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Posts Tagged ‘refinance’
Monday, November 2nd, 2009
 Last week a bi-partisan deal was announced in the Senate that will likely pave the way for the new homebuyer’s tax credit to be extended through April 2010. The deal also includes plans for a significant expansion of the tax credit, raising the income requirements to $125,000 per individual and $225,000 per couple from $75,000 per individual and $150,000 per couple. This expansion means that many more individuals will be eligible for the tax credit than were previously. Finally, the deal added a $6,500 tax credit will be available to homeowners wishing to move out of their current home into a more expensive one.
I have been thinking about the deal all weekend, and I worry about its effects. While the goal of the credit is to strengthen the market and help bring home prices back up, increasing income requirements and adding a tax credit to incentivize trading up seems like it risks exacerbating the current problems in the housing market. Many of the current problems in the housing market have been created by homeowners (many first-time homeowners) taking out mortgages that were more than they could afford to pay in order to buy homes. Even when they could afford the mortgage, the recent economic problems have led many to be out of work or find their401(k)s and pensions to be less than they had expected. Consequently, the number of foreclosures and mortgage delinquencies reached all time highs in recent months.
In light of these developments, some proposed that maybe homeownership should no longer be an essential part of the American Dream. It was argued that it is a disservice to put people into homes they cannot afford. While the tax credit is not a very large sum of money, it is enough money to push individuals to act in uncertain times. A realtor in Portland, ME commented that nearly 70% of their clients were motivated by the tax credit. Yes, the housing market could use a boost, but when individuals are making a significant long-term financial decision for a short-term financial incentive, it seems like many poor choices can occur.
Reverse mortgages and refinances are available to help homeowners who find themselves over-extended, but reverse mortgages are only available to those over 62, and refinances and short pays have been extremely hard to get. To avoid another housing crisis, the government does need to stimulate the market, but putting more borrowers into homes they cannot afford does not seem to be a safe way to do so.
Tags: home, home prices, homeowner, homeowners, housing crisis, housing market, money, refinance, reverse mortgage, reverse mortgages, Senate, tax credit
Posted in Consumer News, Industry News | No Comments »
Wednesday, October 21st, 2009
 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.
Tags: ARM, Bank of America, borrower, borrowers, Countrywide, foreclosure, lawsuits, Mortgage, mortgages, option ARM, refinance, reverse mortgage, reverse mortgages, senior, subprime, subprime mortgage, Wall Street Journal
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Friday, August 7th, 2009
 US Rep. Barney Frank (D-MA) In the wake of a meeting between mortgage servicers and representatives of the US Treasury Department last week, US Rep. Barney Frank (D-MA), chair of the Financial Services Committee, threatened to revisit the “cram down” legislation that had failed in the Senate last year. The legislation, which passed the House last year and is supported by the President, would allow bankruptcy judges to rewrite mortgage contracts when homeowners file for bankruptcy. While it remains to be seen what effect this would have on both the mortgage companies, and the borrowers, some believe that borrowers would be granted a great deal of relief from bankruptcy judges if the cramdown legislation were passed.
The problem is that there is no reason that a borrower should have to declare bankruptcy to get their mortgages modified or refinanced. And as more and more homeowners fall behind on mortgages, find themselves with motgages that are greater than the value of their homes, or both, the number of homeowners either unable or unwilling to make their mortgage payments will only increase. We talked yesterday about the problem of upside down homeowners encompassing about 32% of homeowners. The category of homeowners potentially in need of a refinance or modification is even larger.
And so while there are times when it might be useful for bankruptcy judges to be able to rewrite mortgage contracts, hopefully the government and the mortgage industry can work together to make mortgage modifications a more workable reality before the “cram down” legislation becomes necessary.
Tags: bankruptcy, Barney Frank, Congress, cramdown legislation, government, house, legislation, modification, Mortgage, mortgages, refinance, Senate
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Thursday, July 2nd, 2009
 Breaking News: A new HUD Mortgagee Letter was released on Tuesday, HUD Mortgagee Letter 2009-21. The letter covers the HECM refinancing of existing loans. Some important points:
- A technical correction to 73 FR 51596 and the 24 Code of Federal Regulations (CFR) Part 206 stating that the FHA will insure all loans that we originated for the purpose of reginancing an assigned loan that is not in a due and payable status for reasons that cannot be corrected, but closed on or after October 6, 1008.
- A mandatory “anti-churning disclosure” requirement as a consumer protection measure for all refinanced HECM.s. The Anti-Churning disclosure form must be signed by the mortgagor and be included in the FHA case binder. The form, designed to ensure that the HECM refinance will benefit the mortgagor, requires that the mortgagee provide the mortgagor with its best estimate of the total cost of refinancing to the mortgagor and the increase in the mortgagor’s principal limit as measured by the estimated initial principal limit on the HECM refinance less the current principal limit on the existing HECM. The mortgagee must also provide the mortgagor with the best estimate of funds available to the mortgagor minus any closing costs/fees.
- For HECM loans that are closed-end lines of credit, the Anti-Churining Disclosure Form must be issued concurrently with the Good Faith Estimate. For HECM loans that are open-end lines of credit, it must be issued with the other disclosure forms provided in lieu of a GFE.
- Mortgagors in a HECM refinance can waive/opt-out of counseling if they have received the HECM Anti-Churning Disclosure form, if the increase in the mortgagor’s principal limit exceeds the total cost of the HECM refinance by an amount equal to 5 times the cost of the transaction and if the time between the closing of the existing HECM and the application for refinancing is five years or less.
- The mortgagee letter also contains detailed instructions for servicers regarding how to treat the loan.
The complete HUD Mortgagee Letter 2009-21 can be found here.
Tags: Anti-Churning Disclosure Requirement, breaking news, hecm, HECM refinance, HUD, mortgagee, Mortgagee Letter 2009-21, mortgagor, refinance, reverse mortgage, reverse mortgages, servicers
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Tuesday, June 30th, 2009
 Part 2 in our popular frequently asked questions series is below. More to come!
Q: Is a reverse mortgage taxable?
No. The proceeds of a reverse mortgage do not count as income and are not taxable accordingly. Furthermore, the interest on a reverse mortgage is tax deductible when it is paid. However, the borrower must still pay taxes on the property.
Q: How long must I live in my home before I can get a reverse mortgage?
There is generally no requirement for how long the borrower must live in their home, as long as it is their primary residence. A reverse mortgage can also be used to purchase a new home using the HECM for Purchase program.
Q: Can I refinance a reverse mortgage?
Yes. A reverse mortgage can either be refinanced as a reverse mortgage or a forward mortgage. There is no limitation on the amount of times you can refinance.
Tags: frequently asked questions, refinance, reverse mortgage, reverse mortgage faq, reverse mortgage frequently asked questions, reverse mortgage questions, reverse mortgages, taxable, taxes
Posted in Consumer News | No Comments »
Friday, May 29th, 2009
 Wall Street Journal graph depicting the number of overdue mortgages and foreclosures versus the rising 30-year fixed mortgage rates The Wall Street Journal announced today that mortgage rates have surged to their highest level in three years. The average rate on 30 year fixed rate forward mortgage was 5.44% on Thursday. But what is more remarkable is that the level jumped 7.6% from Tuesday, when the rate was just 5.03%. While forward mortgage rates are not directly related to the reverse mortgage rates, the same trend can be observed in the reverse mortgage rates. Between May 19th and May 27th, the rates for the 10-year CMT (which affects the HECM CMT programs) increased by 4.6%, while the rates for the 10-year LIBOR swap (which affects the HECM LIBOR programs) increased by 2.4%. If the forward mortgage data is any indication, next week’s reverse mortgage rates will be even higher.
The increasing mortgage rates in both markets are a cause for concern amongst those in the industry. For one, increasing mortgage rates will make homeowners less likely to buy a home. The Wall Street Journal reports that Credit Suisse estimates that each increase of .10 percentage point in mortgage rates is equivalent to a 1% rise in home prices. By their calculations, home prices would then have risen over 3% in two days (while home values have remained constant).
Increasing mortgage and reverse mortgage rates will also make it harder for borrowers to refinance and/or get out of foreclosure. They will lower the amount of money that can be saved by refinancing. These negative affects will not help a stuggling housing industry where, as reported yesterday, the number of homeowners behind on their mortgage or in foreclosure is already at record high levels.
Tags: 30 year fixed rate, CMT, foreclosure, forward mortgage, hecm, hecm rates, housing industry, housing market, interest rate, LIBOR, Mortgage, mortgage rate, Mortgage Rates, mortgages, refinance, reverse mortgage, Reverse Mortgage Rate, reverse mortgage rates, reverse mortgages
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Wednesday, April 22nd, 2009
 While this may not come as a large surprise given the state of the economy, the Census Bureau reported today that the rate at which Americans moved in 2008 was lower than in any year since 1962. In terms of the raw numbers, it was the worst year since 1949-50. The 35.2 million people who changed residences is a decline from the 37.8 million who did in 2007. Those who moved were likely to be poor, black, unemployed renters.
Perhaps unsurprisingly, the number of interstate moves is where the decrease was felt the worst. Some predict that local moves will increase in the recession as people search for cheaper housing or move in with family members.
While the moving statistics are not the same as many of the traditional real estate statistics since they include renters, they are an indicator of the health of the market as well as an interesting demography measure. And while, in another report, the number of mortgage applications increased 5.3% last week, mortgage applications to purchase a home were down 4.2% (seasonally adjusted).
It looks like as the recession continues, people appear likely to try to make do with what they have (refinancing their mortgage, taking out a reverse mortgage, or simply staying put) than make a big change.
Tags: census bureau, demographics, demography, economy, housing crisis, Mortgage, mortgage applications, moved, moving, recession, refinance, reverse mortgage
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Last week a bi-partisan deal was announced in the Senate that will likely pave the way for the new homebuyer’s tax credit to be extended through April 2010. The deal also includes plans for a significant expansion of the tax credit, raising the income requirements to $125,000 per individual and $225,000 per couple from $75,000 per individual and $150,000 per couple. This expansion means that many more individuals will be eligible for the tax credit than were previously. Finally, the deal added a $6,500 tax credit will be available to homeowners wishing to move out of their current home into a more expensive one.
