Lenihan urged to reverse rate rise

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

Are Reverse Mortgage Rates on the Rise?

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

Mortgage rates rise but stay below 5%

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