Fannie Mae to Allow Borrowers to Lease Their Homes

Fannie Mae announced a plan on Thursday that will allow borrowers facing foreclosure to lease their homes. The program, called Deed for Lease or D4L for short, allows borrowers facing foreclosure to hand their deed to the lender in exchange for paying the market rate rent on the home for at least 12 months.

To qualify for the program, borrowers have to have mortgages insured by Fannie Mae, be unable to qualify for President Obama’s mortgage modification program, and be unsuccessful renegotiating with their lenders. While eligible borrowers would have to voluntarily give up the deeds to their homes, they would be able to stay for at least a year, providing that they paid the market rate rent. Rents would then be renewable on a month-to-month basis. Eligible borrowers must document that the new market rate rent is no greater than 31% of their gross income to qualify for Deed for Lease.

The Deed for Lease program is an extremely interesting and valuable way to keep delinquent borrowers in their homes, or merely to allow time for a transition. The program may be especially valuable for families with children, whom they do not want to remove from their schools in the middle of the year. It will help give families more time to come up with options. It will also help underwater homeowners– especially in areas that have seen property values drop significantly.

Furthermore, since tenants of qualifying borrowers are also eligible for the program, Deed for Lease will help tenants whose landlords face foreclosure. As a result, it appears that, though Fannie Mae provided no estimates for how many borrowers will be eligible for the program, Deed Lease looks to be a promising alternative to severely delinquent borrowers with Fannie Mae loans facing foreclosure–and for their tenants.

More information about the program can be found at www.efanniemae.com.

Option ARMs and Reverse Mortgages

Today’s Wall Street Journal featured a very interesting article on how Bank of America is using reverse mortgages to save senior borrowers. The cases include situations where Bank of America has taken a significant write down to allow the borrowers to stay in their homes. But not all borrowers may receive the same treatment as the borrowers highlighted in the article. As the story notes, most borrowers who received the modified reverse mortgage had taken out option ARMs.

Option ARMs (Option Adjustable Rate Mortgages) have become “the new subprime mortgages,” leading many borrowers into foreclosure. 32% of option ARM borrowers were delinquent or in foreclosure last month, compared with 48% of subprime mortgage borrowers. Unlike subprime mortgages, option ARM mortgages generally went to borrowers with good credit, including seniors with significant equity in their homes looking to refinance. The option ARMs have also proved difficult to modify, since the low interest rates on the loan often cannot be lowered any further. Lawsuits have been filed by borrowers claiming they were misinformed of the loan’s complicated structure, which in many cases can lead payments to balloon after a few years.

As a result of the lawsuits, as well as the settlement of a suit against Countrywide, which was since acquired by Bank of America, Bank of America has agreed to modify option ARMs and subprime mortgages where possible. While it appears that Bank of America has so far only issued about 20 reverse mortgages to borrowers with option ARMs, it looks like a good start to fixing a significant problem. Borrowers with option ARMs from Bank of America may want to talk to their servicer or the bank about a modification, perhaps with a reverse mortgage.

7 Warning Signs of A Bad Reverse Mortgage Officer

As in any industry, there are good reverse mortgage officers and not so good reverse mortgage officers. The following are some ways to help separate the good from the bad.

1. Does Not Return Phone Calls- Communication is an important part of the relationship between a reverse mortgage officer and their client. The process is not always straight-forward, and the borrower may have questions along the way. Therefore if the reverse mortgage officer regularly does not return calls or does not return calls for long periods of time, it may be time to look elsewhere.

2. Unavailable – In the same vein as #1, if a reverse mortgage officer is continually unavailable, it is hard to complete a reverse mortgage transaction. If the borrower wants to meet with the reverse mortgage officer or has a question for them, the borrower should be able to reach them. If they continually can’t, it may be time for the borrower to find a reverse mortgage officer they can talk to.

3. Part-time Gig – While economic times have meant that people may be trying to add extra jobs to make up for a loss of income, the point that your loan officer is more likely to pay more attention to your case and do a better job on the file if getting dinner on the table is on the line is a valid one. Especially if your reverse mortgage officer has another job in a completely unrelated field, you may want to find one who specializes in their trade and can give your file the attention it needs… full-time.

4. Weary Traveler – Although economic times have led more people to switch jobs recently than they may have liked, be wary of a reverse mortgage officer who has switched companies extensively over the course of their career. There may be a reason why.

5. Inconsistent Answers/Unknowledgable – Reverse mortgages may not be the most basic product on the market, but a good reverse mortgage officer should be able to answer most questions you may have and know where to go to get the answers to the rest. Beware of reverse mortgage officers who change their answers or are inconsistent. Also beware if there are many questions that they cannot answer. And while most states require loan officers to be certified, if a borrower is suspicious they can always check to make sure their officer is licensed.

6. Pushy or Impatient- A reverse mortgage is a significant financial decision, so beware of reverse mortgage officers who try to push the decision on the borrower or hurry the borrower through the process. The loan officer should make sure that the borrower is comfortable with the process. If the borrower feels uncomfortable, they might want to seek out a reverse mortgage officer who will make them feel more so.

7. Behavior problems- See if any complaints are on file against your reverse mortgage officer or their company. If there are, borrowers might want to receive an explanation and possibly a different officer to work with.

Thanks to 6 Signs of a Crummy Real Estate Agent for inspiration.

Money Management International Offers Free Counseling

Money Management International (MMI) announced that as of July 1, 2009, they will no longer charge borrowers for HECM counseling. A HUD approved reverse mortgage lender that is required to appear on all counseling lists given to borrowers, MMI believes they have enough grant funds to cover counseling through October 2009, at which point new grant funds will become available.

As counseling and the appraisal are generally the only two out of pocket fees a borrower must pay during the reverse mortgage process, MMI’s move could be great for a large number of borrowers. It will be interesting to see whether any other counseling agencies follow suit.

It is important to remember that lenders cannot steer borrowers towards a particular counseling agency. However, it is great that there will now be a no-cost option on the list.

MMI will be limiting their counseling sessions to around 3,500 a month, as well. It will be interesting to see what wait times for borrowrs begin to look like as a result.

Counseling has the potential to help large numbers of borrowers, and moves like this one will only serve to make it more accessible.

Foreclosure Prevention Case Study: Premier Reverse Closings Helps to Save Borrower from Foreclosure in a Record Seven Days

To follow up on today’s earlier post about foreclosure prevention, the press release below shows an example of a reverse mortgage helping save a borrower from foreclosure. While this story focuses on one case, this scenario has become more and more common, and is a reminder of one of the most important ways in which reverse mortgages can dramatically benefit borrowers.

ROCKLIN, California (July 8, 2009) – Premier Reverse Closings (PRC), divisions of National Closing Solutions and Placer Title, along with Lend America and Generation Mortgage, recently saved a borrower from the brink of foreclosure with a reverse mortgage that closed in a record seven days from the opening of the title and settlement order.

PRC worked closely with the broker, Lend America, and the lender, Generation Mortgage, to fund the reverse mortgage just one day prior to James Atkins’ June 25^th sale date.

In order to close the loan in such a short time, PRC spent extra time addressing his existing liens and clearing his title report, verifying insurance and hiring an experienced notary to verify and witness Atkins’ signing of his loan documents. Since the terms of Home Equity Conversion Mortgages (HECM) mandate a three-day right of rescission period, PRC had to obtain and review all proper documentation in just three days, leaving one day to fund the loan after the rescission period expired.

Atkins, a pastor at a church in Missouri, was thrilled with the entire process from beginning to end. “I did all I could, but I couldn’t do anything more. I prayed with all of my heart that things would work out for the best,” Atkins said. “Lend America and [PRC] worked so hard to close my reverse mortgage, and I am so grateful they saved my home.”

Atkins’ loan officer, Ed Sanchez with Lend America, knew that this could be done in a short amount of time, but is still so grateful for how quickly it could come together. “The teamwork between my processing team, the lender and PRC was absolutely outstanding,” said Sanchez. “It was truly a team effort for this hour-by-hour deadline that we faced.”

PRC’s Senior Vice President of Operations, Tina Meilinger, acknowledged this closing was an anomaly.

“Our PRC team has experience in closing more than 115,000 reverse mortgage loans, but none in just seven days,” said Meilinger. “This is definitely a first, and has raised the bar, with hopefully more transactions to follow.”

Meilinger knows that PRC plays an integral role within the reverse mortgage process, saving many borrowers from financial hardships daily.

“PRC is proud to have helped in the process of saving Mr. Atkins from foreclosure,” said Meilinger. “There is nothing better than knowing Mr. Atkins can have his family over to his home after church on Sunday, or that he will never have to worry about making monthly mortgage payments.”

A Neighbor's Foreclosure Affects Home Value

Many prospective reverse mortgage borrowers have questions about appraisals, and while statistics show that consumers’ valuations of their homes are beginning to fall more in line with the reality, there is still generally a gap between what a borrower thinks their home is worth and what an apparaiser thinks it is worth.

The NYTimes wrote an article on Friday highlighting how a neighbor’s foreclosure can dramatically affect home values. The article cites a report from the Center for Responsible Lending in Durham, NC, stating that about 69.5 million homes will have their home values decline this year due to the foreclosure of a neighbor. These homes will lose an average of $7,200, leading to a suspected loss of over $500 billion nationwide. Meanwhile, Credit Suisse projected that about 9 million homes will go into foreclosure from 2009-2011, leading to a ripple effect of declining prices on neighboring homes.

As Bill Tennant pointed out two weeks ago in his blog post on appraisals, one of the leading factors in an appariser’s valuation of a home is the recent sales of comparable homes in the vicinity. As the Center for Responsible Lending’s report shows, many borrowers are likely to take a greater hit due to the foreclosure crisis than they expected on the value of their homes. The Center for Responsible Lending predicted that borrowers will face a drop of 1.3% of their home’s value if they live within 300 ft. of a foreclosed home, and 0.6% of its value if they live between 300 and 500 ft.

US Regulator Worries Proprietary Reverse Mortgages Could Be Next Subprime Product; Encourages More Regulation

John Dugan

In a story that made headlines yesterday, top US bank regulator John Dugan announced that he is concerned that reverse mortgages could be the next subprime mortgage product to experience rapid growth. Like subprime mortgages, reverse mortgages are complicated loans that appeal to a vulnerable segment of the population. However, Dugan’s concerns are not centered on the 90% of loans secured by Fannie Mae. Rather, he is concerned about proprietary products, sensing an opening for those who wish to prey on seniors.

The Regulator’s remarks were partly to encourage other regulators to set standards for proprietary reverse mortgages. He also encouraged the regulators to be vigilant in cracking down on misleading marketing materials and lenders engaging in cross-selling. Dugan added that the Office of the Comptroller and Currency, where he is the top regulator, is prepared to step in should additional measures be needed.

As a result, Dugan’s comments should not be viewed in such a negative light. His point was that by acting early, regulators can hopefully prevent the next subprime crisis. His comments are in line with much of the state legislation that we have seen in recent months. Therefore, rather than scare people away from reverse mortgages, the Regulator’s fears should help skew prospective borrowers towards the FHA products, and otherwise help ensure that the proprietary market is regulated so that all reverse mortgage borrowers are protected.

15 year Fixed Rate Mortgages Become More Popular

A NYTimes graph displaying traditional forward mortgage rates for the NY region

Although reverse mortgages require no mortgage payments, many homeowners still have traditional forward mortgages. It is in the context of this traditional market that the following information applies:

The New York Times reported this weekend that 15 year fixed rate mortgages have surged in popularity recently. The number of 15 year fixed rate mortgages increased 56.6% from January to February. While these mortgages may seem attractive, sometimes saving borrowers tens of thousands of dollars in interest payments, lenders counsel that with higher payments, those with 15 year mortgages are more likely to have trouble making payments should they lose their job or encounter another financial emergency. One lender in the article proposed getting a 30 year mortgage and making the payments to pay it off in 15 years, but that way if there were an emergency, the borrower would have a cushion.

I do think that unorthodox thinking appears to be one of the best ways to get through the recession and through nearly any crisis. It is unsurprising that borrowers are looking for low rates (rates on the 15 year fixed rate mortgage are the lowest they’ve been since June 2003). In addition, being able to pay off a mortgage in 15 years is becoming a more and more tempting opportunity for borrowers who don’t want to have to make mortgage payments in retirement–another factor that has made reverse mortgages tempting.

ReverseMortgageGuides featured in April issue of "Reverse Mortgage"

The ReverseMortgageGuides.org Calculator was featured in this month’s issue of “Reverse Mortgage,” the official magazine of the National Reverse Mortgage Lenders Association. The article talks about the proliferation of online web applications for reverse mortgage lenders. The Reverse Mortgage Toolkit features a free calculator that can be embedded in a lenders’ site in only a few minutes. A more enhanced, paid version is in development.

Links to the calculator for both lenders and borrowers can be found below:

Reverse Mortgage Calculator (Borrowers): http://www.reversemortgageguides.org/reverse_mortgage_calculator.php

Reverse Mortgage Toolkit (Lenders): http://www.reversemortgageguides.org/toolkit/