The New York Times Publishes a Retirement Section

This weekend’s New York Times features a special section on retirement. The section, which can be found online as well as in print, features articles on Medicare, job hunting, 401Ks, and even reverse mortgages. However, it is frustrating that the piece on reverse mortgages is very vague and generic. The piece talks about reverse mortgages as a last resort, primarily for those who do not want to leave the home to their heirs. But this is the opposite of what some other media pieces have talked about in recent months, where a reverse mortgage was used as an estate planning tool in order to help borrowers pass on larger amounts to their heirs by avoiding the estate tax.

Nonetheless, with the exception of the vague reverse mortgage information, many other articles within the section may be useful to our readers.

NRMLA President Testifies for House Subcommittee

NRMLA President Peter Bell testified in front of the House Subcommittee on Housing and Community Development today as part of a panel of witnesses on the future of the FHA. While Commissioner Stevens’ statements were written up in the New York Times, Bell’s comments provided a number of interesting anecdotes on the state of the reverse mortgage industry.

Bell talked about the risks to both borrowers and lenders. Borrowers risks include finding out they do not have enough money to remain in the home due to property taxes and insurance. These issues, which we have covered extensively in the past few weeks, only effect 2% of borrowers, and efforts are underway to help mitigate those risks. Lenders risks include being stuck funding a loan that is unable to get a certified by HUD. HUD is reducing this risk, by decreasing the Principle Limit Factors last week, and eliminating the need for a credit subsidy to the reverse mortgage program.

However, Bell’s main purpose in his testimony appeared to be to convince the House Subcommittee to extend the current reverse mortgage limits and to ultimately return to the prior Principle Limit Factors. HECMs have had a net gain of 7 billion dollars in the course of the program, and Bell argues that reverse mortgages have not played a role in the FHA’s recent capital reserve problems. Reverse mortgages are expected to operate on a break even or better basis in the future.

Furthermore, recent changes to the program will impede the ability of seniors to get a reverse mortgage. Over 20% of reverse mortgage borrowers in the last year would not have qualified if the Principle Limit Factors had been reduced to their current levels when they applied for the loan. New technology has reduced costs for lenders, and Bell maintains that the numbers used by the Office of Management and Budget (OMB) are not realistic, since the average lifetime of a reverse mortgage loan is 7 years regardless of the age of the borrower. Older borrowers average the same length of time with a reverse mortgage as younger borrowers. Bell was passionate that the reverse mortgage program has been self-sustaining and will continue to operate as such.

Caring for an Elderly Parent

A column in The New York Times today revealed that nearly 30% of adult children contribute to their parent’s care, on average spending $2,400/year. The expenses can cover everything from unpaid medical expenses to daily chores like stocking a refrigerator. The time and expense of caring for an aging parent can be a large stress on adult children– financial and emotionally. However, as the article notes, there are many sources that can help reduce the burden.

For some seniors who continue to live in their homes, a reverse mortgage can serve as a possible solution, providing another source of income to help pay for medical bills, adult day care, and the like. Another important point raised in The New York Times column is that there are a number of other resources available to assist seniors and their families, which are often inadvertantly overlooked. The column talks about the services that can be provided by a geriatric care manager, who can help assess a family’s needs and put the family in touch with the appropriate resources. Lawyers and geriatric care managers can also be a resource to help families navigate the complex red tape and bureacracys that sometimes surround senior programs.

One of the biggest takeaways I gathered from the article is that there are a variety of programs that seniors can qualify for, even if their income is over $100,000. Another is the importance of planning ahead. The article discusses, power of attorney, for example. As seniors and their families think about the future, issues like power of attorney, long term care insurance, and wills should be addressed sooner rather than later.

Affordable Housing For All

affordable_housing In a piece in the New York Times today, Edward Glaeser, the famed Harvard economist, made the following comment:

“When housing prices soared, ordinary Americans found it increasingly hard to afford a house. I would certainly cheer if Detroit produced a wonder car for $10,000 that could get 50 miles to the gallon and go from 0 to 60 in five seconds. I would also cheer if the housing industry could produce a beautiful and energy efficient 3,000-square-foot home for $100,000. The same logic pushed me to boo when housing became outrageously expensive. During the boom, I hoped that housing prices would stop rising and even decline.”

Glaeser’s sentiment leads to the following reflection: Isn’t there something appealing about a big beautiful home for $100,000? If housing is a basic right of all Americans (let alone all human beings), then wouldn’t it follow that low housing prices would be a good thing?

Imagine a world in with housing prices were so low that individuals purchasing their homes with cash was commonplace. While mortgages would still exist, they would no longer be necessary for all homebuyers. Perhaps a mortgage would become an option, like the decision purchasers make every day when deciding to make a purchase with cash, credit, or debit. Or, arguably more accurately, like the decision car buyers make when choosing whether to take out a loan or pay with cash.

It is true, as Glaeser pointed out, that low housing prices do have a more dramatic effect on the financial markets than most expected. However, this is only due to the symbiosis that exists between the housing industry, the mortgage industry, and the home goods industry. So many of the problems in the housing crisis were caused by homes being used as an investment vehicle. When home prices fell, borrowers were stuck with homes that were worth much less than their mortgage payments. As more and more borrowers lost their jobs in the subsequent Great Recession, even many whose homes still retained equity found themselves unable to afford their mortgages. And the housing crisis was exacerbated.

The idea of affordable housing for all is a very appealing one. While it does seem hard to imagine a world in which affordable housing for all could be made a reality and where housing prices could fall so as to make homeownership affordable without crashing the economy, before we spend all our time wishing housing prices would go back up, we should consider solutions (esp. long term) where housing does become more affordable, home ownership more stable, and an individual’s right to housing less susceptible to the whims of the economy.

NMLS to Help Monitor Loan Officers

One of the most common questions we get from borrowers is whether we know a licensed loan officer in their area. Sometimes we do and sometimes we don’t. However, soon the question will be even easier to answer. Bob Tedeschi’s Mortgage column in the New York Times today focuses on the ways in which NMLS, the Nationwide Mortgage Licensing System, is growing in importance and will become accessible to consumers within the next year.

Currently, the Nationwide Mortgage Licensing System (NMLS) is being used by 48 states with California set to join soon. Minnesota is the loan holdout, but if it does not comply, it is likely to be forced to do so by HUD as a result of the Secure and Fair Enforcement for Mortgage Licensing Act. As a result of the act, all states are required to participate in the licensing system. NMLS requires all loan officers at state-chartered banks to complete at least 20 hours of prelicensing education, to pass a test, and to complete 8 hours of continuing education annually. Those with a felony conviction in the last 7 years are not eligible for a license.

Perhaps most importantly for consumers, NMLS is establishing a database of complaints against loan officers, which will soon be searchable by the public. The searchable database will also include loan originator’s licensing credentials and employment histories. This information should help protect consumers from bad loan officers, and provide consumers with just another safeguard in the process.

Concerns with Appraisals Captivate Major Papers

Appraisers are under pressure to inflate property values.

Over the last two days, both the New York Times and the Wall Street Journal have published lengthy articles on the effects of the new Home Valuation Code of Conduct on appraisers. The Home Valuation Code of Conduct, which went into effect May 1, has made lenders responsible for ordering appraisals and negotiating with appraisers. As a result, appraisal companies are complaining that they are being paid less to do more work. In addition, appraisers are often required to travel farther to appraise homes, raising questions as to whether they are familiar enough with the area to provide a valid appraisal. A case highlighted in the Wall Street Journal article was that of a homeowner in Palm Beach Gardens, FL where the appraiser drove 44 miles to evaluate the home and came back with an appraisal that was around $70,000 less than the second appraisal. Furthermore, while the fees the appraisers are being paid have been decreasing, the cost to the consumer has risen by $100 in the past year, with most of the proceeds going to middle men.

Another concern raised by the industry is that being hired by lenders puts more pressure on the appraisers to return with a value that makes the deal possible. Appraisers need to keep the lenders happy to stay employed. If they demand fees that are higher than another appraiser or produce an unfavorable result, the lender may look elsewhere. As a result, some feel that the legislation risks putting ethical appraisers out of business.

Appraisal issues are common in reverse mortgages, and many of the issues raised in the article extend through both the conventional and reverse mortgage industries. As appraisals travel farther, there are more opportunities for mistakes. As appraisers worry about their fees and costs ride, the burden on consumers grows. Thus while the legislation has attempted to curb price inflation in appraisals and reduce the conflicts of interest, it appears to have arguably caused more problems than it has solved. Some in Washington are trying to get the legislation postponed until 2011.

Location is Everything in a Reverse Mortgage

This 2BR featured in the New York Times is on the market for $425,000.

Every week I read the New York Times “Property Values” column. The column features three properties throughout the country each week that are on the market for the price listed. “What You Get For… $250,000,” for example, vs. “What You Get For… $450,000.” But having watched homes of different prices and sizes be listed each week, I have come to one clear conclusion: location is everything.

During one recent week, I watched some 3-5 BR homes discussed for under $300,000, but this week, the homes listed were 4BR, 2BR, and 1BR… all for $450,000. Clearly location is at play. A 1BR in a high rise in Midtown Manhattan will almost certainly cost more than a 1BR in Lancaster, PA. A 3BR in Orange County, CA will likely go for more than one in Seattle, WA or Des Moines, IA.

When considering a reverse mortgage, location also comes into play because property values in some areas are higher than in others, as the above indicates. Some places have been hit dramatically by the burst of the housing bubble, while others have not seen their housing prices drop as steeply. Foreclosures and underwater mortgages are more common in California, Florida, Arizona, and Nevada than in most places in the Northeast.

It is a good idea to have a sense of how much your property is worth when using the reverse mortgage calculator and when evaluating your options. You may find that sales in your market are going strong and your home has not lost much of its value recently. However, you could also find that the reverse is true, is many are throughout the country.

Auctioning off Mansions

An article in the New York Times today focused on a new phenomenon: The absolute auctions of multi-million dollar mansions. In an absolute auction, there is no minimum price, and the buyer agrees to accept the winning bid. The home chronicled in the auction was appraised at 14 million only two years ago, but sold in auction for 2.5 million last week, sending the home owner into personal bankruptcy.

The article was a sad story, as it highlighted the increasing interest in selling mansions at auctions–often pushed by creditors to do so or on the brink of foreclosure. The day before the home was auctioned, its belongings were auctioned. And still in the case of this homeowner, it was not enough to stave off financial disaster. In a way, it seems that selling homes at absolute auction, while a way to get something for the home, doesn’t give always give the homeowners all the money they need. But it depends on the situation: another man was able to sell his home in an absolute auction, still cover the cost of his mortgage, and only take a $200,000 loss. Nonetheless, the auctions are a sad phenomena of the weak market for luxury homes and the recession itself.

New Concept for Senior Housing

Fox Hill outside Bethesda, MD

A new concept for senior housing was profiled in the New York Times today. The article focused on Fox Hill, a new senior housing complex outside Bethesda, MD. Rather than only allowing seniors to rent rooms on a monthly payment or requiring them to pay a high entrance fee which is partially refunded when they either pass away or move out, Fox Hill allows seniors to own their homes. Yet they still receive many of the same benefits that come with living in a senior home, including communal meals, social activities, and access to health care. In home care is available at an additional fee, and assisted-living units are also within the same building, enabling couples to live close to one another while one requires more assistance.

Fox Hill, developed by Sunrise Senior Living, has had trouble filling all the condos. However, the concept seems interesting, especially because it appears that, assuming the condos are FHA approved, the HECM for Purchase program might enable borrowers to use a reverse mortgage to purchase their condos. The article also surmises that the number of seniors in all types of housing has slipped nearly 2 percentage points thus far this year, as seniors struggle to sell their homes. It wonders whether the concept will gain more traction once the market rebounds.

The concept seems valuable, especially when one considers the large numbers of seniors congregating in locations such as South Florida and Phoenix. There is something to be said for being a part of a community of one’s peers, and many seniors in those areas also own their homes. While the properties in Fox Hill are expensive, ranging from around $500,000 to just over $1 million, there are seniors who are willing to pay that much for a new home. And while, as the article notes, some seniors do not care whether or not they own their home, others note that they like that they are accumulating equity.

HECM for Purchase Program Featured in NYTimes

The New York Times featured an article on the HECM for Purchase Program.

Friday featured a welcome piece of publicity for the reverse mortgage industry: Bob Tedeschi’s mortgage column in The New York Times was about the HECM for Purchase Program. Now that the new underwriting procedures for HECM for Purchase loans have been laid out in a recent HUD mortgagee letter, HECM for purchase loans are beginning to close. However, as the article points out, New York has not been well represented in that mix due to the fact that HECM for Purchases cannot currently be used to purchase a co-op.

The column mentions the high fees associated with the loan. Taxes are higher in NY than in most other states, so that does not help. The column also points out that the HECM for Purchase program is probably not a good idea should one intend to move again within 2-3 years. And, while Tedeschi cited the importance of reverse mortgage counseling, he also pointed out that the quality of counseling can vary, steering prospective borrowers towards those who have past HUD’s certification test.

All in all, though the column could probably be a little clearer, it hopefully will serve as a good step in educating prospective buyers about the HECM for Purchase program. And, afterall, there is a saying, “There is no such thing as bad publicity.”