Congress Expresses Concerns About Long Term Care Insurance

When members of the reverse mortgage industry talk about cross-selling and when prospective borrowers approach a reverse mortgage, they often talk about “long term care insurance.” Long term care insurance is a product that is completely separate from a reverse mortgage in which borrowers pay premiums in order to hopefully receive coverage/reimbursement to pay for long term care, should they need it. Long term care would include things like a stay in a nursing home or an attendant to help a senior bathe and dress. It appears extremely difficult to find information on the exact way these programs work in an objective manner online. From all the chatter it should come as no surprise that at a Senate hearing today lawmakers and watchdog groups cautioned that more consumer protections are needed.

Some of the concerns about long term care policies include that there is no guarantee that a policy purchased today (or 10 years ago) will still meet the needs of the client in 20 or 30 years (people are often advised to buy long term care insurance when they are still in mid-life, before they need it). Since some private long term care insurers are partnering with Medicaid, consumer protections become more dire because at least 30 states will soon have programs to encourage middle-income residents to acquire long term care. Among the desired protections are ensuring that the premiums do not increase too dramatically, that complaints are addressed in a timely fashion, and that insurance agents are trained. Consumers are urged to educate themselves about the fee increases in their policy, the events that will activate it, and how they will be protected against inflation.

Finally, as is true with reverse mortgages, many other products can prove to be viable options for those exploring long term care insurance, including mutual funds, investments, and, in some cases, even reverse mortgages.

This Week’s Reverse Mortgage Rates: June 16, 2009

This week’s reverse mortgage rates are below. These rates are effective for the week beginning June 16, 2009.

APR:

HECM 300: 3.56

HECM 325: 3.81

HECM 350: 4.06

HECM LIBOR 250: 2.818

HECM LIBOR 275: 3.068

HECM LIBOR 300: 3.318

Expected Rates:

HECM 300: 6.89

HECM 325: 7.14

HECM 350: 7.39

HECM LIBOR 250: 6.72

HECM LIBOR 275: 6.97

HECM LIBOR 300: 7.22

While the expected rate of the HECM LIBOR fell this week, APRs continued to rise dramatically, following a pattern we’ve seen in recent weeks.

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.

Breaking News: HUD Mortgagee Letter 2009-19 Released on Condominium Approval Process

The US Department of Housing and Urban Development (HUD) released a new Mortgagee Letter 2009-19 on Friday afternoon, detailing new changes in the condominium approval process. The letter covers the two processing options for condominiums: HUD Review and Approval Process (HRAP) and the Direct Lender Review and Approval Process (DELRAP). The letter can be found at: 09-19ml.

Check back next week for more information.

HUD Considers Raising Insurance Premiums on Reverse Mortgages

HUD Secretary Shaun Donovan

HUD Secretary Shaun Donovan said in a Congressional hearing on Thursday that the Government could raise insurance premiums to avoid the nearly 800 million dollar influx of taxpayer money necessary to offset all the FHA losses given the current housing market, the Wall Street Journal reported on Friday. It would be the first time taxpayer dollars have gone into the reverse mortgage program in its 20-year history. Donovan argued against raising the premiums, on the grounds that increased premiums or heightened restrictions could lower participation in the program.

Secretary Donovan’s fear of increasing fees and lowering participation ought to be heeded by Congress. The reverse mortgage program is a program that can help a lot of individuals remain in their home and avoid foreclosure, as we have already seen. By adding more roadblocks, limitations, and/or costs, the government risks making the program inaccessible to the very people they wish to help the most.

Economic Forecasting Survey Results Show Pessimism in the Housing Market

The Wall Street Journal released the results of their monthly forecasting survey of economists. Of interest to the reverse mortgage industry: the economists expect housing prices to continue to decline. Even more worrisome, they expect the 10-year treasury bond, one of the factors upon which the CMT HECM interest rate is based, to nearly double to 4.40 by December 2010. Housing starts are also expected to be a low value this year. The majority of respondants don’t expect the Case-Schiller index to rise until Q1 or Q2 of 2010. Yet, there appears to be a discontinuity between the expected performance of the economy and the expected performance of the housing market. In other words, 92% of the economists believe the economy can sustain a recovery while housing prices are still falling, and given that many see the recession ending soon, it seems like they predict that will be the case.

While predictions are nothing but predictions, a severly increased 10-year treasury bond rate and falling home prices would not be good for the reverse mortgage industry, disqualifying more customers and reducing the amount borrowers are able to receive for their homes. All that can be done now is to wait…

WSJ Features Front Page Story on Reverse Mortgages

The reverse mortgage industry received a pleasant surprise this morning when the Wall Street Journal wrote a big feature on reverse mortgages on the front page of the personal journal section. While much of the article explains what reverse mortgages are and how they work, an interesting piece for lenders is the section on how much money the FHA has lost through reverse mortgages. HUD asked for $800 million taxpayer dollars to boost its loan-loss reserves as housing prices continue to decline. Jeff Lewis, the chairman of Generation Mortgage, mentioned that about 1/3 of the borrowers who might have closed reverse mortgages two years ago would no longer qualify today due to the declining home values. Perhaps in connection with this, the article mentions how sudden pricing changes by Fannie Mae have recently disrupted some reverse mortgage transactions, as borrowers realize they will qualify for less money at closing than they did when they began the application process, sometimes even having a shortfall.

The stresses on the industry are noteworthy, especially as interest in HECMs increases. The number of reverse mortgages being closed has proliferated in recent months, yet housing values do continue to decline. Hopefully these financial considerations will not too greatly imperil the government programs.

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.

This Week’s Reverse Mortgage Rates: June 9, 2009

This week’s reverse mortgage rates are below. These rates are effective for the week beginning June 9, 2009.

APR:

HECM 300: 3.50

HECM 325: 3.75

HECM 350: 4.00

HECM LIBOR 250: 2.821

HECM LIBOR 275: 3.071

HECM LIBOR 300: 3.321

Expected Rates:

HECM 300: 6.70

HECM 325: 6.95

HECM 350: 7.20

HECM LIBOR 250: 6.52

HECM LIBOR 275: 6.77

HECM LIBOR 300: 7.02

Both the expected rates and the APRs increased for the HECM CMT and the HECM LIBOR this week. Expected rates continued to rise sharply, continuing last week’s ascent.

Wells Fargo Accused of Systematically Selling Subprime Mortgages To Minority Homeowners

The city of Baltimore is suing Wells Fargo for systematically singling out African Americans as targets for subprime loans.

Wells Fargo was accused of systematically selling subprime mortgages to minorities in a federal lawsuit filed by the city of Baltimore. A lawsuit is also being filed by the NAACP, and Illinois and New York are among the states looking into more filings. In Baltimore, more than half the Wells Fargo properties that went into foreclosure currently stand vacant, and 71% are in African American neighborhoods. In New York City, black households making over $68,000 with a Wells Fargo mortgage were 8 times more likely to have a subprime mortgage as white households in the same bracket.

Filings in the suit include affadavits by two former loan officers attesting that they were offered bonuses to sell subprime mortgages to candidates who would have otherwise qualified for a conventional mortgage and that they targeted minority homeowners for the mortgages. Some of the more egregious claims include that some loan officers withheld client’s employment information so that they would not qualify for a conventional loan or cut and pasted credit reports from one customer into another’s application. Another loan officer talks about the teams set up to market the mortgages to African American churches.

While the judge is still waiting on more information from the city of Baltimore to determine if the lawsuit should proceed, it nonetheless remains disconcerting that a company such as Wells Fargo could engage in this kind of behavior for so long withoout anyone noticing it until now. It sounds like these practices were engaged in at a widespread level for long periods of time. Why didn’t anyone say anything until so many years later?

It is hard to conceive of anything that could be done to make up for the level of discrimination that took place and the harm done, should the lawsuit be allowed to proceed and Wells Fargo found guilty. Cases like this one are nonetheless a good reminder of the importance of educating consumers on financial products– hopefully if people learn about mortgages, insurance products, and/or reverse mortgages, for example, they will be less likely to fall victim to scams or unfair deals.