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Posts Tagged ‘Washington’
Wednesday, August 19th, 2009
 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.
Tags: appraisal, appraisals, appraiser, appraisers, Home valuation code of conduct, legislation, lender, lendsers, Mortgage, mortgages, New York Times, reverse mortgage, reverse mortgages, Wall Street Journal, Washington
Posted in Consumer News, Industry News | No Comments »
Wednesday, July 29th, 2009
 Representatives from many of the mortgage industry’s leading mortgage servicing companies met with members of the Obama administration in Washington on Tuesday. The meeting was called to discuss ways to improve the administration’s housing rescue plan and loan modification program. It was called in light of the fact that the program, while launched in February to great fanfare, has only completed trial modifications on over 200,000 loans so far. The administration’s goal remains 500,000 trial mortgage loan modifications by November 1st. In what is perhaps an effort to increase the pressure on mortgage servicers to modify more loans, the Obama administration also announced that it remained on track to release a report on the individual mortgage servicing companies by August 4th. The report will contain the number of trial modifications offered to eligible borrowers and the number of trial modifications currently under way.
Some seem to fear that adding additional pressures to the mortgage servicers will cause banks to take additional losses on the loans. However, it is commendable for the administration to push for the loan modifications–especially in a program that has had so many complaints over the past few months. I’d argue that while the losses taken by the banks will in aggregate certainly be larger than that taken by the homeowner whose loan was not modified and gets foreclosed upon, the significance of the foreclosure is greater for the homeowner than for the bank. Furthermore, it is perhaps easier for the administration to then aid the bank, rather than aid each of the millions of homeowners whose homes have been pushed towards the brink of foreclosure as a result of the economy-the people who this program was designed to help.
Tags: administration, FHA, foreclosure, homeowner, loan, loans, Mortgage, mortgage loan, mortgage loan modification, mortgage loans, mortgage servicer, mortgage servicers, mortgages, Obama administration, Washington
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Friday, July 24th, 2009
 As the House continues to debate their appropriations bill, much recent reverse mortgage news has covered speculated and proposed changes in the bill, including questions as to whether the increased property value limit ($625,500) will be extended, and how the FHA will avoid the $798 million taxpayer subsidy requested for the program. The bill approved by the House Appropriations committee on last week instructs HUD to reduce the principal amounts borrowers can receive through the program.
However, the most important point at this time in the bill’s process is that nothing has been finalized. The bill must be approved by the House, then the Senate, then a Conference Committee made up of members from both houses of Congress meets to reconcile changes in the bill, and then the President must sign it for it to become law. This whole process will likely not be completed until well into the fall. I therefore think that at this time, the best course of action is not to panic or react to proposed changes before they become a reality. Obviously lobbying has its place in the legislative process, but at an early draft stage, it seems to be unnecessary for the industry to sit on pins and needles reacting to every change (or proposed change) to the bill before it is in front of the whole Congressional body. And even if a change passes the House or the Senate that is unfavorable, it is still likely that it might not pass through a conference committee in tact. Let’s give the complexity of the legislative process its due.
Tags: appropriations bill, bill, Congress, FHA, house, HUD, reverse mortgage, reverse mortgage legislation, reverse mortgages, Senate, Washington
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Wednesday, May 20th, 2009
 - The Federal Reserve has been under fire for failing to do a better job regulating the mortgage market
The Wall Street Journal is reporting today that the Obama administration is in advanced level talks to create a new regulatory agency to oversee the mortgage industry, as well as other consumer-oriented financial products. It sounds like mortgages and reverse mortgages would both fall under its discretion. It appears likely that credit cards will not be included. The proposed changes come as the Federal Reserve continues to be under criticism for failing to regulate the mortgage market during the housing boom.
However, it seems dubious whether a new agency will really be able to accomplish anything beyond what the government has already been trying to do. Currently HUD and the FHA have been overseeing the mortgage and reverse mortgage market. These agencies are already under criticism for being too far removed from the market, and the time lapse and red tape in the drafting and interpretation of the McCaskill amendment potentially help signal the validity of these claims. Adding an additional agency will only further confuse the system and red line the structure. I question whether it could be more effective as a regulatory body given the landscape in Washington and the organizations that already exist.
Tags: credit cards, Fed, Federal Reserve, FHA, financial products, housing boom, HUD, McCaskill Amendment, Mortgage, mortgage industry, mortgage market, Obama, Obama administration, regulatory agency, regulatory body, reverse mortgage, reverse mortgage market, Washington
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Friday, May 1st, 2009
 A piece of legislation supported by President Barack Obama failed in the Senate yesterday. The measure, which would have allowed judges to reduce the value of some mortgages in bankruptcy proceedings, failed 45-51. The WSJ called it Obama’s first big legislative defeat. The bill had previously passed in the House.
The bill would have allowed a bankruptcy judge to reduce a mortgage to reflect a home’s market value — known as a “cramdown.” Banks such as Bank of America, Wells Fargo, and Citigroup, had supported the legislation, even as community bankers and two major credit-union groups opposed it.
Tags: Bank of America, bankruptcy, Citigroup, legislation, Mortgage, President Barack Obama, reverse mortgage, Senate, Washington, wells fargo
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Wednesday, April 29th, 2009
 Senator McCaskill in DC At first, I was inclined to be in favor of the new “cross selling” restrictions. However, after learning more about them, I have changed my view.
One of the most popular and well-publicized examples of reverse mortgage fraud comes from lenders selling a senior a reverse mortgage, then convincing them to use the proceeds to buy an annuity or long term care insurance. This practice is known as “cross selling.” The annuity could perform poorly, the money could be invested for the gain of the broker, or the terms of the insurance could be highly unfavorable. And in many of these cases, seniors could be taken advantage of.
Hence the new series of “cross selling” restrictions that are passing through state legislatures and the federal government. The federal government’s restriction, in the McCaskill amendment to the Housing & Economic Recovery Act of 2008, is arguably the most stringent one. The amendment states that the mortgagee “shall not participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity;” This language can be extended to include tellers and savings accounts, let alone all insurance products and 401(k)s. There is an “or,” however, which states that the mortgagee can do the above if they prove to the Secretary that the mortgagee maintains firewalls and safeguards to ensure that the originator has no incentives to provide the mortgagor with any other financial product and that the mortgagor does not need to purchase any other product as a condition of the reverse mortgage. This means that, provided that it can be proven adequately that safeguards are present, other financial products may be able to be sold by mortgagee.
The principle of the law is correct. Clearly it is important to protect seniors from fraud. Cross selling can prove disadvantageous for seniors, especially when the mortgagee is being compensated for the other products–something the senior may or may not be aware of.
However, there are other instances where cross selling may be advantageous. A senior may wish to place the money in a savings account or open up a credit card with the bank behind their reverse mortgage. They may decide to purchase a long term care insurance plan. These products can be favorable, and seniors should be able to purchase them.
The current law means that reverse mortgage lenders can only discuss a reverse mortgage with their client. If the client asks them about other options, they are not permitted to answer. Many seniors have long-term relationships with their banks or financial advisors. These seniors should not be forced to go to a variety of sources, leaving the person whom they trust and have a long-standing relationship with, just because they are considering a reverse mortgage. Such a policy has a potential to cause more harm than good.
Seniors have the right to evaluate all their options. Hopefully HUD’s interpretation of the McCaskill ammendment will still enable seniors to discuss alternatives to a reverse mortgage with their financial advisors and/or discuss options for what to do with the money, if they wish to do so. Cross selling could be prevented by a more narrow law. But the McCaskill ammendment takes it too far.
Tags: annuity, bank, Cross Selling, financial advisor, government, Housing & Economic Recovery Act, HUD, law, long term care insurance, McCaskill Amendment, mortgagee, mortgagors, reverse mortgage, reverse mortgage fraud, reverse mortgage lender, reverse mortgage scams, reverse mortgages, senior, seniors, Washington
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Thursday, March 26th, 2009
 At the end of yesterday’s post, I added a line on how government involvement in reverse mortgages was a good thing. And then I pressed publish. However, it took only a few moments for me to realize how complex an issue government involvement in reverse mortgages is–everything from government involvement in the financial market to the real estate market to reverse mortgages in particular. A throw away sentence is inadequate to address this issue. Should the government be involved in regulating reverse mortgages or not?
The reverse mortgage market is a particularly interesting one because it contains two sectors. Government insured loans comprise the majority of reverse mortgages. However, a smaller percentage (about 10% and growing) consist of proprietary reverse mortgages–mortgages carried out without the backing of the government.
Recently we have seen the state governments attempt to regulate the proprietary market. In several instances, these regulations extend some of the same protections offered to federally backed loans to proprietary loans. These protections help protect the consumer from fraud and the lender from a lawsuit and should be considered a good thing, for example allowing a reverse mortgage to be cancelled in the 10-30 days immediately after the closing and requiring the lender to notify the borrower of all the fees involved in the transaction. The federal government has a responsibility to help prevent fraud and protect its citizens. In an environment that is as economically predatory as this one, carrying this responsibility into the potentially dangerous world of reverse mortgages makes sense.
However, in some of the other parts of the proposed bills, government involvement is not as intuitive. For example, some of the new recommendations include complex new rules regarding the licensing of reverse mortgage lenders and brokers. While states have generally controlled who practices what in each state (medicine and law are the two largest examples of statewide certification; education is a close third) requiring specific reverse mortgage certification, even from lenders who are otherwise licensed to complete loans and mortgages, may seem a little extraneous. But given that every state does have different laws regarding reverse mortgages, it seems logical that state practitioners should be knowledgable of their state’s requirements.
So what should the state governments stay away from? Fundamentally, if a person chooses to complete a proprietary reverse mortgage, they have chosen to not receive the protections entitled to them in a federally insured HECM. This does not mean they should not be educated to make sure they are making the right decision, nor does it entitle them to be defrauded. However, the market for third party proprietary reverse mortgages is growing, indicating the demand for something outside of the government programs. The government should allow such a program to be executed by third parties, provided it is executed in such a way that protects its citizens and does not defraud.
Tags: Arizona, bill, California, federal, FHA, government, hecm, libertarianism, Minnesota, politics, Proprietary Reverse Mortgage, reverse mortgage, state, Washington
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Wednesday, March 25th, 2009
 The Washington state Capitol, one of the states where a new reverse mortgage bill has been introduced. Last week, we discussed the proposed reverse mortgage bill in Arizona. Today, we would like to highlight three other states where bills regulating proprietary reverse mortgages have been introduced in the last month. The three bills differ dramatically from each other.
The California bill aims to protect seniors from being lied to and/or misinformed, including a lot of regulations surrounding impartial HUD counseling. Some highlights of the California Reverse Mortgage Elder Protection Act of 2009 include requiring lenders to provide prospective borrowers with a list of all approved HUD counselors in the state, requiring lenders to disclose any business relationships or potential conflicts of interest with the counseling agency to the prospective borrower, and allowing the borrower to cancel the reverse mortgage for any reason within the first 30 days. This bill apparently addresses the needs of the state, where seniors have been found to be misinformed or misled regarding reverse mortgages more often than in some of their neighbors.
Minnesota’s new bill addresses the issues of fraud and double dipping. It too seeks to ensure that lenders do not provide reverse mortgages to seniors who do not need them.
One of the key facets of the bill is that it prohibits cross selling involving reverse mortgages. The bill will also require mandatory counseling for proprietary reverse mortgages. There appears to be a lot of skepticism as to whether it is possible to ever really prohibit cross selling. However, it seems valuable to state that lenders cannot also sell annuities or insurance to the borrower if the payments will come from the reverse mortgage. Trust is a crucial aspect of the reverse mortgage program, and double dipping has the potential to undermine that trust.
The Washington bill protects both the lender and the consumer from eachother. The bill appears similar in some ways to the Arizona bill by mandating counseling. It requires basic protections, ensuring that there is a right of recession and that the payments go to the correct party. However, the bill is also notable because it adds provisions for the lender, helping to confirm that the lender can afford to make the payments in the reverse mortgage and that they are held accountable if they do not. The Washington bill appears to be designed to prevent court cases and help provide guidance to the courts in determining disputes. It also is likely to serve as an important step in protecting seniors in the proprietary reverse mortgage market–especially since one only needs to be 60 to qualify for a proprietary reverse mortgage in Washington State.
These bills continue to show the increased interest the states have been taking in regulating the proprietary reverse mortgage market during the recession. Reverse mortgages can help seniors and improve their lives. On the other hand, there also instances where getting a reverse mortgage may prove to not be the right thing for the senior and their family. Taking steps to protect the senior while helping to prevent lawsuits is a good thing. It is valuable that the states have gotten involved in regulating a market that is so at risk for fraud and manipulation.
Tags: Arizona, bill, California, law, lawsuit, Minnesota, Proprietary Reverse Mortgage, reverse mortgage, reverse mortgages, senior, state legislature, Washington
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