a home loan through the Federal Housing Administration (FHA) require that self-employed borrowers have two years of self-employment experience in the same field. However, if a small-business owner has been self-employed for more than two years, then lenders need to see a consistent increase in the business owner’s earnings. If the borrower has been self-employed for less than two years, then past W-2 information is often considered irrelevant unless they still hold their W-2 job. And, since underwriters rely on tax returns as proof of a borrower’s income, year-to-date income is worthless until it is filed with the IRS. Many times, the self-employed borrower is out of luck, especially when banks are tight with lending.

Banks view the self employed as “risky” because their job security is wobbly and their incomes can vary widely from month to month. Because of this unfavorable view, self-employed persons are forced to explore other non-traditional options to purchase a home. The most-feasible of these options include owner financing and lease-to-own properties.

Looking for a faster sale or attempting to move a property that is otherwise difficult to sell, owners will sometimes offer financing themselves. Owner financing can help keep the banks out of the picture and get self-employed individuals on their way to home ownership more swiftly. While owner financing may offer easier qualification requirements and less paperwork, it is crucial to not get swept away in a sour deal. Having a real-estate attorney help to complete the transaction is crucial and will keep both parties informed about the details of the deal.

Another option for self-employed individuals is to find a lease-to-own property. With a lack of buyers, many condo complexes are offering lease-to-own options on their units. After the renter has agreed on a purchase price with the seller, the renter is allowed to move into the property and make monthly rent payments to the owner. This option allows the renter to build equity every time they pay their monthly rent. At the end of the lease, the renter can apply the funds that have accrued toward the purchase price of the property. Plus, by that time, the self-employed renter has had time to acquire the two years of tax returns needed to acquire a conventional loan.

Patience is often the best tool for someone who is self employed and looking to obtain a home loan. Although they may miss out on timely investment opportunities, a self-employed individual can use their waiting time to explore their home-buying options. This way, they will be well-versed in the home-buying process by the time they meet the requirements set forth by loan underwriters.

The way the system is set up, it makes more sense to be a W-2 employee for a number of years, then purchase a house and then risk it all to start your own business. But, entrepreneurs are a spontaneous and confident bunch. They do not always fit into the confines of structured systems. Therefore, we will continue to allow them to fuel the driving force behind our economy, we just will not help them purchase a place to live.

Mortgage Fraud Burns

Last week, the FBI released its 2008 Mortgage Fraud Report. The aim of the study was to provide insight into mortgage fraud crimes perpetrated during 2008. The Mortgage Fraud Report addressed “current mortgage fraud projections, issues, and the identification of mortgage fraud hot spots.”[i] Not to anyone’s surprise, the report suggested that mortgage fraud continued to be an elevating problem throughout 2008. Practically all of the findings indicated an increase in mortgage-fraud activities.

Although a single, precise instrument to determine mortgage fraud does not exist, there appears to be a positive correlation between mortgage-fraud activity and distressed real-estate markets. Therefore, mortgage fraud thrived in the stumbling housing market of 2008. According to the report, mortgage fraud is defined as “a material misstatement, misrepresentation, or omissions relied upon by an underwriter or lender to fund, purchase, or insure a loan.”[ii] Suspicious-activity reports (SARs), which are one of the government’s main weapons against financial crimes, increased 36 percent to 63,713 during the 2008 fiscal year, up from 46,717 in 2007.

Among the most popular mortgage-fraud scams are deceitful short sales, unnecessary bankruptcy filings, reverse-mortgage schemes and unlawful loan modifications. According to the FBI’s website, mortgage fraud is categorized under two main labels: fraud for profit and fraud for housing. Fraud for housing is typified by a borrower who provides false information in order to qualify for a loan. As long as borrowers are clear and honest throughout the loan acquisition process, they should have no worries of being a victim of fraud for housing. However, the FBI cautions borrowers of deceitful professionals who try to coerce them into reporting false information on their documentation. Even though you may be following the advice of a “professional,” you could still be held accountable for the crime.

The second category of mortgage fraud, fraud for profit, is committed by industry insiders who take advantage of borrowers for their own financial gain. Fraud-for-profit schemes include motives to revolve equity, falsely inflate property values or issue loans based on fictitious properties. Existing investigations suggest that “80 percent of all reported fraud losses involve collaboration or collusion by industry insiders.”[iii]

In order to avoid becoming a victim of a fraud-for-profit scheme, the FBI offers the following tips:

* Choose your mortgage broker/banker carefully

* Arm yourself with basic mortgage knowledge

* If something is too good to be true, it probably is

* Never sign a blank document or a document containing blank lines

* Never sign over the house deed “temporarily” for a fee to anyone

Source

Michigan Low Mortgage Rate Online Hubs Spreads Information

2009-07-23T00:39:00.000-07:00

Detroit, Michigan – Home owners can breathe a sigh of relief thanks to some new online tools to help them locate lower mortgage rates. There are three new up to the minute online news hubs that deliver some real value to Michigan home owners. Now they can keep up with the latest news from Oakland county when it comes to refinancing their homes, getting a new mortgage quote, reverse mortgage questions, and even how to save on auto insurance.

The online news hubs were the creation of Ted Cantu, (I Cantu Media LTD) and is an extension of the popular Michigan based mortgage website, http://www.getmelowrates.com/. These sites feature videos from the Bloomberg network, CNN, and news items from popular blogs and promotional clips from Get Me Low Rates. The network hub is something that Cantu and Co. have been doing for a while. The magic ingredient is working with a strong level of RSS feeds.

“Living in Michigan during these changing times has been challenging to say the least. These tools are designed to make the online user more comfortable. They deliver some incredible resources that may otherwise go somewhat unnoticed.” says online innovator, Ted Cantu.

Michigan home owners can now access straight forward information on how to work with property lenders, bank institutions and mortgage specialists. They will have access to up to the minute news on getting low mortgage rates in Michigan.

“The beautiful thing about working with this technology is that these hubs will change information on a daily basis. We suggest that the user bookmarks them in their web browser. Fresh news gets pumped in daily keeping the reader clued in on what’s happening around them. It is a great way to understand the economic climate of Michigan.”

You can access the three hubs here:
http://hubpages.com/hub/Michigan-Low-Mortgage-Rates

http://www.squidoo.com/low_equity_home_loans_michigan

“We will be adding more of these Michigan mortgage hubs over the next 2 weeks. Eventually our goal is to create an online resource library for online searchers. This is a very innovative project and it is designed to help many Metro Detroiters” adds Cantu.

For additional information regarding Get Me Low Rates and Ted Cantu you can contact them at 248.631.9211. You can also visit their website at http://www.hotmetrofinds.com.

Source

Look and learn

2009-07-19T23:35:00.000-07:00

Everybody says you should “shop around” for a mortgage loan, but here’s my problem: What the heck are they? I like to visualize the stuff I’m going to buy and when I try to visualize the acquisition of a mortgage the only image that comes to mind is a guy stooping over while an enormous weight is loaded onto his shoulders. I don’t see a house. I don’t see a fence or a rose garden or a coffee pot or a grandfather clock. I just see a guy shouldering a massive burden in tenuous times, and why would I want to shop for something like that?

But I have to admit that, for me, the burden really isn’t the mortgage loan; the burden is my relative ignorance about mortgage loans. And ignorance, in my experience, is not bliss. Rather, it’s the well-seeded breeding ground for anxiety and defeat. So I told myself that this week I should seek the opposite of ignorance (which I guess is enlightenment) and instead of feeling anxious and defeated, I would feel the opposite: confident and triumphant. And it kind of worked.

I started my journey toward enlightenment by typing these words into my Google bar: “What is a mortgage?” And you can’t believe the response I got. I stared at my computer screen as the resources rolled in. It was like peering into a whirling galaxy of information. I tried not to panic, took a deep breath and entered a Web site about terminology, seeking a simple definition.

Here’s where things get a little tricky. To begin with, the word mortgage is both a noun and a verb. A mortgage is “a conditional conveyance of property as security for the repayment of a loan,” according to the Princeton Web site, wordnet.com. It’s also, according to the same source, something “to put up as security or collateral.” None of these words made a lot of sense to me the way they’re strung together by the Princetonians, so I poked around for a more rudimentary definition. One dictionary described a mortgage as a “type of loan used to secure property.” I could live with that.

Unfortunately Google also offered me about 20 related phrases to research, all of which had the word mortgage in them. Like adjustable-rate mortgage, fixed-rate mortgage, reverse mortgage, wraparound mortgage, mortgage liens, mortgage insurance…And I could look up these terms, not only in English, but in Chinese, Spanish, German, French, Italian, Russian or ALL LANGUAGES. Can you imagine the cacophony of that last one? I didn’t click on that because I thought my computer might explode. I also didn’t click on “Jumbo Mortgage,” because that just sounds like a death wish. I’d prefer a teeny-tiny-baby mortgage actually.

I did want to know more about “mortgage rates.” That’s a good one — everybody’s always asking about “mortgage rates.” That particular term refers to the interest rate that you pay on the money that you’re borrowing. As of the July Fourth weekend, California interest rates for a home mortgage were hovering around 5.31 percent on a 30-year, fixed-rate loan.

Speaking of our nation’s birthday, I have to say that government Web sites about home loans are remarkably lame. Here’s a typical entry from the Federal Reserve Board’s Web site: “You’ve been looking at houses for months and months, and you have finally found it — the house that’s just right! Now, you’re anxious to buy your new home, move in, and get settled. But you still have an important task ahead of you — getting a mortgage loan.”

Independent sites are better — even the really generic ones, like About.com, and the really huge real estate sites, like Zillow.com and Trulia.com. The best resources, though, are local and personal. By personal I mean breathing, as in on the phone or sitting across from you, or driving you around town to look at houses. Most real estate agents can recommend reliable, real-life lenders and brokers who can explain the local particulars of the real estate market. You should shop among these lenders (banks and private companies mostly) for a mortgage and for knowledge. Maybe it’s not as easy as shopping for shoes at Macy’s, but the more you look the more you learn.

Source

GERRY KRAMER: Reverse mortgages have appeal for seniors

2009-07-18T23:34:00.000-07:00

Depressed home prices, low mortgage interest rates and an $8,000 tax credit for new home purchases have done little to spur the housing market. The glut of homes for sale, stricter terms to qualify for a mortgage and a cautious attitude toward committing to higher expenses in a continuing recession have acted as offsets to the incentives. Yet one area of strength in the mortgage market is that for reverse mortgages. Because there is a minimum age requirement of 62 to qualify for this product, its appeal is only to seniors.

A reverse mortgage simply allows the owner of an existing home that has equity (value above what is owed on any existing mortgage) to borrow against that value. This is not an equity line of credit. That product is in short supply these days, down some 70 percent from last year. In a reverse mortgage, the lender takes “effective” ownership of the home so that when the owner dies or sells the house the loan is automatically repaid from the proceeds of the sale. For this, the owner gets cash up front or a line of credit.

For example, suppose a home has no mortgage on it and is worth $200,000. A reverse mortgage can provide the home owner with up to $160,000 in cash or credit line.. This represents 80 percent of the equity value, generally the limit banks will accept. The actual amount provided will be less, however, because of interest charges over the loan’s life added to the principal amount owed so that the total continues below the 80 percent upper limit.

But that’s not all. The lender will charge a fee for the reverse mortgage in addition to interest. Fees can run as much as 10 percent of the home’s value, reducing further the actual amount of cash or line of credit. Also, falling home prices can make the home value appraisal difficult.

Still, a reverse mortgage can make sense for the retired individual with little or no savings other than the value of the home, especially in a market where selling to maximize cash value is a slow process. Just make sure all the costs, fees and obligations are understood.

Source

The Pros and Cons of Reverse Mortgages

2009-07-17T23:33:00.000-07:00

While the recession hasn't spared any age group, it's been particularly brutal for older Americans who were counting on their (now shrunken) nest eggs to last through their retirement years. To supplement their stash, an increasing number of seniors are turning to reverse mortgages, which function essentially as a cash advance on their home equity, repaid only when they sell their home or die. The loans are available to those 62 and over, and lenders have to eat the difference if a home ends up declining in value. In the three months after February--when a provision in the economic-stimulus package raised the eligible home-value limit from $417,000 to $625,500--the number of federally insured reverse-mortgage originations jumped 10% compared with the same period last year. Industry experts predict that reverse mortgages will play an increasingly important role in the coming years as some 70 million baby boomers hit their 60s--often with a lot less saved than they'd hoped.

This has some folks in Washington concerned. In June, the Government Accountability Office said it had uncovered misleading marketing practices in the reverse-mortgage industry, and Missouri Senator Claire McCaskill, a longtime consumer advocate, chaired a hearing to investigate predatory lending tactics. A big no-no is cross-selling, e.g., trying to persuade a senior to get a reverse mortgage and use the funds to buy an annuity or other financial product.

Comptroller of the Currency John Dugan recently noted that reverse mortgages, like some flavors of the infamous subprime mortgages, are too complex for many seniors to understand. "Millions of older Americans still have a lot of equity in their homes, and it's tempting for them to tap into this pot of money," he says.

Still, under the right conditions, these loans can be a sensible solution to a tough financial situation. So if you or your parents are considering one, here's what you need to know:

The amount you can borrow is based on interest rates, your age and the value of your home. (Use the calculator at rmaarp.com for an estimate.) There are no credit or income requirements to get a reverse mortgage, but you must be able to keep up with property taxes and insurance bills--or you could lose your home. The up-front costs are high. Generally, $10,000 to $15,000 in fees are lopped off the amount you can borrow. Finally, if someone is pressuring you to take one of these loans in order to buy something else, that's a huge red flag. Walk away.

Lenders aren't allowed to close on a federally insured reverse mortgage until borrowers meet with a HUD-approved counselor, who is required to help them explore alternatives such as selling their home or lowering their expenses. That's because the greatest reverse-mortgage risk, especially for younger borrowers, may be that they will live longer than they expected and drain all the available equity from their home. Says reverse-mortgage specialist Bronwyn Belling: "If you borrow the money now, you may not have it when you need it later on."

Source

Making Cents: Reverse mortgages gain favor

2009-07-16T23:26:00.000-07:00

Once considered a desperate move by cash-strapped retirees, reverse mortgages are entering the mainstream as a tool for retirement income planning. These types of loans are highly regulated, and each customer must attend a counseling session from a HUD-approved agency.

Unlike a traditional mortgage, there are no income, credit or employment requirements to qualify for a reverse mortgage. To qualify, borrowers must be at least 62 and own and live in the home as their principal residence. The owner must own the home without a current mortgage or have a current loan with a balance that is less than 65 percent of the home's value.

Congress just raised the limits on reverse mortgages to $625,500, up from $417,000. The actual amount that you may receive is based on your age, the value of the home and the current interest rate environment.

Proceeds from the reverse mortgage can be received as a lump sum, equal monthly payments for a specified time period, or as a line of credit to draw down whenever you want.

The proceeds are received income-tax-free and do not count as income for Social Security qualification or taxation purposes. Even if you take a lump sum, there are never any payments to make on the loan.

The borrower retains both title and control of the property as long as it remains as your primary residence, the taxes and bills are paid and the home is maintained to Federal Housing Authority standards. For couples, at least one of the married couple must remain in the home. Any remaining home equity is available for the owners or their heirs.

These loans can be used to eradicate existing mortgage payments, to pay for needed home repairs, pay down credit card or other high-rate revolving debt or to supplement daily living or health care expenses. With many a retirement portfolio devastated in the market collapse of the past year and the current very low interest rates available on savings, this method of improving retirement cash flow is beginning to pick up steam.

The downsides to a reverse mortgage include fees. Fees for a reverse mortgage are considerably higher than those for a traditional loan. Another potential downside comes to those who take their proceeds up front. These borrowers may subject the newly borrowed cash to investment risk or otherwise earn less in interest than the cost of the loan. Also, having that large cash balance on hand may affect eligibility for other forms of aid, such as Medicaid.

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Reverse Mortgages - Think Carefully

2009-07-12T23:53:00.000-07:00

The family home remains the single most important asset for many of our over-55s. The problem is that our homes lock up large amounts of capital, money that would be very handy in retirement. Reverse mortgages let seniors unlock this home equity without the need to sell up or move out of a much-loved property though the extra cash can come with a mounting interest bill.

The idea behind reverse mortgages is that older homeowners can cash out part of their home's value, with the funds received either as a lump sum, a series of cash payments or a combination of both. The money can be spent however the homeowner chooses be it to buy a new car, take a holiday or simply meet living expenses.

Not all lenders offer reverse mortgages. Among the list of current providers are St George and BankSA, the Commonwealth Bank, Newcastle Permanent and Suncorp. Interest rates vary widely and do tend to be higher than for standard home loans. At present you can expect to pay anywhere between 6.4% and 9.5% depending on the lender and loan.

A strong point of appeal with reverse mortgages is that no repayments are required until you sell the property or die. However interest is charged from day one so it doesn't take very long for the overall debt to escalate, potentially outpacing the increase in your home's value.

To see just how quickly the debt can snowball, let's say that a retiree aged 65 takes out a reverse mortgage, receiving an initial lump sum of $50,000 at the start of the loan, with a further $500 per month paid for the first five years. By the time the homeowner is in his or her mid-80s, the debt plus interest will have grown to $400,000.

The mounting debt may alarm our hypothetical retiree's family members, who are likely to be left a smaller estate. But it should also be a concern to our homeowner.

That's because around 50% of both men and women currently aged 65 have a 50 per cent chance of living to their mid-80s. So if our senior has depleted $400,000 in home equity by this stage, what will he or she live on for their remaining years? It's a serious issue if nursing home accommodation is required at a later stage as this can bring significant funding costs.

To help seniors understand exactly how a reverse mortgages works, investment regulator ASIC has produced the booklet "Thinking of using the equity in your home?" It's a comprehensive guide for seniors, with some input from yours truly. Download a copy from ASIC's consumer website FIDO (www.fido.gov.au) or ASIC on 1300 300 630.

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Buying an investment property? Some loan tips…

2009-07-11T23:52:00.000-07:00

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Ken from Newport asks:
Q. I currently rent in Orange County, and do not plan to buy here in the immediate future, because I believe prices in the areas I am considering are likely to continue to fall. However, I am considering buying investment property out of the area. My question is if I buy one or two properties as investments (taking mortgages), how will that impact my ability to borrow to buy my primary residence down the road? I understand that having multiple mortgages can negatively impact one’s ability to borrow for an additional property. Also, would that eventual O.C. purchase still get the benefit (lower rates, down payment requirements) of a primary residence, or would the rentals prevent that?

A. I am glad that you are seeing opportunity in the investment side and yours are good questions. You will not be penalized for having investment property. You will get a good rate with no change in down payment requirement.

But the lender will factor in the financial effect of those properties. Here’s how our industry looks at it. We use a formula to calculate the impact of the property on you.

Take the rental income, say $1,000 per month, and multiply by .75 to account for vacancy, management, and repairs. You get $750. From that deduct the mortgage payment and the monthly property tax and insurance. If that total is $700, you made a $50 per month profit and it is added to your income. If the total expenses are $950, you are losing $200 per month and that is treated as a permanent obligation, just like a $200 car payment, and added to your debt for qualifying purposes. When you get loans on your investment properties, run the numbers and then pretend you are buying a home here also to assess the impact.

Note also that non-owner occupied loans are the same rate as owner-occupied but they carry a 1.5-point add-on to the fee up to 75% loan-to-value, and a 3-point add on from 75% to 80% LTV. So plan on putting 25% down. Good luck.

Ben in Costa Mesa asks:
Q. I am 85 years old. My spouse is 80. Our home is paid for and I am thinking of obtaining a reverse mortgage for the maximum allowed, which I believe is $300,000? My home currently is probably appraised at $800,000 (was around $1,100,000 last year). I want to do some remodeling, maybe help two of our children buy a home in this down market and have a little fun with a few extra bucks in our pocket. Any reason not to get a reverse mortgage? What should I look out for?

A. First, congratulations on making it to 85. It sounds as if you are a good candidate for a reverse mortgage. The only thing to note is that they are expensive, especially with up-front fees. There is a lot of information about these products at www.reverse.org. AARP’s Web site also has a lot of information on reverse mortgages.

Finally, reverse mortgages are available through specialized channels, not like regular loans. I hope you find a lot of things to have fun doing with the extra bucks. You’ve earned it.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.

Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.

Source

Seniors seek relief in home equity

2009-07-10T23:51:00.000-07:00

SALISBURY -- More than 70 million people in the United States turn 62 over the next five years -- a market of baby boomers becoming eligible for a housing loan program that puts instant cash in the hands of elderly homeowners who borrow against the equity in their home, and don't have to repay the loan right away.

The reverse mortgage program has been around for years, but the recession and flood of boomers are drawing new attention among cautious regulators who worry borrowers could get in over their heads and aging homeowners jump at the chance for money they can delay repayment.

The federally guaranteed home equity conversion mortgage, or HECM, requires no credit score or income level, extending an opportunity for a reverse mortgage line of credit to aging borrowers who wouldn't qualify for a home equity loan, says Chuck Morse, a reverse mortgage consultant at MetLife. The borrower doesn't repay the loan as long as they live in and maintains the home.

A relatively new federal guideline that allows qualifying borrowers to use reverse mortgages toward the purchase of a principal home -- an option known as reverse purchase -- also spawns new interest, Morse said.

Rules are complicated, and sometimes incomprehensible, especially for the elderly, regulators say. By 2008, the program had grown more than 14 times in seven years, to 112,148 loans endorsed by the Federal Housing Association, from 7,757 in 2001.

"It's not just for people who are desperate; it's for people who want to make a good business decision," Morse said. "The baby boomer generation is starting to come of the age to qualify. They're like a pig going down a snake's belly; they're coming down the forefront now."

Counseling is available to educate and protect borrowers, and required for borrowers who take loans on their home equity in a lump sum, he also said. Among expert counseling services on the Eastern Shore are Neighborhood Housing Services and MAC Inc., both in Salisbury.
More money

MetLife and Bank of America are among industry leaders with reverse mortgages, said Morse, who says he also educated clients on the cash-for-equity program at Bank of America. "You don't sell reverse mortgages; rather, you educate people on the product," Morse said.

The federal stimulus package adds funds that raise the maximum claim amount, which sets the maximum reverse mortgage loan on home values in a region. In Wicomico County, for instance, the maximum claim amount for a home was about $250,000.

With stimulus money fueling the pot, it's now up to $625,500 in the county and nationwide -- theoretically giving a homeowner has more equity to borrow more. "On the Eastern Shore, (the maximum claim amount) has more than doubled," Morse observes.

According to HousingWire.com, a special senate committee on aging heard testimony last week on the benefits and drawbacks of reverse mortgage products available to seniors.

In Kansas City last week, Missouri Sen. Claire McCaskill expressed concern about fees associated with reverse mortgages, saying they can be excessive, reported the Kansas City Star. She also said that agents for lending companies marketing the products could be overly aggressive.

Mathew Scire, director of the Government Accountability Office's financial markets and community investment team, has testified that reverse mortgages are complex and costly for vulnerable market of homeowners. He points to literature presented by a company on reverse mortgages, calling a phrase that promises a "lifetime income" potentially misleading.

According to the Reverse Mortgage Lenders Association, the cost for required counseling is estimated at between $16 million and $18 million this year, although Congress allocated $8 million. Underfunding could mean a shortage in the number of counselors as the number of borrowers grows, according to association president, Peter Bell.
Heirs

He added, though, that a poll of state's attorneys, bank regulators and the Federal Trade Commission found few complaints, and that safeguards are in place to prevent fraud.

The beauty of the program is that borrowers don't have to repay the loan as long as they live in the home and pay property taxes and maintain upkeep, said Morse, who lives in Easton. "If the borrower moves to nursing home permanently, the note's due," he said.

Oftentimes, children of homeowners are upset to learn their parent borrowed on the equity of a home, Morse said. "The money has to be paid back at the end," he said. "Then the children get upset; they see their parents spending their inheritance."

Morse said while closing costs on a reverse mortgage "are fairly expensive," the program could be a good fit for some. Maximum loans typically equal about two-thirds of a home's equity, Morse said. Both fixed and variable rates are available on loans that are formulated by the age of the borrower and property value, he said.

"The key is to help seniors to age in place," Morse said.

Source

Reverse mortgage can help seniors buy new home

2009-07-09T23:47:00.000-07:00

Americans have learned a tough lesson: Your home is not your piggy bank. However, there is a reward for those who did build equity in their homes: In their senior years, their home can provide a monthly stream of tax-free income, or a lump sum of cash to spend as they wish, while remaining safely in their home. Or it can provide a source of financing for a new, smaller home.

It's all done through a reverse mortgage.

For many seniors, a reverse mortgage is the answer to a prayer. It allows you to withdraw money from your home equity, tax free, with no requirement that it be repaid until you die or move out of the home. There is no way you can be forced out of your home as long as you keep paying your property taxes and insurance and maintain the property.

What you need to know about reverse mortgage for buyers, sellers
• Reverse mortgages are mostly viewed as a way to allow seniors to stay in the homes they love but can no longer afford. That monthly reverse-mortgage check can make all the difference when it comes to covering costs. But a reverse mortgage can also help seniors buy a new home.

• These days, many seniors are having trouble selling their current home and downsizing to a smaller home. And others, just entering retirement, are having difficulty financing the purchase of a new home, since they no longer have an income and don't want to put all of their savings into the purchase.

Here's where a reverse mortgage can help both buyers and sellers.

• Just go to www.Reverse Mortgage.org and use the calculator there to see the dollar amount of reverse mortgage you would qualify for, based on your age.

• For example, a 65-year-old could likely get about $240,000 on a reverse mortgage on a $500,000 home. That means a senior who wants to buy your existing $500,000 house needs to come up with only $260,000.

• The reverse mortgage would provide roughly $240,000 of the purchase price, with no monthly payments required. Now your old, larger home becomes more salable to someone with cash from the sale of an existing home.

• And once your home is sold, you can take part of the $500,000 sale proceeds, and use it -- along with some of your cash and your own reverse mortgage -- to buy your next, smaller retirement home. So, if you're age 75, and want to purchase a $350,000 condo, you could likely get a $230,000 reverse mortgage on that smaller condo. That means you'll have to put down only $120,000 in cash on your new condo, and you can put the remaining $380,000 from your home sale in the bank (or several banks).

Using a reverse mortgage to buy a home opens an entirely new dimension to this fascinating product.

Source

Fox: Re-evaluate your home and its place in your retirement

2009-07-03T23:50:00.000-07:00

During the early part of this decade, Americans used their home equity in ways that went largely unexplored by previous generations. As real estate values soared, so did the ability to tap a home’s value to pay for college educations, cars, furniture and even things like vacations and cell phones. No longer was a house primarily a home; rather, many saw their houses as ATMs.

That view, and how a home’s value should play into one’s retirement plans, has changed again with the painful retribution delivered by the housing meltdown.

The recessionary environment has forced those who included their home values in their retirement calculations to re-evaluate their position. Below are two options to help investors whose retirement consists largely of their home’s equity enter their retirement years with peace of mind and increased investment security.

The first logical choice for any investor is to downsize. Downsizing offers the financial benefit of having a lower monthly mortgage payment, resulting in increased cash flow, reduced maintenance costs and lower utility bills. Downsizing could also lower your real estate taxes due to a lower estimation on a smaller home. Also, be sure to evaluate the effect of a new home versus an older one due to a potentially much lower tax base under Proposition 13.

For those investors who have paid off their current homes, one of the largest benefits of downsizing stems from the possibility of purchasing new homes for below their value in the current market and having the ability to wait out the market and sell their current homes when prices are back up.

Homeowners also can consider a reverse mortgage. On a typical mortgage, an investor makes payments to a lender; however, in the case of a reverse mortgage, the lender makes payments to the homeowners. These payments do not have to be paid back while the owners live in the home.

The best aspects of a reverse mortgage are that they are not taxable, do not affect Social Security or Medicare benefits, have no income restrictions and the homeowner retains the title of the home and does not have to make monthly repayments. Before taking on a reverse mortgage, investors should be sure to research specific loan requirements, interest rates and monthly payments versus the amount of cash flow they actually need.

For the majority of investors looking for answers on how to best use their home equity in retirement, the above tips can be a great starting point. Investors must remember that before making any large purchase or loan decisions, they need to do research and consult with a financial expert to decide which options work best for their specific situation.

Source

2009 Reverse Mortgage Changes

2009-07-02T23:49:00.000-07:00

Fort Worth, TX - June 26, 2009 - (RealEstateRama) — It is important for you as a potential reverse mortgage participant or as a current reverse mortgage customer to stay abreast of the changes happening in this particular industry. The changes in 2009 for the Home Equity Conversion Mortgage (HECM) or reverse mortgage program have been the most since its inception more than 20 years ago. The new changes of the reverse mortgage program has proven to be of value to mature Americans, like you, who are over the age of 62 and want to remain in their home while using its equity to supplement their income.

The pertinent changes to the reverse mortgage program include:

* New program offerings. There have been two new programs within the reverse mortgage structure, which includes fixed interest reverse mortgage rates and HECM for Purchase. If you prefer a fixed interest rate reverse mortgage you should understand there are no flexible payment options. You are only allowed to receive a lump sum payment at closing. The fixed interest rate reverse mortgage program does, however, give you a peace of mind when preparing for estate planning. The HECM for Purchase program allows you to purchase a new home. Unfortunately, this program has some clarifications which need to be cleared before all states, like Texas, adopt and mandate this program.

* Payment flexibility. With an adjustable interest rate reverse mortgage you are allowed to have your choice of different payment forms. Remember the purpose of the reverse mortgage program is to allow you to use the equity in your home to supplement your income so you design your payment options. You can chose from a time limit or tenured monthly payment option; a lump sum payment; an equitable line of credit or a combination of all three payment types. The choice is yours as well is the right to do with the money as you please. It is important to note that a fixed interest rate reverse mortgage only has a lump sum payment option.

* Increased loan limits. President Obama increased your ability to draw more equity from your home by increasing the reverse mortgage loan limit to $625,500 until the end of 2009. Again this gives you more equity to draw on which is favorable in a housing market which is failing. The previous limit was $417,000 and may return in 2010

* Protection you desire. Now your rights and property are protected by the new code of ethics and enforcements issued by HUD and FHA. These measures are to ensure the elimination of non HUD approved lenders who have participated in the origination of HECM products. These new measures also ensure your full understanding of the reverse mortgage programs by requiring you to participate in a counseling session with a HUD approved counselor.

* Rising margins and CMT eliminated. If you are familiar with rising margins in the mortgage industry then you understand that the margins are the points (for fee collection) a lender can receive for any given loan. In the reverse mortgage industry the fee increase was based upon the CMT index which significantly increases margins and interest rates and made receiving a reverse mortgage unbearable for some borrowers. Fannie Mae has eliminated the use of the CMT and based the rising margins on the Libor, London’s interest rate index. This change is to spark interest from outside investors in reverse mortgages.

Staying informed is not an option when your future and well-being are at stake. The changes to the reverse mortgage could negatively or positively impact your decision to participate in the program. Whatever choice you make you must understand the program fully.

A thirteen-year veteran of the mortgage industry, Robert Griffin specializes in reverse mortgages and has earned the accolade of No. 1 reverse mortgage broker in the Southwest for three years in a row. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, Texas, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). Robert Griffin is also co-author of “62 Senior Moments.” If you would like an information packet or would like to set up an appointment with one of our Reverse Mortgage Specialists, Please call (866) 683-3690 or complete our online Reverse Mortgage Information

Source

McCaskill holds hearing in St. Louis suburb on reverse mortgages

2009-07-01T23:44:00.000-07:00

UNIVERSITY CITY, Mo. | Reverse mortgages, increasingly used by seniors to help fund retirement or pay unexpected medical bills, are often accompanied by excessive fees and marketed using overly aggressive tactics, Sen. Claire McCaskill said Monday.

The Missouri Democrat hosted a Senate field hearing at a senior center in suburban St. Louis to address concerns about the fast-growing reverse mortgage industry. The mortgages, which are loans available to those age 62 or older that convert home equity into cash, have exploded in popularity in the past decade — the Federal Housing Association endorsed 112,148 reverse mortgages in fiscal year 2008, up from 7,757 in 2001.

Mathew Scire, director of the Government Accountability Office’s Financial Markets and Community Investment team, testified that reverse mortgages are complex and costly for the vulnerable population they serve. McCaskill agreed.

“You may borrow $100,000 and 10 years later owe $200,000,” she said.

The GAO’s review of marketing material for reverse mortgages found examples of potentially misleading claims, Scire said. Some promise “lifetime income,” which Scire said isn’t always guaranteed.

A reverse mortgage allows elderly homeowners to convert equity in their homes into cash. It differs from a home equity loan or a second mortgage because the borrowers don’t have to repay the loans as long as they continue to live in and maintain the home. Most reverse mortgages are insured through the Federal Housing Administration’s Home Equity Conversion Mortgage program.

In fact, because the loans are federally guaranteed, reverse mortgages are costing taxpayers millions of dollars, McCaskill said.

In its fiscal 2010 budget request, the Department of Housing and Urban Development sought $798 million to cover potential losses from declining value of homes using reverse mortgages.

Peter Bell, president of the National Reverse Mortgage Lenders Association, told McCaskill his agency has polled state attorneys general offices, bank regulators and the Federal Trade Commission and found very few complaints about reverse mortgages.

Bell said strong safeguards are in place to ensure against fraud, including mandatory counseling for anyone considering a loan.

“I don’t think you could come up with any business in America in which every potential customer is referred to an independent third-party specialist, a counselor at a HUD-approved agency, to review the transaction under consideration and its implications before a decision is made to proceed,” Bell said.

But Scire said GAO investigators posed as potential customers at 15 counseling sessions and found none of the counselors covered all of the topics required by HUD.

Scammers also are taking advantage of reverse mortgages, said Anthony Medici, special agent in charge of HUD’s Criminal Investigation Division. In some cases, unauthorized individuals — relatives, even neighbors — keep payments after the homeowner dies or permanently leaves a residence. Another concern involves financial professionals convincing seniors to invest proceeds into some other financial product they may not be able to access for years, perhaps until after their life expectancy.

Source

More seniors turning to reverse mortgages

2009-06-27T02:31:00.000-07:00

When Judy Kralik and her husband, Andrew, downsized and moved to Valparaiso in 2005, she thought life would be easier.

But when her husband of 47 years died from esophageal cancer less than a year later, things got tough: her income did not comfortably cover her mortgage and other living expenses.

"Our income just really went down, and I was on Social Security," Kralik said.

Kralik, 69, turned to a reverse mortgage to get the extra money she needed. She now receives a check each month for about $435 that will continue for the rest of her life.

Like Kralik, more seniors are using reverse mortgages to tap into their home equity and pay off debt. Reverse mortgages allow the borrower to receive income in monthly installments, a lump-sum payment or a line of credit from which the borrower can make periodic withdrawals.

The loan becomes due only when the property is sold or the youngest borrower on the mortgage dies, and the house is used as collateral for the government-insured loan and interest.

Mortgage brokers such as Bob Allen say reverse mortgages have become part of a "normal retirement plan."

"The reasons people take them out are as varied as people's lives," said Allen, who also has a reverse mortgage.

Statewide, the number of reverse mortgages rose 20 percent from 669 in 2008 to 803 this year. And nationally, reverse mortgages -- known as Home Equity Conversion Mortgages -- jumped 5 percent from 73,875 to 77,908 during the same period.

When Allen saw his 401(k) plummeting, he knew something had to be done. Upon retiring at 65, Allen and his wife, Zeta, got a reverse mortgage on their five-bedroom Hobart home and are now receiving $518 a month to supplement their retirement income.

Loan amounts are largely based on the borrower's age, home value and current interest rates, and the home must be the primary residence. There are no income requirements, and Congress increased the maximum home value that is considered from $417,000 to $625,500, making reverse mortgages available to more homeowners.

Source

Bankrate: Mortgage Rates Reverse Course

2009-06-26T02:30:00.000-07:00

NEW YORK, June 18, 2009 /PRNewswire-FirstCall via COMTEX/ -- Mortgage rates pulled back sharply this week, with the average 30-year fixed mortgage rate falling to 5.76 percent. According to Bankrate.com's weekly national survey, the average 30-year fixed mortgage has an average of 0.43 discount and origination points.

The average 15-year fixed rate mortgage sank to 5.19 percent, while the average jumbo 30-year fixed rate inched higher to 6.97 percent. Adjustable rate mortgages were mixed, with the average 3-year ARM rising to 5.38 percent and the 5-year ARM dropping to 5.37 percent.

Mortgage rates retreated after a hefty run-up that had 30-year fixed mortgage rates flirting with the 6 percent mark. The concerns about eventual inflation that drove bond yields and mortgage rates higher have been tempered by the reality of continued weakness in the economy. Given the long road ahead economically, investors saw value in fixed income instruments like government bonds and mortgage-backed debt after rates had spiked upward. This helped bring mortgage rates back down and re-open the door to refinancing for homeowners that thought it had closed just a couple weeks ago. Mortgage rates are closely related to yields on long-term government debt.

Mortgage rates, though higher than in recent months, are significantly lower than one year ago. This time last year, the average 30-year fixed mortgage rate was 6.62 percent, meaning a $200,000 loan would have carried a monthly payment of $1,279.96. With the average rate now 5.76 percent, the monthly payment for the same size loan would be $1,168.42, a savings of $111 per month for a homeowner refinancing now.

SURVEY RESULTS

30-year fixed: 5.76% -- down from 5.95% last week (avg. points: 0.43)

15-year fixed: 5.19% -- down from 5.37% last week (avg. points: 0.37)

5/1 ARM: 5.37% -- down from 5.49% last week (avg. points: 0.4)

Bankrate's national weekly mortgage survey is conducted each Wednesday from data provided by the top 10 banks and thrifts in the top 10 markets.

For a full analysis of this week's move in mortgage rates, go to http://www.bankrate.com/mortgagerates

The survey is complemented by Bankrate's weekly forward-looking Rate Trend Index, in which a panel of mortgage experts predicts which way the rates are headed over the next 30 to 45 days. The consensus this week, according to 53 percent of the panelists, is that rates will continue to decline. Only 20 percent expect a rebound in rates and 27 percent expect mortgage rates to remain more or less unchanged over the next 30 to 45 days.

For the full mortgage Rate Trend Index, go to http://www.bankrate.com/RTI

About Bankrate, Inc.

The Bankrate network of companies includes Bankrate.com, Interest.com, Mortgage-calc.com, Nationwide Card Services, Savingforcollege.com, Fee Disclosure, InsureMe, CreditCardGuide.com and Bankaholic.com. Each of these businesses helps consumers make informed decisions about their personal finance matters. The company's flagship brand, Bankrate.com is a destination site of personal finance channels, including banking, investing, taxes, debt management and college finance. Bankrate.com is the leading aggregator of rates and other information on more than 300 financial products, including mortgages, credit cards, new and used auto loans, money market accounts and CDs, checking and ATM fees, home equity loans and online banking fees. Bankrate.com reviews more than 4,800 financial institutions in 575 markets in 50 states. In 2008, Bankrate.com had nearly 72 million unique visitors. Bankrate.com provides financial applications and information to a network of more than 75 partners, including Yahoo! (Nasdaq: YHOO - News), America Online (NYSE: TWX - News), The Wall Street Journal and The New York Times (NYSE: NYT - News). Bankrate.com's information is also distributed through more than 500 newspapers.

Source

FNMA Stops T-bill Reverse Mortgages

2009-06-25T02:29:00.000-07:00

The FNMA has announced that they will no longer offer the purchase of the constant maturity Treasury (CMT-indexed) Home Equity Conversion Mortgage in order to help standardize Reverse Mortgage rates and simplify the variety of products. The move is also intended to build liquidity for the product, and encourage the market to shift toward securitization.

They made their announcement on June 1, 2009, stating that they would discontinue the purchase of the CMT-indexed Home Equity Conversion Mortgage. The change will not become effective until September 1, 2009. Fannie Mae will continue to offer the purchase of monthly adjustable-rate LIBOR-indexes and fixed-rate HECMs. Lenders may still obtain pricing and continue to commit CMT-indexed reverse mortgages until August 31, 2009.

The margins on the Treasury-based CMT have been rising faster over the past year than the LIBOR, thus the CMT recently has not been as popular due to decreased returns and higher fees.

Fannie Mae's recent pricing changes for HECMs had caused lenders to raise margins to a point where the CMT-based loans were becoming obsolete. Based on HECM lending formulas, borrowers have been receiving greater proceeds with London Interbank Offered Rate (LIBOR) indexed loans lately, and more are also locking in low fixed rates.

Currently, the indices available for adjustable-rate Home Equity Conversion Mortgages (HECM) sold to Fannie Mae include the (LIBOR) index and the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year (CMT) index. Reverse Mortgages indexed to CMT are available with monthly and annual interest rate adjustment options. LIBOR-indexes are available only with a monthly interest rate adjustment option.

There is no specific deadline for delivering CMT-indexes to Fannie Mae. Lenders may deliver CMT-indexed HECMs up to the expiration dates of their remaining outstanding CMT-indexed HECM commitments. Delivery fees for seasoned reverse mortgage loans continue to apply as before.

The LIBOR has been a popular alternative to the CMT for lenders because it is an international index rate instead of being a US index.
Interest rates as of June 15, 2009 had the net rate for the HECM LIBOR 325 at 3.57%, and the HECM CMT 325 at 3.74%. The total interest rate is calculated by adding the interest rate index plus a margin set by the lender. For example, a HECM CMT 300 refers to the reverse mortgage program that is using the CMT index and a margin of 300. If the CMT index is 2.10% then the total rate is 2.10% plus the 3.00% margin which equals an interest rate of 5.10%.

The elimination of the CMT is only a further step in the trend of lenders favoring LIBOR products. Predictions indicated that the pricing on CMT products would further diminish, making the need for it insignificant in today’s marketplace. Consumers were already receiving a similar principal limit and a lower margin.

Robert Griffin specializes in reverse mortgages and has earned the accolade of No. 1 reverse mortgage broker in the Southwest for three years in a row. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). If you would like an information packet or would like to set up an appointment with one of our reverse mortgage specialists, call (866) 683-3690 or complete our online Reverse Mortgage Information.

Source

Tax Consequences Resulting from Foreclosure on a Reverse Mortgage

2009-06-21T22:38:00.000-07:00

One of the most perplexing aspects of the Home Equity Conversion Mortgages (HECMs) is the income tax consequences of forgiving (or canceling) any portion of the balance due through short sale, foreclosure, trustee’s sale, or deed in lieu of foreclosure. (This article does not address the income tax consequences of abandonments.) The complexity stems from the nonrecourse nature of reverse mortgages and the promise that no deficiency judgment can be obtained against the mortgagor or heirs. However, the “no liability” promise does not extend to income tax consequences to borrowers or successor owners of the property who receive their ownership as the direct result of the death of the borrower.

Unless otherwise noted, the word “foreclosure” as used in this article includes short sales, trustee’s sales, deeds in lieu of foreclosure, foreclosures, and all other similar forms of transfers of homes (except abandonments) where at time of transfer the amount due on a HECM is greater than the value of the home (net of all liens having a higher priority above the HECM).

HECM Proceeds Can Be Taxable

Reverse mortgage proceeds can become taxable if any portion is forgiven by the lender. If nonrecourse debt is forgiven in a transaction other than sale such as loan modification, it will generally have the same tax ramifications as the forgiveness of recourse debt which is taxable as ordinary income under Section (§) 61(a)(12) of the 1986 Internal Revenue Code as Amended (IRC). A portion or all of the resulting income may be excludible under IRC § 108.

Foreclosure is considered a sale of the underlying property for income tax purposes. Under IRC Regulation § 1.1001-2, the sales price of the property is the sum of nonrecourse debt forgiven plus the fair market value of the property at the time of foreclosure.

Some theoreticians argue that HECM proceeds are not taxable in foreclosure as long as the total of the accrued but unpaid 1) monthly servicing fees, 2) FHA insurance fees charged on the outstanding balance (not upfront fees since they reduce available proceeds), and 3) interest exceeds the amount forgiven. There is no such argument when the amount forgiven exceeds that total.

A few taxpayers claim to have successfully argued in IRS audit that since FHA insurance proceeds were used to pay the shortfall and they paid for the policy with after-tax dollars, FHA insurance proceeds are nontaxable and the payoff falls outside of the foreclosure provisions. They refer to the income taxation of proceeds from life insurance policies in the event of death, medical insurance, and property casualty insurance. Since all of these situations are excludible by specific tax provisions, the argument has little substance and no legal precedence. As will be seen if these loans were HECMs, the audit “winners” might have been overall tax losers.

Illustrations

For example, assume a mortgagor owes $350,000 on a HECM but the appraised value of the home is only $250,000 when the mortgagor surrenders the deed in lieu of foreclosure in 2009. The mortgagor purchased the home in 1974 for $55,000 and spent $50,000 in renovations; however, the mortgagor deferred gains from prior sales of $37,000 — under former § 1034 of the IRC — for an adjusted tax basis of $68,000 (i.e., $55,000 + $50,000 - $37,000). This has been and continues to be his sole and principal residence since 1974. For tax purposes the sales price from foreclosure would be $350,000 [i.e., $250,000 (appraised value) plus the $100,000 from the nonrecourse debt forgiven]. The tax gain would be $282,000 (i.e., $350,000 - $68,000).

Determining gain is not the end of the story. Other income tax provisions may apply. By way of illustration, if the mortgagor in the example is single and meets all of the exclusion rules under the exclusion of gain on the sale of a principal residence provision of IRC § 121, he could exclude $250,000 of the gain leaving only $32,000 to be recognized as a long-term capital gain.

If instead the mortgagor had bought the house for $370,000 in 2005, had done no improvements, and had no prior gains deferred under IRC former § 1034, the adjusted basis of the home would be $370,000. The foreclosure loss would be $20,000 (i.e., $350,000 - $370,000) and as a loss from the sale of a principal residence is a non-deductible personal loss which cannot offset taxable gains or be deducted in any way.

Source

Reverse mortgage fails to move forward

2009-06-20T22:37:00.000-07:00

Financing marriage expenses is not as Herculean a task as before, thanks to the reverse mortgage facility for senior citizens. “This facility has helped me conduct my daughter’s marriage without bothering too much about the expenses,” says Mr Seshadri, a senior citizen. Though he had saved for his daughter’s wedding, Mr Seshadri found that the budgeted amount and the actual sums he was incurring closer to the date of the wedding were poles apart.
Hassle-free

With banks wary of giving personal loans to senior citizens, Mr Seshadri had the option of going to a financier, but found the rates exorbitant. So he decided to make use of the reverse mortgage facility.

“It turned out to be hassle-free. I did not have to produce any income-proof or eligibility certificate. I had acquired this house when in service. My title deeds were clear and the rate was 10.75 per cent. A personal loan would have been more costly,” said Seshadri, recalling the ease with which he was able to get the finance.

He was among half-a-dozen senior citizens who took the reverse mortgage route, primarily to conduct their children’s wedding.

The facility allows senior citizens to unlock the value of their valuable asset, that is, their house, by mortgaging it and using the money while continuing to live in it until their death.
Lumpsum, instalments

A total of 22 banks and two housing finance companies offer this financial product in the country.

The applicant has the option of receiving a lumpsum amount or at fixed monthly or quarterly intervals. The amount payable is calculated on the market value of the house the senior citizen owns and occupies for residential purpose.

For instance, if the property is valued at Rs 10 lakh, State Bank of India is prepared to give 90 per cent of this value as the qualifying amount for the loan. The applicant is paid Rs 21,619 per lakh (for every qualifying Rs 1 lakh of loan if he opts for lumpsum payment) or Rs 225 a month (for every qualifying Rs 1 lakh of loan). The sum, however, would vary depending on the tenure of the loan, which is fixed at 10 or 15 years, again, depending on the age of the senior citizen.

Among other public sector banks, SBI has been trying to market this product quite aggressively. But sources admit that attempts to popularise the reverse mortgage scheme have not been as successful as in the West.
Yet to catch on

The Government though is signalling its interest in encouraging the scheme. Consider the tax treatment of the loan — Section 10(43) exempts any loan received by an individual, whether lumpsum or in instalments, in a transaction of reverse mortgage, if it conforms to the scheme notified by the Central Government.

So, where is the catch? Why has the reverse mortgage scheme failed to take off?

Observers say the scheme is loaded against the borrower. He gets a little over 20 per cent on every Rs 1 lakh, which is a pittance. Instead of mortgaging the property, the senior citizen should consider to sell the property and invest the proceeds in a bank and live in a rented house or settle peacefully in a home for senior citizens.

The interest earned from the sums deposited should be sufficient to take care of his monthly requirements. There are old folks without children and some out of luck with their wards. In both cases, they may not have enough sums to pay even for their essentials. Above all, the borrower does not have to worry about the dues the legal heirs to the property would have to settle (on his death) to retrieve the property.

The structure of the product is flawed. While one would expect the period of the loan to extend till the lifetime of the borrower(s), it has been specified as ‘not exceeding 20 years’ both in the Operational Guidelines and in the Reverse Mortgage Scheme 2008. This puts into question the fate of the senior citizen if he survived beyond 20 years. And the amount that he receives for mortgaging his property cannot be considered as a single source of income for survival. It can only supplement his other income, note observers. Then why did Mr Seshadri and few others opt for it?

According to the lending institutions, the few who avail of this facility are planning to repay/foreclose the loan during their lifetime out of their income from other sources.

Further, the interest rate is not much compared to a personal loan, for which they would anyway not be eligible, bank sources say. And that’s not all. Sentiments overrule, when it comes to mortgaging one’s own dwelling.

Source

How Does A Reverse Mortgage Work - Different Kinds Of Reverse Mortgage Rates

2009-06-19T22:36:00.000-07:00

Unless you have been fortunate enough to be born to an extremely wealthy family, you would have to face the reality of having to go through the process of taking out a mortgage to provide you and your family the needed financial help to meet basic financial obligations and responsibilities. There is a proliferation of different mortgage plans and programs that are available to the average American citizen to choose from. One type of mortgage plans that is gaining popularity is the reverse mortgage program.

Apart from looking at the reputation of the financial institution offering reverse mortgage housing plans, it is also important to look into the rates that are applied to each reverse mortgage programs. The reverse mortgage rates are determined by a number of different factors ranging from the period of time of the reverse mortgage plan to the amount that would be taken out and the frequency f the payment schedule.

Below is a review of some of the most popular reverse mortgage housing plans and the interest rates that are applied to them.

Home Keeper Reverse Mortgage

The interest rates that are applied on the different reverse mortgage housing plans offered by Home Keeper have been primarily based on the weekly average one-month secondary market CD index following a margin that has been set by Fannie Mae. These averages have been published in the Federal Reserve’s H-15 Bulletin. The initial interest rate and subsequent adjustments that may be made on the reverse mortgage plan rounded to the nearest 1/8 percent. Over the course of the life of the reverse mortgage plan, the margin implemented would remain constant. As such, it does not fluctuate based on the age of the individual applying for the reverse mortgage plan. This means that the same interest rate would be implemented on the reverse mortgage plan whether the applicant is a young professional or a senior citizen. The drawback of this reverse mortgage plan, however, is that since it is based on a monthly published margin, there is a possibility that the interest rate applied on the reverse mortgage taken out could fluctuate on a monthly basis. While Home Keeper has placed a cap on the increase of the interest rate applied on the reverse mortgage taken out, the borrower should anticipate the increase of the interest to be as high as 17% on a monthly basis.

Home Equity Conversion Mortgage (HECM)

For this kind of reverse mortgage plan, the financial institution may opt to implement to utilize an initial rate or to use the current reverse mortgage rate to be applied on the reverse mortgage that is being taken out by a borrower. Once the selected reverse mortgage rate is applied to the reverse mortgage plan taken out, this can no longer be changed. This particular reverse mortgage program only provides an annual or monthly repayment schedule. The interest rates implemented, whether it is the initial rate or the current reverse mortgage rates are set annually by the US Treasury. It is advisable that the borrower would utilize the funds provided by this type of reverse mortgage plan since the repayment schedule would be based on the actual amount that is applied for, whether it is used or not.

Expected Reverse Mortgage

Expected reverse mortgage are very much similar to HECM reverse mortgage plans in that the interest rates are set annually by the US Treasury. In the expected reverse mortgage plan the interest rate is one of the things that are taken into consideration when computing for the amount of the reverse mortgage that a borrower may be eligible to take out. The maturity of expected reverse mortgages is approximately ten years.

Source

Generation Turns To GNMA For Competitive Fixed Rate Reverse Mortgage

2009-06-18T22:23:00.000-07:00

Generation Mortgage announced to its brokers that is in the process of working out the details in order to offer a competitive fixed rate HECM utilizing Ginnie Mae’s HECM MBS product.

Currently the product is available to a select group of brokers in order to fulfill its commitments to Ginnie Mae, but they plan to open it up widely mid to late June said a company statement.

Companies like MetLife and Generation are able to offer extremely competitive fixed products using Ginne Mae’s HMBS product due to investor interest from Wall Street. Rate sheets that I’ve seen show rates are almost 1% better (lower) when compared to lenders delivering fixed rate products to Fannie Mae.

However, Ginnie Mae’s pricing advantage comes with some additional risks to lenders. “The biggest concern is that Ginne Mae requires the loan to be repurchased out of the fund when it hits 98%, and if the loan is in default for taxes or insurance, HUD won’t take it,” said Sherry Apanay, Senior VP of Generation Mortgage.

This creates a problem for non-bank reverse lenders who don’t have the ability to hold the loan on its balance sheet until it pays off. Sources tell RMD that there continues to be discussions between potential issuers and Ginne Mae officials to see if there is a way to restructure the program to ensure non-bank lenders can compete.

Source

SOME FINANCIAL ADVICE ON THE QUESTION OF REVERSE MORTGAGES

2009-06-10T19:28:00.000-07:00

Peter and Lana have seen the TV commercials about reverse mortgages. They were wondering if it would be a good way to go to help ease their current financial situation.

A reverse mortgage is simply an advance on the value of your home that accumulates interest. The accumulated debt does not need to be paid off until you die, sell the home or move out of the house. If you qualify, and are over the age of 62, you can get up to 30% of the value of your home and you can do whatever you want with the money. According to information, a reverse mortgage delivers the cash tax-free. Of course, if the money is used to invest and produce an income, some or all of that income will be taxable.

It is very important to understand the cost of a reverse mortgage before getting into one. Information obtained states that there could be an administrative fee of about $1,300 to set up your plan or more. On top of that, you will be able to choose a term of six months, one year or three years to determine the interest rate on your loan. Rates, of course will be subject to change at the end of the term. Interest is compounded semi-annually.

For example, if Peter and Lana get a reverse mortgage for 30% of the value of their $250,000 house and choose a three-year term (7.50% on Sept. 13, 2005), they would get $75,000 today to do as they please. Don't forget the $1,300 set up fee. Lana, at age 62, has a life expectancy of about 24 years. At that time, assuming no change in interest rates, the amount owing will have grown to over $439,026.

In spite of escalating home values over the last several years, they haven't appreciated in value much more than the rate of inflation over long periods of time. If we assume an inflation rate of 3% their home may be worth about $508,199 in 24 years. That leaves only $69,173 after paying off the loan. A contract clause found, states that "as property values decrease, the amount to be repaid is never more than the fair market value of the property at the time it is sold".

There are other ways to get money out of your home. You can sell it and buy something smaller. A home equity line of credit at much lower interest rates may also be a possibility. Talking with a Certified Financial Planner and exploring other ways to create income might be your best investment. It appears a reverse mortgage is great, if you have no one to leave your equity to.

Source

2009 Reverse Mortgage Changes

2009-06-06T00:05:00.000-07:00

The Housing and Economic Recovery Act and The American Recovery and Reinvestment Act have made the Reverse Mortgage program available to even more seniors across the US

The Home Equity Conversion Mortgage (HECM or “Heck-um”) which is the HUD reverse mortgage, went for many years with just a couple of different options, and a margin that stayed constant. You basically had a choice between a monthly adjustable and a yearly adjustable, both with a Constant Maturity Treasury (CMT) for the index and a single option for the margin.

The secondary market for reverse mortgages was good, there were proprietary products which funded loans on properties valued much higher than those on which HUD could lend. HUD had different lending limits in different parts of the country and the demand was stable. But reverse mortgages have seen a lot of quick changes over the last 12 – 18 months and 2009 does not appear to be an end to this trend.

The secondary market has all but dried up and proprietary products have disappeared. Now the HUD HECM Reverse Mortgage is the only game in town with the possible exception of one or two extremely selective and narrow private products. Margins are rising, sometimes almost monthly as borrowers try to close their loans only to find that the margin they thought they would receive is no longer available. What once was offered at 100 basis points over the CMT (and for brief periods even lower) is now being offered at 300 Basis Points over the LIBOR or 350 – 375 Basis Points over the CMT.

There are also now fixed rate reverse mortgage loans available, but they come with fewer options available as to how the borrowers can access their funds. A fixed rate reverse mortgage borrower must take a single draw, whereas a borrower opting for the adjustable rates can choose to take a lump sum; a payment for a set period of time (term) or for life (tenure); a line of credit which can be accessed at their choice; or a combination of all of the above.

Some changes for 2009 were actually put into motion in 2008 with the Housing and Economic Recovery Act (HERA) which was signed into law on July 30, 2008 by George W. Bush. Among many other things included in the Act, HERA increased the limits for HECM to a nationwide limit of $417,000 from the previous county by county lower limits starting in the low $200’s for some counties and going to $362,790 in all but some of the highest cost counties in Alaska, Hawaii, Virgin Islands etc. where HUD allowed for higher limits.

However, this raised limit has been increased still further until December 31, 2009 by yet another piece of legislation, The American Recovery and Reinvestment Act of 2009 which was signed into law by President Obama on February 17, 2009. For the balance of 2009, the limit for the HECM Reverse Mortgage program limit is $625,500 which has helped many senior borrowers with higher balance homes, especially those whose retirement funds saw huge drops when the stock market plummeted.

Another change which was approve with HERA in 2008 but did not take effect until 2009 is the HECM for purchase program. The program was supposed to have been in effect on January 1, 2009 and there was quite a bit of confusion in its beginning. HUD issued Mortgagee Letter 2008-33 which, when issued, actually stated that HUD would require seniors to put less money down if they could find properties for purchase which appraised for more than the selling price.

HUD indicated that there would be a clarification to this lending methodology but then was silent on the issue until they issued Mortgagee Letter 2009-11 on March 27, 2009 which kept most lenders on the sidelines, unwilling to release the HECM for purchase program until HUD clarified its down payment requirements. Now senior borrowers must bring in their down payments and closing costs based on the lesser of the sales price or the appraised value, not just the appraised value as Mortgagee Letter 2008-33 originally stated.

Another addition yet to come with HERA is Reverse Mortgage for Co-ops. There are a lot of areas anxious to see how this will come out and what the restrictions will be. There are both traditional Co-op units and Manufactured Co-ops hoping to be included in the eligibility.

However, after talking to some lenders on the subject, how quickly or even if a lender decides to offer the HECM for Co-ops in a given market will not only depend on how soon HUD announces that it is available, but also how quickly or even if the particular lender is willing to lend on and service loans on Cooperative Projects in any given area or state. Co-ops may not be available as quickly as HUD announces they are ready to roll out the program if the lenders do not put the work into the legal documents, etc.

A couple of other noteworthy items that will greatly affect HECM’s in 2009 and beyond is the issuance of Mortgagee Letter 2008-24 which eliminated the ability of any non-HUD approved lenders to participate in the origination of the HECM product. Prior to this time, HUD (at least passively) allowed for the participation in an advisory capacity of brokers who were not HUD approved in the HECM program. Those brokers could help in the education, advise in the process and accept only a portion of the origination fee due the lender (they could not charge separately for their services).

To be involved in the origination of reverse mortgages now, mortgage brokers must be HUD-approved. There is also another looming date in 2009 for reverse mortgage borrowers and lenders, and that is September 30, 2009. There is a statutory cap on the number of HECM’s that HUD can insure at any time of 275,000 which has been temporarily exceeded when the cap was reached several years ago.

Congress has suspended the cap through various spending Bills and other measures ever since, but there have been times, some very short, when no HECM loans could be insured until another stop-gap could be passed. If the 275,000 limit is not once again temporarily suspended or if Congress does not vote to permanently eliminate the cap, once again the program could come to a grinding halt.

Source

Loan Growth Augmenting Core Business at MetLife

2009-06-05T00:04:00.000-07:00

Most financial services companies wouldn't consider themselves "lucky" to have bought two mortgage providers last year amid a wicked housing slump. Then again, maybe they didn't have MetLife Inc.'s ulterior motives.

"Our timing really couldn't have been any better," said Donnalee A. DeMaio, the president of MetLife Bank and a member of its board of directors. "Our mortgage business has really taken off," particularly refinancings, she said.

Along with its mortgage business has come the opportunities for MetLife to cross-sell its insurance products and services.

MetLife Bank opened more than 200 mortgage offices nationally in the past year, reporting $41.1 million in first-quarter net income while originating about $1.5 billion in monthly loans.

MetLife Bank made two acquisitions last year to establish its lending business. In May 2008 it bought EverBank Reverse Mortgage LLC and a month later bought First Horizon Home Loans, a Dallas mortgage originator, from First Tennessee Bank. That acquisition made MetLife the 15th-largest mortgage originator nationally.

DeMaio said in an interview last week that MetLife Bank had the advantage of learning from the mistakes of competitors left saddled with bad loans after buying lending businesses.

In the First Horizon deal, MetLife bought the company's origination and servicing capabilities but did not buy any existing loans. With Everbank, DeMaio said MetLife bought a reverse mortgages business "in its infancy" that did not have a large book of business.

"We were able to buy all of the capabilities that we needed in order to grow," she said. "Now our plan is to grow organically."

DeMaio, who spent 18 years at PricewaterhouseCoopers before joining MetLife Bank in 2002, described MetLife Bank's cross-selling strategy: "There is a natural opportunity when someone is getting a mortgage for us to offer them homeowner's insurance. We are looking for ways to seamlessly make referrals from one line of business to another. When someone is buying a home, it is a natural opportunity to discuss homeowner's and life insurance. Ultimately, our objective is to create a customer for life."

DeMaio said MetLife Bank also wants to gather deposits. "We want customers to know we are not just a mortgage company, we are a bank. By offering mortgages, it just gives us another avenue to look at our customers' entire financial picture."

Analysts say MetLife may have a blueprint for how an insurer can thrive as a bank holding company. "MetLife clearly has a strategy where it wants to use its banking and mortgage services as a way to offer cradle-to-grave services to its customers," said Carmen Effron, an analyst with C.F. Effron Co. LLC in Weston, Conn. "It can get in the door with lending and deposit services, and then work on how to invest and what insurance products to use later."

Burton Greenwald of BJ Greenwald Associates in Philadelphia said MetLife — which got a banking charter in 2001, but kept its banking unit below 100 employees until the deal with First Tennessee — has distanced itself from insurers that became banking holding companies for federal aid.

"MetLife didn't become a bank holding company to get … [Troubled Asset Relief Program] money," Effron said. "It didn't race in and start lending. MetLife started a bank and waited six or seven years, and it knew it was better off buying a shell and building a business on its own."

DeMaio said MetLife isn't looking to create a banking model that works for anyone but MetLife. "There certainly are other banks owned by insurers, and they each have their own missions, some of which are probably like MetLife Bank's, and some of which may be different," she said. "But you'd really have to talk to them to get their strategy. An insurer-owned bank certainly could pursue a share-of-wallet strategy as much as a brand-promise strategy, but each organization will have to do what is most in line with its goals."

Analysts said MetLife Bank's first-quarter results are a bit misleading. They said it generated healthy profits in the quarter because of a "boom in refinancing," as one analyst put it, but they said it could be difficult to maintain such strong results.

DeMaio said she expects lending conditions to "remain volatile," but she thinks MetLife has the pieces in place to build and maintain a strong mortgage business. She said mortgage origination is expected to remain solid as long as rates remain low. "We know that refis will slow down," she said. "When you really look at it, the government is involved in the economy, and that has kept the rates low. But we have seen strong growth and we are excited."

MetLife Bank does not need more lending deals, she said, but it will be opportunistic. She said the company has MetLife Home Loan offices in 95% of markets where it wanted offices.

In the next five to 10 years, she said she thinks MetLife Bank will be able to contribute 10% of MetLife Inc.'s profits annually. When the mortgage market "normalizes, it will be more of a challenge to keep volumes up," she said, but she remains confident in its strategy. "We are going to emerge from, whatever you want to call this economic environment, a different type of financial services industry," she said. "Lending is going to go back to basics. People are going to need down payments and a good loan-to-value. We are going to go back to lending like it was meant to be, and strong companies will survive. Without the baggage of bad loans, we can look forward."

Source

Reverse mortgage may help some struggling seniors

2009-05-24T21:27:00.000-07:00

Many senior citizens find themselves in financial difficulty as the Michigan economy continues to weaken and GM downsizes.

There are a number of things seniors can do at the first sign of financial trouble such as reduce costs, be more efficient with expenditures and perhaps even consider a part-time job. Another weapon in the senior arsenal during difficult financial times is a reverse mortgage.

A reverse mortgage is for seniors who are age 62 and older. Basically, the reverse mortgage provides a way for seniors to convert the equity in their home into cash. The beauty of a reverse mortgage is that as long as you stay in your home you never have to repay the mortgage.

The mortgage, including interest, is only due when the home is sold or the homeowner passes on. A reverse mortgage allows the senior to remain in the home for as long as he or she wants while enjoying the equity during his or her lifetime.

The proceeds from a reverse mortgage are for the homeowner to use for any purpose they choose. I generally recommend reverse mortgages to pay off primary mortgages, home equity loans or other types of debt. Reverse mortgages are also effective in providing money to cover living expenses. I generally don't recommend reverse mortgages for such things as vacations, long-term investing or any frivolous expenditure.

Reverse mortgages can be costly. Even though the government has capped origination fees, there are other fees associated with a reverse mortgage. Not all reverse mortgages and reverse mortgage companies are the same. Therefore, it pays to shop around and pay particular attention to cost and interest rates. The terms of reverse mortgages are not the same. Interest rate charges can either be fixed or adjustable.

In addition, there are different ways to get your proceeds. Therefore, before you decide that a reverse mortgage is for you, you need to do your homework. Take your time. There are many resources which can help you learn more about reverse mortgages. AARP offers a free guide “Reverse Mortgage Loans: Borrowing Against Your Home.” You can get a free copy of this pamphlet by visiting AARP's Web site at www.aarp.org/revmort. There are also other educational materials available on the Internet. The more you know before you begin the process of looking for a reverse mortgage, the more beneficial it will be for you.

Many senior citizens find themselves in financial difficulty as the Michigan economy continues to weaken and GM downsizes.

There are a number of things seniors can do at the first sign of financial trouble such as reduce costs, be more efficient with expenditures and perhaps even consider a part-time job. Another weapon in the senior arsenal during difficult financial times is a reverse mortgage.

A reverse mortgage is for seniors who are age 62 and older. Basically, the reverse mortgage provides a way for seniors to convert the equity in their home into cash. The beauty of a reverse mortgage is that as long as you stay in your home you never have to repay the mortgage.

The mortgage, including interest, is only due when the home is sold or the homeowner passes on. A reverse mortgage allows the senior to remain in the home for as long as he or she wants while enjoying the equity during his or her lifetime.

The proceeds from a reverse mortgage are for the homeowner to use for any purpose they choose. I generally recommend reverse mortgages to pay off primary mortgages, home equity loans or other types of debt. Reverse mortgages are also effective in providing money to cover living expenses. I generally don't recommend reverse mortgages for such things as vacations, long-term investing or any frivolous expenditure.

Reverse mortgages can be costly. Even though the government has capped origination fees, there are other fees associated with a reverse mortgage. Not all reverse mortgages and reverse mortgage companies are the same. Therefore, it pays to shop around and pay particular attention to cost and interest rates. The terms of reverse mortgages are not the same. Interest rate charges can either be fixed or adjustable.

In addition, there are different ways to get your proceeds. Therefore, before you decide that a reverse mortgage is for you, you need to do your homework. Take your time. There are many resources which can help you learn more about reverse mortgages. AARP offers a free guide “Reverse Mortgage Loans: Borrowing Against Your Home.” You can get a free copy of this pamphlet by visiting AARP's Web site at www.aarp.org/revmort. There are also other educational materials available on the Internet. The more you know before you begin the process of looking for a reverse mortgage, the more beneficial it will be for you.

Source

Are Reverse Mortgage Rates on the Rise?

2009-05-23T21:26:00.000-07:00

In the face of a recession and a housing crisis, reliable financial programs sometimes need re-evaluation. But even with rising margins, the benefits of reverse mortgages remain strong and intact. While margins are going up, index rates are going down. What this means is that reverse mortgage programs continue to provide comfort and security for the older population, one of our country’s most financially vulnerable demographics.

The reverse mortgage has been around for decades, helping senior homeowners who are struggling to manage their rising medical bills and other expenses during their retirement, all on top of mortgage payments. The program allows these homeowners to convert equity in their homes to a tax-free income, without increased mortgage payments, and without the risk or reality of having to sell their home or sign over the title. But what happens to even the most stable and reliable of programs in the midst of an economic recession?

Normally, borrowers have a few options when it come to choosing their HECM program, but in an unstable economy with rising margins, consumers may feel they want to limit their choices to what is safe and affordable. With tightening credit, banks must raise loan margins in order to sell reverse mortgage loans on the secondary market. It would seem that when the margins increase on reverse mortgages the homeowner appears to end up with less money for their reverse mortgage—this would be true, except in this case interest rate index has gone down.

In the HECM program, the “margin” is the amount added to an interest rate index to determine the initial, current, and expected interest rates of the loan over its lifetime. Not long ago, a Constant Maturity Treasury (CMT) and margin was as low as 1.00. Lenders whose rates were stable at 1.5 were disappointed to see their margins go to 1.75. But now, Fannie May has added a 3.50 and 3.75 Treasury based monthly margin, 3.00 and 3.25 on the LIBOR monthly and on annual percentages up to 4.50. This is not as bad as it sounds because the index fluctuates as well. The basic formula to remember when it comes to reverse mortgages is index + margin = income. The index is the “base” to which contractually established amount, the margin, is added. If, for example, the index is 2.5% and the margin is 1.5%, the rate would end up at 4%.

In general, the higher the index and margin, the less money the borrower will receive. When the margin changes during the lifetime of a HECM loan, the borrower can end up losing a percentage of the income that they were expecting—but only to the degree that the actual fees change. When the interest rate index goes down, a rising margin will hardly impact the loan fees.

Even though their fees exceed those of private reverse mortgage loans, public HECMs cost less overall, with their low interest rates. In the long term, low interests rates equal higher savings over the life of an HECM reverse mortgage. State and local governments offer the lowest cost for reverse mortgages, though individual eligibility is stricter and the loans are limited to specific uses. It is frustrating for senior homeowners and their lenders that the margins on the HECM program keep going up and they begin to wonder why the rates must continue to increase, especially at a time when interest rates are low. But, the great thing about margins is that though they may go up, they can also fall right back down. Of course, this means that the currently low interest rates may rise, but that too is temporary. The roller coaster economy may be unpredictable, but what goes up must come down; rest assured, the rapidly rising margins will fall just as quickly as they rose.

The rates available when a borrower signs their contract may not be static over the entire course of the reverse mortgage, but a rising margin today is insignificant compared to the long-term benefits down the road. It will always be true that with a reverse mortgage the consumer is only liable to pay loans exceeding the cost of their home if the loan accumulates to equal the value of the home and they choose not to sell. If the home is sold, they will not be responsible for the loans exceeding the value of the home. The fundamentals of reverse mortgages will never change; heirs will never be liable for costs beyond the value of the home, and reverse mortgages will benefit seniors during their entire lifetime.

Source

Refinancing home and Mortgages consultants

2009-05-22T21:24:00.000-07:00

Refinancing is the best way to pay your loans and debts. Mortgages are available worldwide to pay your loans and you have to lend your property to them and they pay your loans with easy refinancing. You can also purchase your home back if you your loan back there rates are affordable as compare finance companies.
Home equity is the value of a homeowner's unencumbered interest in their property, i.e. the difference between the home's fair market value and the unpaid balance of the mortgage and any outstanding debt over the home. But you don’t need to be afraid you can use tools like loan tool kits to get complete information and define your terms and conditions. Loans are not of same kind you can have different types of loans for different for different purchases and different home equities.
Refinancing is the best way to pay your loans and debts. Mortgages are available worldwide to pay your loans and you have to lend your property to them and they pay your loans with easy refinancing.
Visit http://www.home123.com company for Home Loans, Home Equity Loans, Reverse Mortgage and all other types of Mortgage, Home Purchase, Refinance and Equity Loans to make your life easy.

Source

Reverse Mortgage: The Line of Credit That Grows

2009-05-21T20:58:00.000-07:00

A Reverse Mortgage Line of Credit that Grows in availability each month guaranteed by the federal government. This option allows borrowers a great deal of freedom when planning their finances.

The line of credit reverse mortgage is still the most popular option for senior borrowers when choosing how to access their funds with their reverse mortgage. According to AARP, borrowers have recognized this choice at about 66% of the time when obtaining a reverse mortgage as being the right choice for them. The credit line option allows borrowers a great deal of freedom when planning their finances. Borrowers like the fact that they can take as much as they want when the loan funds and then can take the funds only as needed from there.

But since the credit line reverse mortgage is only available in an adjustable rate, many may wonder why this option is even more popular than the fixed rate that is also available. The answer is flexibility. The fixed rate reverse mortgage option has only one way you can take your funds and that is all in a lump sum at the very beginning.

This option is fine it you need all the funds at the start such as to pay off an existing mortgage or for other purposes, but if you want to be able to access your funds as you go, the fixed rate option will not work. The credit line gives the borrowers the option of taking as much money as they wish at initial funding, but then with the remaining funds the borrowers can access the funds as they desire.

But there are other benefits to the line of credit option as well. For one, the borrower does not accrue interest on any portion of the funds that are not being used. Borrowers who do not have an immediate need for funds do not have to pay interest on the funds as long as they remain un-borrowed and available to the borrower.

The Home Equity Conversion Mortgage (HECM or “Heck-um”) line of credit is the one credit line that can never be frozen or closed while the borrower still has a remaining balance left on it. How many people do you know who have had a credit line from their local bank frozen during these tough credit times? It may even have happened to you. The senior HECM borrower with the credit line option has paid their federal mortgage insurance to insure that their line of credit will always be available to them.

Another extremely important feature of the line of credit option is the credit line growth. I have often heard this mischaracterized as interest earned which it is not, but the unused portion of the credit line grows at the same rate at which the loan accrues interest +.5% monthly.

In other words, in today’s market if the fully indexed accrual rate (index + margin) is 3.68% + .5% = 3.68% annual rate. If the Available Funds of your loan is $350,000 after the net Principal Limit and costs have been determined, and you don’t use those funds then your credit line begins to grow monthly based on the interest rates. If the rate did not change for 12 months, then in the first month, you would take $350,000 x 3.68% / 12 and your credit line would grow by over a thousand dollars that month alone.

The next month you start with a higher loan balance so the line of credit goes up even higher. After just 5 years of this scenario, these borrowers would have available credit of over $419,000 in their credit line, Over $500,000 if they should be lucky enough to be able to leave it there for 10! And here is a hedge against inflation, as the interest rates rise, the amount the borrowers accrue grows even faster. This same line of credit with an expected rate of 5.50% would grow from $350,000 to $670,000 in 10years.

Borrowers who opt for the line of credit option are also looking at the loan amounts available until December 31, 2009 under the Economic Stimulus Plan of 2009 and it does not require “upper math” skills to see that borrowers who take out a credit line reverse mortgage now, can lock in the higher credit lines now, before the loan amounts go back down at the end of 2009.

This means that a 72 year old borrower with a $625,500 home or greater can lock in a credit line of approximately $385,000 (depending on what happens to reverse mortgage interest rates and margins since they also will affect the amounts for which borrowers will qualify) instead of the approximately $253,000 that they would go back to under the limits prior to the Stimulus Bill.

The only real difference in the cost is in the increased HUD insurance for the higher loan amount for benefit received. However, the ability to accrue credit line growth at such an advanced rate has certainly made it well worth it to many seniors looking for a stable future.

Source

Mortgage- Free Helpful Guideline About Mortgage Loans

2009-05-18T01:14:00.000-07:00

If you are looking for information about a mortgage, you will find the below related article very helpful. It provides a refreshing perspective that is much related to mortgage and in some manner related to discount a mortgage, interest only mortgage rates, mortgage rates land or 40 year mortgage calculator. It isn’t the same old kind of information that you will find elsewhere on the Internet relating to mortgage.

Mortgage Life Insurance: Mortgage life insurance is a mortgage insurance that can protect you instead of your lender. This type of insurance covers the amount of your mortgage if you should die, obtain a disability, or acquire a debilitating illness.

The capped mortgage is basically an adjustable rate mortgage in which the maximum interest rate is set. Any spike of interest rate over the maximum interest rate will not affect the mortgage repayment. The borrower knows the maximum mortgage payment.

The borrower usually purchases home through mortgage. It takes a huge amount income to pay off the mortgage. In case of critical illness, debilitating an accident, or depressing death of the borrower, the family needs to replace the loss of income to pay off the mortgage. With mortgage life insurance, the family does not need to worry about repaying the mortgage.

Don’t forget that if this article hasn’t provided you with exact mortgage information, you can use any of the main search engines on the Internet, like Ask Dot Com, to find the exact mortgage information you need.

Mortgage interest rates lift or dive at any given time. To fully see the advantage and disadvantage of switch, the borrowers must take annual percentage rate, mortgage insurance, and mortgage closing costs into consideration. Like any mortgage, Re mortgage comes with a price such as penalty, discount points, application fee, title search fee, and appraisal fee.

So long as senior citizens retire in the lovely state of Florida, Florida mortgage leads will continue to increase. It’s the perfect storm for an ageing population with increasing living costs. As a mortgage broker or lender, Florida mortgage leads will only swell, powered by reverse mortgages that are as juicy as an orange, the State’s second biggest industry.

It is the opposite of Single Purpose Reverse Mortgage in which the reverse mortgage loan can be used in any purpose. And, the mortgage is widely available anywhere. There are also no income or medical requirements.

We discovered that many people who were also searching for information related to mortgage also searched online for related information such as mortgage rate, mortgage interest rates, and even investment mortgages.

Source

ARMed and underwater

2009-05-17T01:13:00.000-07:00

WASHINGTON (MarketWatch -- Question: I have a problem. Like most people out there, my mortgage is underwater. However, I have a double negative in that I bought my home in late June 2005 with an adjustable-rate mortgage with the idea of refinancing after three years.

Now, the economy has taken a plunge, along with the value of my home, which I purchased for $129,000 and is now worth $110,00-$115,000. My lender will allow borrowers such as me to refi only twice. I have gone that route once before, and I'm afraid to go there again because if I refi too early, I won't be able to do it again. My payments are $1,186 a month on a 8.625% interest rate and that hurts!

I live in a low-income area. I have spoken to another bank, which tells me my wife and I are qualified for an FHA loan. Both of us have good jobs and make enough money to cover the mortgage. But we feel its time to switch to a fixed-rate loan. So far, no lender has been able to help us.

Answer: You seem to be an excellent candidate for President Obama's Making Home Affordable program. But before you go there, I'd say that if your current lender is willing to refinance you out of an ARM into a fixed-rate mortgage, go for it. I doubt rates are going to fall much more than they already have, so I wouldn't be afraid to pull the trigger a second time because it's "too early."

There is nothing wrong with grabbing a rate in the 5% range right now, especially if it gives you payments you can afford. My gosh, that's better than a 3.5 point difference. So in your case, the second time could be a charm.

If you are not successful, check out www.makinghomeaffordable.gov, which outlines the administration's plan to help stabilize the housing market by reducing the mortgage payments of up to 9 million eligible homeowners.

The refinance portion of the effort gives up to 5 million owners with loans owned or guaranteed by either Fannie Mae or Freddie Mac an opportunity to trade in their loans for ones that are easier on their pocketbooks. And the loan modification part commits $75 billion to keep as many as 4 million other families in their homes by preventing avoidable foreclosure.

The Web site has detailed information about these programs along with self-assessment tools and calculators to empower borrowers with the resources they need to determine whether they might be eligible for a modification or a refinance under the program. Check out the Making Home Affordable site.

Borrowers also can use the site to connect to free counseling resources to answer any questions they may have about their own personal situations. You'll also find a checklist of key documents and materials to have ready when making that important call to your lender as well as FAQs from borrowers in similar circumstances.

Q: I enjoyed your article on tax credits for energy efficient home improvements. The question I have is, do the credits phase out at higher income levels like so many of the recent tax rebates and credits (typically over $75,000). See previous Realty Q&A.

A: Good news. There are no income limitations on the energy credits. So feel free to spend away.

Q: Great article on reverse mortgage for seniors who want to scale down the housing ladder. What happens to the lower property tax basis on the first house, the one in California? Who pays the property tax bill, and could they have used the lower or carryover basis of the old property tax basis since they over 55? See previous Realty Q&A.

A: I'm an East Coast guy who doesn't know all that much about the Left Coast. So I turned your question over to Robert D. Yeary, CEO of Reverse Mortgage Solutions. The Spring, Tex., firm has developed a specialized, state of the art system to service reverse mortgages in all jurisdictions. Here's his response:

"In California, you can transfer your old tax base to a new house, provided the county in which you purchase your new home allows that transfer. Not all counties do that. But even in jurisdictions that do allow a transfer, if you pay more for the new house, you can only transfer the tax base if the purchase price is no greater than 105% of the amount for which you sold your previous residence. If you wait a full year after the sale of your home, you can transfer 110% of the selling price."

If the new house is considerably less expensive that the home you sold, Yeary suggests considering what the property tax would be without transferring the lower basis to the new place.

"Surprisingly," he says, "in California, real estate taxes are fairly low thanks to Proposition 13. Taxes are set at the time you purchase the home and can go up only so much every year. There are plenty of houses worth $500,000 or more in California with low tax bases because they were purchased years ago for $35,000."

Yeary also notes that the Golden State offers several tax relief program for low and moderate-income seniors.

Source

Mortgage rates rise but stay below 5%

2009-05-16T01:00:00.000-07:00

REAL ESTATE

Mortgage rates rise but not above 5%

Average rates on 30-year fixed-rate mortgages rose to 4.84% this week from 4.78% last week, the eighth consecutive week that rates have been below 5%, mortgage company Freddie Mac said.

The average rate on a 15-year fixed-rate mortgage rose to 4.51% from 4.48%. Five-year, adjustable-rate mortgages rose to 4.9% from 4.8%. One-year, adjustable-rate mortgages rose to 4.78% from 4.77%.

These rates do not include add-on fees known as points. The nationwide fee averaged 0.7 of a point for 30-year and 15-year mortgages and averaged 0.6 of a point for five-year and one-year adjustable-rate loans.

Reverse mortgage subsidy is sought

Falling home prices have forced the government to ask Congress for a $798-million taxpayer subsidy to prop up a program that lets senior citizens tap the equity in their homes.

The government said the Federal Housing Administration needs the money to support a program that lets homeowners older than 62 obtain reverse mortgages, which allow borrowers to convert equity to cash without making payments until they die or sell their home. Interest is then due.

But with the housing market in a slump, participating lenders may not be able to collect the full loan amount from some borrowers. The government, which insures participating lenders, is on the hook if the house is sold for less than the total loan amount.

Standard Pacific posts smaller loss

Irvine builder Standard Pacific Corp. said its first-quarter net loss narrowed to $49.5 million, or 21 cents a share, from $216.4 million, or $3, a year earlier. Revenue declined 40% to $209.5 million. Standard Pacific had $30.8 million of impairments, including $14.1 million for firing 380 workers. Its shares fell 3 cents to $2.23.

Countrywide and KB Home sued

Los Angeles builder KB Home was sued along with Bank of America Corp.'s Countrywide Financial over claims they conspired to rig appraisals to boost sale prices.

Countrywide, its appraisal unit and KB Home inflated home prices by as much as $2.8 billion in Arizona and Nevada during a three-year period, according to a federal complaint filed in Phoenix.

INTERNATIONAL

European bank cuts interest rates

The European Central Bank cut interest rates a quarter of a point to 1% and said it would buy euro-denominated bonds as well as offer longer-term credit to banks as it moves to get more money flowing through the 16-nation euro zone economy.

COURTS

Banks must face Adelphia suit

Bank of America Corp. and Bank of New York Mellon Corp. are among 26 banks that must defend a fraud lawsuit for billions of dollars brought by a trust pursuing claims on behalf of defunct Adelphia Communications Corp.

U.S. District Judge Lawrence McKenna ruled that the lawsuit could go forward against 26 banks and 22 investment banks. His ruling focused on legal issues, not the merits of the case.

Source

Mortgage Rates, Opportunity "Locks"

2009-05-13T20:05:00.000-07:00

Ads about Mortgage Rates are everywhere. You cannot go onto your computer without seeing ads from several different lenders and the television is full of ads touting their mortgage rates or the fact that rates are way down.

Yet, there are still borrowers who are sitting on the fence, hoping that they will come down just that last little bit so that they can time the market just right. Whether it is for bragging rights or for the lowest of all possible payments, people sometimes seem to think that there is always a better rate coming.

Mortgage rates are a bit different than some of the other interest rates about which consumers see news articles. Just yesterday, there were articles all over the news about the possibility of “negative rates”. The rate they were discussing was for the Federal Funds Rate, commonly referred to as the Fed Funds Rate.

The Fed Funds Rate (that is the short term rate charged to member banks and depository institutions for overnight borrowing) is not the rate that individual borrowers get for their mortgage loans, cars, etc. The idea of lowering the Fed Funds Rate is that if the cost of borrowing goes down then the cost of credit from the banks to the consumers will also decrease.

The United States Central Bank has hinted that they may buy as much as another $100 Billion in Treasuries. The Fed already has the go ahead to purchase $1 Trillion worth of mortgage-backed securities and $200 Billion of the debt secured by Fannie Mae and Freddie Mac.

What does all this mean for the mortgage rates that homeowners have to pay? It really depends on the economists you listen to! The Taylor rule (named after the economist who devised the formula) states that the key interest rate to revive and stimulate the economy should go down to negative ½%. Travel around the net a while though and you’ll find several economists who say that this is a recipe for disaster, just inviting inflation which will certainly drive borrower’s rates up.

No one can ever time the mortgage rates perfectly all the time. Even the long time pros who have been in the industry for decades have been caught when a massive market move came, sometimes to such a great detriment that it wiped companies out. Mortgage rates are driven more by the sales of the bonds in the secondary market than by what the Fed Funds Rate does on any given day.

Those bonds can become extremely attractive during times when the stock market is suffering and people look for a safe haven, or they can become extremely unattractive if there is a large offering of bonds in the marketplace, there are no buyers, and rates must rise quickly to make the bonds more palatable to potential buyers. In other words, mortgage rates can move quickly, up or down, and often for reasons for which no one was prepared.

Everyone knows to watch for when jobless claims come out, GDP numbers, Housing Starts, Retail Sales and other tell tale signs of a growing or contracting economy. However, in today’s environment, a terrorist attack around the world, the White House announcing a new program which is either widely accepted as good or bad, or any number of other unexpected items can cause a shock wave to the entire system, sending rates shooting up or down. Sometimes the move is very temporary and sometimes it can take a while to reverse these sudden changes.

If you are one of the many watching the mortgage rates and trying to time it just right to either buy or refinance your home, then you may want to consider this: rates are extremely low. Whenever I get the question of what will rates do in the future, I always answer the same way,

“There is only one sure answer for that question, it is certain that they will do one of three things – they will go up, go down or stay the same”. No one is ever right all the time on rates and I have seen all too many people who were trying to time it just right watch as the rates took off and suddenly they were too high for them to benefit any more or they missed their opportunity to buy.

My advice is to decide where it makes sense to you to do a loan and then when it meets your needs, lock and close it – then never look back. That way you won’t be one of the ones who “had a chance to buy or lower your payment, but got caught sitting on the fence and missed your chance when the rates shot up”.

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More seniors sign for reverse mortgages

2009-05-12T20:03:00.000-07:00

More senior Australians are taking out reverse mortgages to pay down debt and secure an income in retirement, a study finds.

Reverse mortgages, whereby outright home owners borrow against the equity in their homes, were launched in Australia earlier this decade and are sold primarily through financial planners and brokers.

Chief executive of the Senior Australians Equity Release Association of Lenders (SEQUAL) Kevin Conlon said the funding of reverse mortgages was becoming more challenging given financial market conditions.

However, SEQUAL was backed by the major banks and non-bank lenders that were well placed to meet the funding demands for the sector, he said.

The $2.5 billion market posted a 23 per cent in the number of reverse mortgages nationwide last calendar year to 37,500, said Deloitte Actuaries and Consultants.

Lump sum payments accounted for 97 per cent of drawdowns, with settlements reaching $141 million in 2008, Deloitte said.

The average reverse mortgage size is now $66,000, although that average rises to $74,300 for single women.

Couples account for almost half of all new loans, with the average age of borrowers 74 years, Deloitte said.

Deloittes spokesman James Hickey said debt repayment, home improvement and retirement income continued to be the top reasons for seniors taking out a reverse mortgage.

Buying a car was the next most common reason, followed by the need for funds to pay for aged-care services.

Fixed rate loans comprised 28 per cent of all settlements in the first half of calendar 2008 and dropped to 10 per cent by December 2008.

The past 12 months had seen a decline in the number of borrowers seeking a fixed rate mortgage in line with lower interest rates.

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Equity conversion

2009-05-11T20:01:00.000-07:00

WASHINGTON (MarketWatch) -- Question: I have many questions regarding the Home Equity Conversion Mortgage. How much down payment is required? Is there really no verification of income or assets? Do we have to sell our current house first (it is currently listed for sale)? Would it be possible to find a condo in a retirement development in Southern California that would be approved under this program?
Answer: You are referring to the new Home equity Conversion Mortgage for Purchase program, which was authorized by Congress in the Housing and Economic Recovery Act of 2008 that took effect Jan. 1.

The program, which is aimed largely at persons 62 years or older who want to move down the housing ladder, allows seniors to sell their current residence and use a reverse mortgage to buy a new one, all in a single transaction that eliminates the need for a second set of expensive closing costs. HECM's are insured by the Federal Housing Administration.
According to Monte Howard, affinity marketing director at Atlanta-based Generation Mortgage, the down payment on the new residence is based on three factors:

1.
The youngest purchaser's age. The older the buyer, says Howard, the smaller the down payment.
2.
Prevailing interest rates. The lower the rate, the smaller the down payment on a reverse mortgage that comes with a fixed rate that never changes over the life of the loan. But adjustable-rate reverse loans "have a special rate factor" called "the expected rate" that is used in the down payment calculation, Howard reports.
3.
Value. Lenders use either the property's sale price or appraised value, whichever is less, to determine the loan amount, which is then used to determine the down payment. But for properties valued above the current FHA HECM lending limit of $625,000, you'll have to come up with more cash, for every dollar in value above the limit will add a dollar to the down payment.

According to Howard, neither a purchaser's income nor credit score are factors in qualifying for a HECM. "A prior bankruptcy, for example, would not affect a prospective purchaser's ability to qualify as long as it is not a current, unresolved proceeding," he says.
But there is limited asset verification. Purchasers must demonstrate that they have the required down payment and that the money has not been borrowed. Financial gifts appear to be acceptable under certain guidelines intended to confirm that the funds are truly a gift, not an undocumented loan.
Howard also says that purchasers are not required to sell their current home prior to the closing of their reverse mortgage purchase. But they must occupy their new home within 60 days of closing. Purchasers can retain their current home as a rental property as long as they are capable of meeting the financial obligations of maintaining both homes.
And as for your final question, any condo that meets FHA requirements can be purchased through the HECM reverse mortgage program.
Q: I am 68 years old and have owned my home for 28 years. I am now in the process of refinancing to take advantage of a lower interest rate. Does the HECM include the refinancing of existing mortgages or is it for new purchases only?
A: Eric Bachman, chief executive officer at Oakland, Calif.-based Golden Gateway Financial, says most HECMs are used by seniors who want to remain in their homes. They work best when you own your home sans mortgage, or at least almost free and clear.
But you can use them to replace your current financing. And depending on your age, the property's value and what you still owe, a reverse mortgage could be a good way to generate additional income.
"If you still hold a forward mortgage on your property, a reverse mortgage can help eliminate your remaining debt while potentially creating additional funds that can be drawn as a lump sum or a monthly payment over time," Bachman says.
Based on the little bit of information you provided in your question, the reverse mortgage expert thinks that because of your relatively young age, a tenure payment "might be the best option."
A tenure payment is a monthly payment to you from the lender -- hence the name "reverse" mortgage -- for as long as you own your home. Better yet, because a HECM is a no-recourse loan, once it comes due you are protected from ever owing more than the fair market value of the home at the time of its sale.

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Changes in reverse mortgages worry industry

2009-05-10T20:00:00.000-07:00

Almost daily, the reverse mortgage industry is changing, and it's worrying plenty of people.

For years, reverse mortgages have been reliable, a way for seniors to live off the equity in their homes as they age. While complicated, these loans have been highly regulated in terms of fees and rate disclosures. Geared to homeowners age 62 and above, they provided peace of mind because rates and fees usually were set when the loan process started.

But now, reverse mortgage veterans like John Smaldone in Maryville, Tenn., are concerned about that some sudden changes by Fannie Mae that allow margins to fluctuate almost daily until the funding process is complete. These adjustments can confuse seniors and cause them to question whether they are getting fair treatment.

Fannie Mae - the largest financier in the U.S. mortgage industry - is trying to attract more money to the reverse mortgage market by increasing the amount lenders can make on selling the loans. But raising fees and allowing rates to change can lower the amount of money senior homeowners can borrow. It also can increase the fraud risk as competition for their business increases.

"Instead of (Fannie Mae) announcing the problem and then pitch in to help find an alternative, what do they do? Like normal, drop a bomb, this time on the reverse mortgage industry and our senior citizen population," Smaldone, senior vice president for reverse mortgages for AAXA Mortgage, said in a letter to U.S. Rep. John J. Duncan, R-Tenn.

Reverse mortgages are becoming more popular, in part because retiree stock accounts have lost so much value. Federal data shows a record 11,261 reverse mortgages were made in March, up from 9,086 the month before. The National Reverse Mortgage Lenders Association expects the number to grow to about 150,000 this year, up 30 percent over last year.

Last month - and without any real warning - Fannie Mae made changes that allow for higher margins for reverse mortgage lenders. Simply put, margins are the interest rate spreads a lender makes on the loan. So, the higher the margin, the higher the interest rate the borrower pays.

Worse still, under the new rules the margin - typically 3.25 to 3.75 percentage points - can change from the time a borrower submits an application and the loan is funded, which can be up to 120 days.

The borrower signs a disclosure form from the lender projecting the maximum amount of money the borrower may receive. But with rates that can change, the senior will not really know how much they can borrow until closing, or days before. That makes the disclosure form practically useless, Smaldone said.

"The reality of the draconian move by Fannie Mae is to create uncertainty in the reverse mortgage market place," real estate attorney and Florida International University law professor Dennis Haber wrote on his blog.

In the current credit crunch, Fannie Mae has been almost alone in buying up reverse mortgages. Now, more buyers will join Fannie Mae in the loan resale arena, lured by bigger profits from the higher margins.

Amy Bonitatibus, a Fannie Mae spokeswoman, said the pricing adjustments are meant to bring more investors and more cash flow into the reverse mortgage industry.

But within the industry, fears are mounting that the higher margins are turning the reverse mortgage industry into the more traditional loan market, creating heavy competition that could lead to over-lending and introduce more predatory lenders.

Further, the suddenness of the changes forced loan officers with clients who have loans waiting to be funded to tell the client that the rate has changed.

A widow with health problems, Lorraine Zickefoose of Alcoa, Tenn., received a foreclosure letter after her son lost his job and they were unable to make mortgage payments.

Zickefoose, who receives $1,100 a month from Social Security, sought a reverse mortgage to help her stay in her house. But, due to changing margins and credit issues, the reverse mortgage is leaving her short by $7,000. Her original lender turned her down, saying the amount she could have received on the reverse mortgage was not enough to cover her traditional mortgage.

"I have nothing. Now I am going to lose my home," said Zickefoose, 71. "I need that reverse mortgage."

Seniors considering reverse mortgages as a foreclosure lifeboat will endure a longer process as they shop around for different rates. And, they face the uncertainty of finding out days before closing that the margin has changed and they will be receiving less than they expected.

Counselors must be able to guide seniors in this situation. There's a learning curve with counselors as well as loan officers who are adjusting on the fly as these and other changes emerge.

"It's much more of a buyer-beware environment now," said Bronwyn Belling, reverse mortgage specialist in the AARP Foundation. "It's clear that things are not as simple as they used to be."

Last week, members of the Reverse Mortgage Association for Loan Officers held a conference call to air their dismay.

Michael Flanders said he's had to go back to a client and break the news that their rate changed.

"You have to in many cases rebuild the trust the senior had in you all over again," said Flanders, district manager of California Mortgage Resources in San Dimas, Calif.

Industry insiders fear that the margin increases will lead to higher instances of fraud, with lenders quoting a low margin to get clients interested, then disclosing a margin increase later in the process in a "bait-and-switch" strategy.

At least one heavy hitter in Washington seems concerned.

Duncan, the Congressman from Tennessee, told The Associated Press he is awaiting a reply to a letter he sent to James Lockhart - director of the government agency that controls Fannie Mae - "asking that he review the rate increases and other changes and their effect on seniors."

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Advice To Seniors Considering The Reverse Mortgage

2009-05-09T19:58:00.000-07:00

Leading Expert Offers Tips On What You Need To Know

ONTARIO, Calif., April 21 /PRNewswire/ -- Today's senior citizens have spent their lives building a family nest egg to ensure they can pay the bills after they retire. Despite the diversification in their portfolios, losing nearly half of their life savings has put older Americans in a panic about their financial futures.

(Photo: http://www.newscom.com/cgi-bin/prnh/20070717/NYFNSC02)

Although seniors live robust lives, well into their nineties, many are worried they do not have 20-30 years to recover their lost savings. With talk of deflation and predicted hyperinflation it is prudent for our parents and grandparents to consider the next steps to remain financially independent through the coming years, says Frank N. Darras, the nation's leading disability and long-term care insurance lawyer. See www.darrasnews.com.

"The increasingly popular reverse mortgage has been shopped by lenders and targeted to homeowners over 62. This is a special mortgage that lets seniors convert equity in their homes into cash," says Darras. "This may be a viable option but it is not without risk."

Here is how it works:

Today's reverse mortgages are called Home Equity Conversion Mortgages (HECMs) and are insured by the Federal Housing Administration. HECMs allow senior citizens to tap home equity and not have to make monthly payments. According to HUD, the HECM is considered a safe plan that helps senior citizens have greater financial security. See http://tinyurl.com/q4o97.

"It pays to be very careful," warns Darras. "Even when the government is promising a reverse mortgage is a safe bet, there is a lot to know and it is important for folks to examine the fine print."

There are costs associated with an HECM. The lender can charge up to $2500 in origination fees and although capped at $6000, that is a lot of cash to come up with on a fixed income. Rolling that fee into the reverse mortgage can be painfully expensive. In addition, you will be charged closing costs, Mortgage Insurance Premiums, servicing fees and interest, says Darras.

"Make sure you crunch all numbers and after you see the upfront costs and remember, you are still responsible for property tax and hazard insurance. Work with a trusted advisor to uncover all potential expenses and the trappings of a reverse mortgage," says Darras.

Most importantly, don't let fear and the lure of an easy solution drive your decision. Even though new legislation and lower interest rates promise to make it less expensive to borrow, it can cost you in the long run, if you are not careful, says Darras.

"No matter what, the loan will have to be repaid somehow, in full. Usually that occurs when the homeowner dies. Understand other restrictions could cause premature payback of the loan so make absolutely sure you know what you are signing," says Darras.

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Beware reverse mortgages

2009-05-08T19:51:00.000-07:00

Question: We have read your column for years and would like to know if there have been any changes in reverse mortgages. My husband and I applied for a reverse mortgage in January but never followed through. We thought we needed the money to be available because we lost 80 percent of our stock assets since last fall. Then we decided not to go through with it. Now we decided we need the money, and the broker told us to use the old one. What is going on here?

Answer: Throughout the past year of credit crisis, the reverse-mortgage world has changed. Before to the credit crisis, reverse mortgages and the interest rates used were set mainly by the Constant Maturity Treasury index (CMT). Therefore, folks considering reverse mortgages would be given a printout called the HECM (Home Equity Conversion Mortgage) CMT 200. This printout would tell them that the interest rate would be based on the CMT and the margin (profit) that the lender would make (then not more than 2 percent).

These rates were generally set each Thursday and would remain in place for the following week. This was a stable and secure environment in which reverse mortgages earned a good reputation as a safe product.

As credit became more "plentiful," more lenders came onto the reverse-mortgage scene, and many RMs were "repackaged" and sold off in the secondary market, just like the geniuses who caused the crisis had done with other financial products. Now, that well has also run dry and, for the past year, Fannie Mae has been the sole purchaser of reverse mortgages. We all know what happened to Fannie Mae, which has now been mandated by the Obama administration to clean up its balance sheets.

Fannie Mae decided to "clean up" by dramatically changing reverse mortgages, changes that will force senior homeowners and their adult children to do more rigorous due diligence before doing a reverse mortgage. Fannie Mae is now increasing the "margin" or profit that lenders can receive. Theoretically, the lender can make more money, make the reverse-mortgage product look better in the secondary market, resell the reverse mortgages and make yet another profit on the sell in the secondary market.

As of April 1, all reverse mortgages went to "live pricing," meaning interest rates and margins will be fixed daily, not weekly.

Thus, when seniors are shopping for reverse mortgages, they must be sure to compare apples to apples because originators (salespeople) may try to hoodwink even the sophisticated potential borrowers by backdating their good-faith estimates and quoting products that are not even available on the market any longer. That is why your old application will not work.

When signing applications, there is no longer any kind of "lock" on the interest rate, et cetera, until the lender is ready to close the loan. Thus, neither the lender, the originator or the elder person will know what the final amount available for a loan will be until the loan is "cleared to close" when the originator locks the interest and margin at whatever the market offers at that time.

The basics of reverse mortgages not changed: They are still a non-recourse (no money over the fair-market value of house is paid back), no-payment option for senior homeowners. But the pricing and rates of these products have changed and need greater scrutiny by the proposed borrower.

Jan Warner is a matrimonial, tax and elder-law attorney. His colleague Jan Collins is a writer and editor. Send family-court questions to Flying Solo, P.O. Box 11704, Columbia, SC 29211 or send e-mail to readers@flyingsolocomments.com. Send elder-care questions to Next Steps, P.O. Box 11704, Columbia, SC 29211, or go to nextsteps.net. Editor's note: These columns are written with a national perspective and are for general guidance only. For Florida-specific cases, it's best to consult a local attorney.

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Low Mortgage Rate- Free Helpful Info About Lowest Mortgage Rate

2009-05-04T20:19:00.000-07:00

It’s difficult to provide accurate low mortgage rate information, but we have gone through the rigor of putting together as many low mortgage rates related information as possible. Even if you are searching for another information somehow related to mortgage amortization calculators, low score mortgage, refinance rates or low interest rates this article should help a great deal.

There are two types of mortgage insurance. With one, you might not have a choice as to whether you have it. Private mortgage insurance is insurance that will protect your lender should you default on your loan. If your down payment is less than 20 percent of your property’s value, you likely won’t have a choice about whether you have private mortgage insurance; it’s required. However, with mortgage life insurance, you get to decide.

Comparison shopping is the smartest thing you can do in order to make sure you do not overpay for your mortgage. When comparison shopping you need to shop smartly and compare all aspects of the mortgage, not just the interest rate. You must compare all costs including lender fees, down payment, points, and any penalties such as prepayment penalty in order to make a fair assessment of which mortgage is better.

If you have a poor credit rating your options for mortgage lending are somewhat limited. Most traditional mortgage lenders do not have programs for individuals with poor credit ratings. There are, however, many mortgage lenders that specialize in mortgages for people with poor credit ratings.

If as related to low mortgage rate as this article is, and it still doesn’t answer all your needs, then don’t forget that you can conduct more search on any of the major search engines like Google Dot Com to get more helpful low mortgage rate information.

In some state, the mortgage rebate is banned. So, some state may not have no closing cost mortgage refinance. For example, the mortgage rebate is banned on Alaska, New Jersey, Kansas, Oklahoma, Rhode Island, Louisiana, South Carolina, Mississippi, West Virginia, and Missouri. Consult your mortgage lender or broker.

All mortgage leads are good, whether they are California mortgage leads, Michigan mortgage leads or Texas mortgage leads. Today we will delve into the wonders of Florida mortgage leads.

Instead, you may wish to consider disability insurance. Disability insurance would help you pay all your bills not just your mortgage should you become disabled. For about the same amount you’d pay to take care of your mortgage, you could pay an insurance premium to cover more of your expenses.

For your knowledge, we found that lots of people that were searching for low mortgage rate also searched online for reverse mortgage calculators, heloc rates, and even telemarketer mortgage leads.

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