States Provide Mortgage Foreclosure Modification Programs

While the government’s mortgage modification and foreclosure prevention program has not been gaining as much traction as many in the administration may have wished, other states have found a different solution. Connecticut and New Jersey unveiled their own mortgage foreclosure modification programs, and have found them to be increasingly successful. In Connecticut, over 2,500 people have participated in the program since its introduction in July of 2008, with a 60% success rate at avoiding foreclosure. Another small number were able to negotiate stays on the foreclosures until they could find another housing option. In New Jersey, 614 borrowers have qualified for mediation, with a little over a third of them negotiating to keep their homes.

In both states, borrowers who receive foreclosure notices are sent letter by the judicial branch informing them of their eligibility for the programs, so why are the numbers so different? 40% of those eligible participate in Connecticut, but only 5% participate in New Jersey. The difference between the two programs is that in New Jersey, borrowers must go through financial counseling before proceeding to mediation. In Connecticut, the borrowers go directly to a mediation. Connecticut borrowers still do generally receive counseling, but it generally occurs after the first mediation.

We have spoken at length about the ways in which counseling is able to help borrowers at risk for foreclosure (as well as those considering a reverse mortgage). However, the more hoops a borrower must jump through, the less likely they are to participate in a program. If it turns out to be true that the 35% difference in borrowers who are participating in these programs is primarily due to whether or not counseling is required, it would be an interesting case for reducing the emphasis on counseling in order to increase participation and results. Yet it would be surprising if this was the only reason for the change in participation rates.

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.

Senior Lending Network Stops Accepting New Loan Applications

On Tuesday the Senior Lending Network, also known as World Alliance Financial Corp., announced that it would no longer be accepting new reverse mortgage loan applications. The decision comes down from World Alliance Financial Corp.’s parent company, KBC Group, based in Belgium. KBC Group has been hard hit in the recent economic downturn, and, with the recent repurchase of Equity Key by its founders, appears to be seeking to shed its US holdings. Both World Alliance Financial Corp. and KBC Group have announced their diligence in finding a buyer or capital partner, but if they don’t, KBC Group has said it will begin to wind down World Alliance Financial Corp’s operations.

This move is destined to have ramifications throughout the industry considering that World Alliance Financial Corp. has endorsed 2,892 HECMs thus far this year, making it the fourth largest lender and holding a significant market share, around 3.4% of the market. As a result, it will be very interesting to see which lenders pick up both Senior Lending Network’s former customers and their former leads. Next month’s HECM volume report is likely to paint a different picture from what many in the industry have grown accustomed to over the past few months.

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.”

Number of Delinquent Mortgages Rises in May. Prime Mortgages Disproportionately Affected.

The housing crisis is not over for many borrowers. According to an article in the Wall Street Journal, the percentage of mortgages 60 days or more late rose to 5.65% in May, up from 5.48% in April. It is the highest level on record. In addition, the number of homes in the foreclosure process jumped, after remaining stagnant for a few months due to several moratoria. Around 257,000 homes entered the foreclosure process in May, up 5.7% from April, and 34% from a year ago.

What is perhaps most interesting about these statistics is that the number of subprime mortgages going into foreclosure has decreased 16% from a year ago. Yet the number of prime mortgages going into foreclosure is up 83%. This change may reflect the effect the recession has had on middle and upper-middle class borrowers. While many of these borrowers may have had the salaries and credit scores to qualify for a prime mortgage in the past, the market has shed many white collar jobs in recent months, affecting these borrowers, many of whom had money invested in the stock market and did not see this coming. Even so, these statistics are quite sobering.

It is important to remember that reverse mortgages can be one way for senior borrowers in these situations avoid foreclosure. For more information, see Foreclosure Prevention.

And let’s hope that next month’s numbers are better than these!

HECM Volume Rebounds in June, but Leaves Predictions in Jeopardy

After falling from 11,660 HECMs endorsed in April to 8,396 HECMS endorsed in May, HECM volume increased slightly in June to 8,633 HECMs endorsed. As the graph indicates, HECM volume for the year still looks like it is on track to be higher than last year. However, one wonders if the number of HECMs endorsed will be as high as was previously thought. While the trend through April might have led one to believe that the industry would see a 144,000 HECM volume year, these trends show something more like 120,000.

Once again, the volume of HECMs is concentrated in the top few lenders, decreasing dramatically on down. Wells Fargo, the top lender, has endorsed more than twice as many loans as the number 2 lender, Bank of America. Many other lenders have only endorsed one HECM last month.

The FHA’s complete HECM volume report for the month of June can be found here.

This Week’s Reverse Mortgage Rates: July 7, 2009

This week’s reverse mortgage rates are below. These rates are effective for the week beginning July 7, 2009.

APR:

HECM CMT 300: 3.53

HECM CMT 325: 3.78

HECM CMT 350: 4.03

HECM LIBOR 250: 2.801

HECM LIBOR 275: 3.051

HECM LIBOR 300: 3.301

Expected Rates:

HECM CMT 300: 6.53

HECM CMT 325: 6.78

HECM CMT 350: 7.03

HECM LIBOR 250: 6.25

HECM LIBOR 275: 6.50

HECM LIBOR 300: 6.75

Both the HECM Libor and the HECM CMT saw significant drops in Expected Rates this week, although the APR of the HECM CMT rose.

Texas Constitution Blocks HECM for Purchase Transactions

HECM for Purchase transactions may be legal in 49 states… but not in Texas. Due to protections against homesteading in the Texas Constitution, a constitutional ammendment will be required in order to legalize HECM for Purchase transactions. Right now, the borrower must own the equity in the home before a reverse mortgage can be applied for.

Variations in the Texas Constitution are nothing new. Although reverse mortgages have been around since 1961, they did not become legal in Texas until 1999. Now, the Texas Mortgage Lenders Association will seek a constitutional amendment in the summer of 2011, meaning it may be three years before buyers in Texas are eligible for the program.

While these additional protections are perhaps unsurprising, it is also fair to say that many did not see the hecm for purchase program coming. And the Texas Constitution was created long before reverse mortgages were. Ideally, the state of Texas will be able to change their Constitution soon in order to allow elderly borrowers to benefit from the program, especially as the country emerges from its recession. But realistically, the 2012 estimate given in the article is more realistic.

Breaking News: New HUD Mortgagee Letter Released on Refinancing Existing HECMs

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.

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.