Mortgage Rates Sink Again

NEW YORK (CNNMoney.com) -- Home mortgage rates continued to march lower, according to two separate reports released on Thursday.

The average 30-year fixed mortgage rate sank to 5.13 percent, down from 5.19 percent the week prior, according to Bankrate.com's weekly national survey.

The average 15-year fixed-rate mortgage fell to 4.73 percent from 4.80 percent the week prior, according to Bankrate.com.

The company obtains its data by surveying the top 10 banks and thrifts in the top 10 markets every Wednesday.

Meanwhile, a report from Freddie Mac showed that the 30-year fixed-rate mortgage fell to 4.78 percent in the week ending April 2, down from 4.85 percent the week prior.

The 4.78 percent rate is the lowest on record according to the Freddie Mac survey, which dates back to 1971 for that particular mortgage. The 30-year fixed rate averaged 5.88 percent at this time last year, according to Freddie Mac.

Freddie Mac reports the 15-year fixed rate mortgage fell to 4.52 percent, down from last week when it stood at 4.58 percent.

There is a difference in reported rates between Bankrate and Freddie Mac because lending rates are constantly fluctuating and the surveys are conducted at different moments.

The two agencies also report the rates with a different average number of "points," which borrowers can purchase at closing to buy down their lending rates. Therefore, the more points a borrower purchases up front, the lower the lending rate. Bankrate.com's averages have fewer points than Freddie Mac's average.

While rates are already very low, one analysts said that they could potentially dip a little bit more. "They could dip maybe another 20 basis points from where they are, but not a huge amount," said Brian Bethune, chief financial economist at IHS Global Insight.

Bethune also said that he thinks mortgage rates will stay low for a while. "I wouldn't expect them to necessarily jump back up again, but it all depends on the path of the economy."

Mortgage rates follow Treasury rates: No matter which report you look at, the consensus is that mortgage rates are low. The 30-year fixed mortgage rate moves in correlation with the yield on the 10-year Treasury bond. Therefore, lower the yields on government debt weighs on mortgage rates.

"Rates are just coming down as a catch up phenomenon because the 10-year Treasury has come down by 25 to 30 basis points in the past couple weeks," said Bethune. The yield on the benchmark Treasury dropped after the government announced its massive debt-repurchase plan in an effort to encourage lending and spur recovery in the housing market.

The government said two weeks ago that it would be buying more than $1 trillion in debt in an effort to provide liquidity in the credit markets. With the key lending rate already at a range of 0 percent to 0.25 percent, the Federal Open Market Committee - the policymaking committee of the Fed that sets interest rates - turned to less traditional means to encourage lending.

"Once we start to see a recovery, the Federal Reserve will start to reverse a lot of its liquidity programs," said Bethune. "We will see rates move up simply reflecting the anticipation that the Fed is going to start to pull liquidity out of the system."

But Bethune said that he expects the economic recovery to be slow, and rates should not move up significantly until 2010.

Source

Mortgage fair offers a reality check

Norwich - Bill Walters of Colchester said he attended the region's first mortgage fair Friday in hopes he'd get a better rate on refinancing his house.

”I thought I'd see everyone in a boxing ring trying to get my business,” he said. “But everyone has the same thing. All the numbers are the same.”

Welcome to the new world of home financing, said some of the financial experts who ringed a large conference room at the Norwich Holiday Inn. As opposed to the Wild West days of mortgages just a few years ago, today's home loans are fairly standard, they said, and borrowers get no brownie points for good credit, just demerits for less than stellar repayment histories.

”Six-hundred and ninety used to be a good credit score - and we'd still be pleased to find a client with a score like that today,” said Matt Biggins, district manager for Connecticut Home Loans, a division of Prudential.

But now, because of what Fannie Mae charges lenders, banks and brokers have to charge an extra point and a half to service a loan with a good credit score, even if the borrower can come up with a 20 percent down payment, Biggins said. That would be an extra $3,000 for a $200,000 loan - or about half a percent in the interest rate such borrowers are charged on a 30-year loan, according to experts.

Matt Listro of National Credit Fixers said credit is a huge issue for borrowers today as potential homeowners try to take advantage of a new law that reduces first-time borrowers' tax obligation by $8,000 for anyone who closes on a home by Dec. 1 of this year. He advises potential borrowers to take three major steps to improve their credit: pay bills on time, pay down debt on credit cards so that no one card reaches over 30 percent of its credit limit, and have at least three to five credit cards to establish good borrowing histories.

Listro advised borrowers to know their credit score before starting the hunt for a house, because it will give them a better idea of what they likely will have to pay - most likely a bit more than the advertised lowest mortgage rate. That might not sit well with folks who think they are going to get a home loan at an interest rate of less than 5 percent, said Biggins of Connecticut Home Loans, but he pointed out that rates are still near historic lows even for those with less than perfect credit.

In fact, home loans at very attractive rates can be had from lenders such as the U.S. Department of Agriculture, which has a zero-downpayment program with no mortgage insurance required for people with low to moderate incomes, said Johan Strandson, area director for the program. The loans, currently at 4 3/8 percent interest, are targeted toward rural areas, which include most of New London County, with the exception of Norwich, New London, Groton and parts of Waterford and Stonington.

Other information available at the mortgage fair, which continues from 9 a.m. to 9 p.m. today, included foreclosure prevention, reverse mortgages, distressed-property remortgages, first-time homebuyer advice, legal advice and a property rehab program through the City of Norwich. Among those who showed up early in the day Friday were mortgage brokers, including Joanne Pendleton of Crystal Real Estate in Waterford, who said she wanted to expand her knowledge of the current home-loan market. Exhibitors said the early hours of the mortgage fair were a bit slow, but they were expecting interest to pick up.

”I'm looking to buy a house,” said Scott Wissler of Colchester, loading up on paperwork provided by the various exhibitors. “It's a good time to buy.”

Source

Reverse mortgage a necessity

Our Chennai Bureau

Banks should not be hasty in cutting down property valuations in the current downturn, according to Mr Arun Ramanathan, Finance Secretary, Government of India.

In the context of the reverse mortgage scheme that supports the financial needs of the elderly, he said banks need to be careful on valuations which are done once in five years. In the current economic situation re-evaluating property could be a setback, especially for the elderly. While India has the demographic advantage with nearly half its population below the age of 25 years, the number of people over 65 years equals the population of Canada. The “numbers are large and disquieting” and India needs social systems that support the aged.
Barriers to scheme

Reverse mortgage supports the elderly by allowing them to use their house property to raise a loan to meet their financial requirements. But social barriers and mindset prevent the scheme from taking off in a big way.

Addressing a seminar on consumer issues in housing and housing finance, he said the Government was looking at a number of guidelines and regulation for the housing sector, including an ombudsman. The National Housing Bank has drawn up the guidelines which are under consideration. Minimum benchmarks of service are also needed for builders and lenders, he said.

Mr S. Sridhar, Chairman and Managing Director, National Housing Bank, said that the bank was trying to develop a uniform standard for valuations. A committee, including the Indian Banks Association and the School of Architecture and Planning, New Delhi, are drawing up the norms. Valuations based on these standards would soon be essential for transacting with public sector banks.

The National Housing Bank as a regulator of housing finance companies is looking at various measures of consumer protection, which include creating a common forum of banks and housing finance companies which would eventually evolve into a self-regulatory organisation. Later this year, the first batch of independent mortgage counsellors would earn their diplomas in home loan counselling. These counsellors who would have gone through a curriculum framed by the NHB would advise potential home loan borrowers in making an informed decision on various schemes of home loans available in the market.

Public sector banks have cut down on home loan interest rates to sustain flow of credit and even housing finance companies that have a higher cost of funds have managed to pare home loans, he said.
Easing credit flow

Mr M. S. Sundararajan, Chairman and Managing Director, Indian Bank, said public sector banks have done their best to ease the flow of credit to home loan borrowers. Indian Bank has seen a 25 per cent growth in home loans in 2007-08 and expects to see 20-22 per cent in 2008-09. If there is a drop in disbursements it is only because customers are ‘sitting on the fence.’ The banks have eased and speeded up the process of home loan disbursement. Home loan off-take is more a function of service than interest rates.

Banks are now competing to disburse home loans and now offer value-added services such as insurance linked home loans and restructuring of home loans to support those hit by the downturn, he said.

Source

Get tax-free income from reverse mortgage

Baby boomers are the rising senior population and like to live life to the fullest. With the rising cost of food, medical expenses and housing, seniors have to really look at their budgets. A reverse mortgage is for those 62 and older to utilize the equity in their home. It's a federally insured loan through the Federal Housing Administration, which uses FHA-approved appraisers to determine the home's value and charges a 2 percent mortgage insurance premium fee.

The FHA also requires borrowers to participate in HUD-approved (Department of Housing and Urban Development) counseling before submitting an application to a lender. The home needs to be their primary residence. There are no income or credit requirements.

Once approved, seniors can receive tax-free cash in the way of monthly income, a credit line, a lump sum, or any combination. Homeowners must still pay their own taxes and insurance.

Proceeds from the loan do not affect Social Security or Medicare benefits. The simple formula to determine how much an individual is eligible for is based on their age, address and current interest rates. Generally, the more valuable the house, the older the homeowner is, and the lower the interest rate, the more can be borrowed. The FHA limit on home values for reverse mortgages was recently raised to $625,500. The proceeds the senior receives is a formula based on their age, so a 62-year-old would receive less cash than an 82-year-old, with all else being the same. Since the programs are insured through the FHA, even if there is a severe decline in home values, the senior is protected.

A reverse mortgage can also pay off a delinquent mortgage and save a home from foreclosure. It can help leave seniors' investments intact. Seniors can then make use of getting tax-free cash from their equity, with possible uses including donations to a church while the senior is still alive to enjoy the donation, a kitchen remodeling, a car or travel.

Seniors make no payments as long as they occupy the home. Any excess money belongs to the estate after the mortgage debt and associated fees are paid.

The law has recently changed so seniors can even purchase a new home with a reverse mortgage to replace their existing home –– for example, if the one they're in has stairs and isn't suitable.

Seniors can receive their money

• in lump sum at closing,

• monthly payments for as long as they live in the home,

• monthly payments for a fixed number of months or years,

• a line of credit they can draw on when they need it,

• or a combination of the options that best meet their needs.

What about heirs? After repayment by sale of the home or refinance, the remaining equity remains with the estate.

Source

Yes, the mortgage lender can really do that

Q: Can you explain how a bank can legally charge a quarter of a point of the loan to opt out of an impound account? We have always paid our property taxes twice a year, always on time and have excellent credit. It feels like extortion to me.

A: It may not be legal extortion, but it's close. For years, lenders argued that it was necessary to collect escrows for taxes and insurance (also called impound accounts) in order to make sure that the real estate taxes and insurance policies would be paid and kept current.

This argument persuaded the feds to allow mortgage lenders this right. When Congress enacted the Real Estate Settlement Procedures Act in the 1970s, it put a limit on the cushion that lenders could take from homeowners. If the lender is covered under that law - i.e., is a federally related or insured lender - it can not take more than approximately two months of additional escrows per year.

Some states also limit the amount of escrows that can be taken by mortgage lenders, and it is my understanding that a few states actually require lenders to pay interest on the moneys they are holding in escrow.

But the basic argument that lenders make still remains: We want to make sure that our borrowers keep their real estate taxes and insurance current. So, if that's their position, why will they allow borrowers to pay their own taxes if they pay a little extra interest on their loan?

There is only one answer: Lenders use these escrowed accounts to their advantage. They get interest on these funds - which, for many lenders, can be a lot of money - or they use the funds as compensating balances to satisfy regulators' requirements.

Many lenders will let you pay your own taxes and insurance and will not demand the escrow or demand an additional interest rate. My suggestion: Negotiate hard with your prospective lender and see if they will allow you the right to pay these expenses on your own. After all, no one wants to lose their house at a tax sale.

Q: We purchased a home about four years ago. We have an adjustable-rate mortgage with payment options. The margin is 1.4 percent and the maximum interest rate is 9.95 percent. At the time, this sounded affordable to us.

We are thinking of refinancing because the fixed rate is so low now, but not sure if it's the right time for us to do it. We understood that we have the jumbo loan, which will have a higher fixed rate compared with the 30-year conforming loan. For the past few months the rate has been dropping each month - last month's interest was at 3.65 percent. We've been making the full amortized payment each month and sometimes adding extra toward the principal.

Are we taking a big risk by not refinancing to a fixed rate? I guess we are just confused with the type of loan we have.

A: You have an option adjustable-rate mortgage (ARM) for which you have the option of how large a payment you will make each month - ranging from a minimum that does not even cover the mortgage interest; an interest-only; or a fully amortizing payment based on a 15- or 30-year term.

I asked my colleague Jack Guttentag, the Mortgage Professor, about your situation, and he advised me that he has never seen an option ARM with a 1.4 percent margin. Jack advises (and I concur) that you should first find out exactly what kind of mortgage you have, and then you can decide whether it makes sense to refinance. He also suggests that you look at his Web site ( www.mtgprofessor.com) to learn a lot more about mortgages, especially ARMs.

Q: We have a home in a subdivision with a homeowner association (HOA) responsible for garden services and a pool. The HOA is managed by a professional real estate broker. The agent has total control over the budget and the restricted reserves.

Is it acceptable for the agent to have complete control over this account without reporting any details? We do receive a copy of the annual budget without any reference to our restricted reserves.

A: In an HOA, as with condominiums, there are legal documents. There should also be a board of directors - and the board has the legal authority to control the budget and the reserves.

Clearly, over the years, that real estate agent took it upon himself to deal with your finances. I suspect that no one else wanted to step up to the plate and serve on the board.

The agent may be honest and careful with your money, but it is your money and you (and all other homeowners) have the right to know what is coming in, what is going out and - perhaps more important - the level of your reserves.

My suggestion: Contact many of your neighbors and call a meeting. See if they have the same concerns, and if so, retain an attorney to assist you in getting a handle on the situation.

Q: What is your opinion of reverse mortgages? We have a home assessed at $157,000. Our nest egg is being eaten away and I was wondering about the benefits and pitfalls of a reverse mortgage.

A: Recently, Congress put some restrictions on the costs that lenders can charge for reverse mortgages, and it is too soon to know the results of that legislation. A reverse mortgage is an interesting concept. You can tap the equity in your home and take out your money in three different ways: lump sum, monthly or quarterly annuities, or line of credit, writing checks when you need the money.

But there are a number of negatives. While you do not have to pay any money to the lender, the interest will accrue on a monthly basis. That means that over the years, the equity in your home will disappear. When you die or decide to sell, the lender will be paid off in full. Because the lender runs the risk that at that later date, there may not be enough equity to be paid off in full, the charges are higher than if you obtained a conventional mortgage.

I suggest you do your homework first. There is a lot of good material on the Internet (just type in "reverse mortgage" at your favorite search engine). I recommend going to the AARP Web site ( www.aarp.org) because the organization is continuously examining these types of loans, and because it's not a lender, it tries to be completely objective.

Q: Our neighbor has planted some fast-growing bushes on her land, close to the boundary between our lots, to provide some privacy between our swimming pools. These bushes grow upward and outward, overhanging our land, which we do not like. She sometimes has them trimmed back, but they quickly grow again.

As we do not like to keep asking her to have them trimmed again, we do the work ourselves. She objects to that and suggests that we are not allowed to trim her overhanging bushes. What's the legal position?

A: It is my understanding that in all 50 states, homeowners have the absolute right to trim overhanging branches and bushes, and to cut off roots that trespass on your property. Whether you can force your neighbor to trim her own shrubbery depends on your specific state law.

You may also have the right to file a lawsuit against your neighbor based on a private nuisance theory. You would have to explore this concept with an attorney.

Q: Several years ago, we purchased a house and the seller provided financing. We now plan to refinance the loan with a third party. The seller/lender is named on all of the legal documents (deed of trust, insurance, etc.).

What documents do we need to use to remove the lender's lien position? Do we bring the documents to the county recorder's office? Basically, we want to get the official records to indicate there is no longer a lien holder.

A: You have to get a payoff statement from your current lender and make arrangements with him that you will exchange your check in the amount of the full payoff with a release of your present deed of trust (in some states, it is called a mortgage). You should also contact your insurance company and change the name of the beneficiary from the current lender to your new one.

But let me make a suggestion. Your new lender - whether it is a private person or a commercial company - will want its loan to be documented properly. The lender will also require a title search to assure it that it will be in first place position, with no earlier liens ahead of it.

So your best approach is to retain a local real estate attorney who should be able to assist you throughout the entire process.

Source

The Reverse Mortgage, Revisited

By Farnoosh Torabi, MainStreet
Attention strapped seniors: The reverse mortgage, a financial instrument that acts as a lifeline for some financially struggling retirees, has become a bit more accommodating under Obama’s stimulus plan. An HECM, or home equity conversion mortgage, (the most popular reverse mortgage and only one issued by Uncle Sam) now carries a loan limit of $625,500, up from $417,000. This has more seniors looking into a reverse mortgage, especially as other types of home loan products become harder to attain.

A Reverse Refresher
A traditional reverse mortgage is basically a loan against the value of your home that doesn't have to be paid back until you sell the property, move out or pass away. A bank issues you credit, based on the value of your home, your age and current interest rates. For example, according to an AARP chart, if your home is worth $150,000, your age is 65 and the rate on the loan is 6%, your reverse mortgage loan amount should be roughly $74,000, or half the value of your home. Generally, the older you are, the more credit you can receive because you’ll likely be able to pay back the loan faster.

You can choose to receive the loan in a single lump sum, a credit line or fixed monthly payments. The debt you inherit is equal to the loan advance plus interest.

Qualifications
To be eligible you must own your home and be 62 or older. You also cannot be behind on any federal debt. The financial qualifications for a reverse mortgage are more lenient than a traditional home loan. Because you don’t owe money every month, like a normal mortgage (also known as a “forward” mortgage), banks won’t disqualify you if you don’t have savings or have no income.

Some Risks
Assuming your home value doesn’t skyrocket (and at this point I think that’s a safe assumption) your debt increases and your home equity decreases by taking on a reverse mortgage. This is the opposite of how a forward mortgage should work (in theory). One of the biggest risks is that if you take on a reverse mortgage accumulating interest for a long period of time, or if the value of your home falls, there may be hardly any equity left in your house. If that’s the case, you only have to pay the bank the value of the home. So, betting you are able to sell the house at market value, this will work in your favor.

Beware of the Costs
But reverse mortgages are not cheap. Origination fees, the costs related to preparing and processing your loan paperwork, can take a bite. With an HECM, fees can cost up to $2,500 for a home worth less than $125,000. If the house has a value beyond $125,000, the fee is capped at 2% of the first $200,000 of your home’s worth plus 1% of any amount beyond $200,000. The most origination fees will cost is $6,000. Third-party closing costs could be anywhere from $2,000 to $3,000. There are also appraisal costs to consider. There’s also an insurance premium, which can be tacked onto the loan. Total non-interest costs could easily tens of thousands of dollars. A good tip: Don’t take on more credit than you need. Just because the bank approves you for a certain amount of money, don’t assume you’ll need it. Consider borrowing less.

Case in Point
AARP uses a striking example on its web site of a 75-year-old homeowner who takes on a reverse mortgage for 12 years. The value of the home is $250,000. The loan amount is roughly $68,000, with a 7% interest rate. In 12 years this borrower would owe back the original $68,000 plus $111,000 in interest. Add to that the upfront costs ($12,000), the mortgage insurance ($7,900) and fees ($5,000), her total amount owed would be more than $200,000 in 12 years.

Alternatives
As my colleague Mike Woelflein outlines in his story about reverse mortgages, applicants should think long and hard before diving in. If you need cash, consider selling your home and downsizing, or renting out a room. Or what about a home equity line of credit, instead? And definitely check out low-cost loans from state and local governments to afford property taxes or significant home repairs.

Source

Strategy for seniors when mortgage, taxes unaffordable

A common problem among aged homeowners is that they no longer have the income to service their mortgage, and don't have a good way to convert the substantial equity in their house into cash flow. The case below is typical.

"I am a 67-year-old widow with a mortgage of $414,000 on a house valued at $1.25 million. I can no longer afford the mortgage payment and property taxes, but the lender will not discuss modifying my loan contract until I am behind three payments. I don't want to destroy my credit, and have been borrowing from family to stay current. Is there anything else I can do?"

Assuming she wants to remain in the house, a reverse mortgage is the best solution to this problem. A reverse mortgage would allow her to convert the existing mortgage with its accompanying payment obligation into a reverse mortgage with no required monthly payments. Unfortunately, the loan limit on FHA's Home Equity Conversion Mortgage is not high enough to help this borrower, and the private programs with higher loan limits have shut down because of the financial crisis.

In a similar case some years ago, I recommended that the borrower do a cash-out refinance, investing the cash in a mutual fund and drawing cash from the fund monthly to make the mortgage payment. That would work in this case also. For example, if she borrowed $800,000, the cash of $386,000 would cover the payment for at least seven years.

The trouble is that this loan would not meet current underwriting rules, because the payment is too high relative to the borrower's income - it is not "affordable." Because of the abuses committed during the housing bubble when many houses were sold to people who couldn't afford them, underwriting affordability rules have become extremely rigid. No allowance is made for the situation where the borrower is already in the house and can't afford the payment, and the purpose of the refinance is to allow her to remain in the house for years longer. Applying an affordability rule in this situation is ridiculous.

Still another possible way to deal with the problem is for the lender to simply drop the payment to a level that is affordable to the borrower, adding the unpaid interest to the balance, for a specified number of years. Because the borrower has so much equity in the house, the risk of loss to the lender is negligible. The trouble with this is that it constitutes a modification of the loan contract, and in all probability it will not be considered until the borrower is in default.

In sum, the elderly borrower with little income but a lot of equity is poorly served by our housing finance system.

What about credit lines?

Among those who have benefited unexpectedly from the financial crisis are those with HELOCs (home equity lines of credit). HELOC rates are based on the prime rate, plus or minus a margin. The prime rate is currently 3.25 percent, the lowest it has been since 1955.

A reader with a HELOC who wrote me recently had a margin of minus 0.75 percent, which made her rate 2.5 percent. Her first mortgage had a rate of 6.5 percent, and her HELOC lender offered to increase her line by enough to pay off the first mortgage. The prospect of converting a 6.5 percent loan into a 2.5 percent loan was indeed enticing.

Nonetheless, I advised against it. The reason is that she did not expect to pay off the loan for 15 years, and over that long a period, the risk from the HELOC is too high.

The prime rate is extremely volatile. In 1980, it jumped from 13.5 percent to 21.5 percent in two months! This was an unusual episode, to be sure, but unusual episodes are becoming commonplace these days.

Furthermore, HELOCs offer borrowers no protections against rising market rates. On conventional ARMs, the rate does not change until a specified rate adjustment date, and it is subject to a rate adjustment cap and to a maximum increase over the initial rate. On a HELOC, in contrast, the rate changes whenever the prime rate changes, there are no adjustment caps, and the only maximum rates are those set by the states, which are very high.

I did some simulations using one of my calculators (9ai) to see how long it would take a borrower who refinanced from a 6.5 percent fixed-rate mortgage to a 2.5 percent HELOC to lose all the benefit of the refinance from a rising prime rate. Assuming the prime rate rose by 1 percent a year starting in six months, break-even occurs in about 7.5 years. The borrower who stays longer than that is a loser. If the prime rate rises by 2 percent a year, which is still quite modest, break-even becomes 3.5 years.

If the spread between the first mortgage rate and the HELOC rate is 4 percent, and the borrower expects to be out within five years, I think a refinance into the HELOC is a good gamble. If the rate spread is only 2 percent, I would not do it unless I planned to be out within three years.

•Jack Guttentag's column appears every Sunday in Homes Plus. Contact him via his Web site at mtgprofessor.com.

Inman News Service

Source