A Slow Rebound to the Housing Market?

A professor of economics and finance at Yale, Robert Shiller, wrote in Sunday’s New York Times that he does not expect the rebound of the housing market to be very swift. He wrote about why the housing market often does not follow typical cycles of supply and demand, tending to lag. The article is especially interesting for its use of historical examples, such as the 15-year long burst housing bubble in Japan and the 7-year market drought in the US in the early 90s.

It is also true, as Shiller points out, that it takes individuals longer to make housing transitions than stock transactions. The decision to move can have a long chain reaction, including new schools, doctors, and houses of worship. When the decision is made by a couple, it requires the consent of both parties. Then there is the sheer amount of stuff that needs to be packed, moved, and unpacked. Even renters don’t rejoice in the task.

Such a viewpoint, supported by historical fact, serves to move the debate about the rebound of the housing market from its current waiting game (Is this the bottom? No wait, is THIS the bottom? Or is it THIS?) to one of settling in for the long haul. Frankly, despite all the articles debating whether we should be optimistic or pessimistic in regards to the market (for example: http://www.reversemortgageguides.org/news/housing-market-declining-and-improving-at-the-same-time) , settling in for a long term slowdown of the housing market appears to be the wisest course of action.

Insurance Against Financial Fraud/Swindling

Reverse Mortgage Daily wrote a blog post today focusing on the case of a man in Minnesota who pleaded guilty to swindling his mother and was sentenced to the maximum thirty days in jail and five years of probation. Amongst the ways the man swindled his mother was through a reverse mortgage, and the writer wondered if there was a way to protect seniors from such crimes without harming the reverse mortgage industry.

I think the answer is yes.

Every year there are several stories of individuals who have been swindled out of their life savings. We could protect those individuals without harming the reverse mortgage industry by allowing them to buy insurance that would protect their life’s savings if someone has been convicted of defrauding or swindling them, allowing them to replace a portion of the money they have lost and ensuring that they still have money to live on in their old age.

Private companies and/or states could offer insurance against swindling/financial fraud. The insurance could be either mandatory or optional, and could taken out by the policy holder at any point throughout their life. In the same way the FDIC ensures up to $100,000 of each individual’s money in case of a bank failure, the financial fraud insurance would serve to protect an individual’s life savings against instances of swindling, theft, or fraud. While the policy would not necessarily be unlimited, policies of even up to $100,000 could do a lot to ensure that individual’s life savings are protected. Although cases of fraud are not incredibly common, they can be catastrophic to the individuals involved when they do occur. These policies would benefit those involved in something like the Madoff scandal as well.

The only way to collect on the insurance policy would be to show that an individual and/or corporation had been convicted of swindling the policy holder. In this case, the guilty plea from the son would be sufficient to guarantee the mother her pay out. If such insurance existed and the mother was able to collect on it, she would be left with more than the eighty dollars currently remaining in her bank account.

Correction: The man was sentenced to thirty days in jail, not thirty years.

Former Countrywide CEO Charged with Fraud

Former Countrywide CEO Angelo Mozilo

Former Countrywide CEO Angelo Mozilo was charged with securities fraud by the Security and Exchange Commission today, along with former COO and President David Sambol and former CFO Eric Sieracki. They are being charged with deliberately misleading investors about the increasing credit risk that Countrywide took to maintain its market share. Mozilo is also being charged with insider trading. He allegedly sold his Countrywide stock for 140 million dollars in profit when he knew that the business model was deteriorating. The SEC alleges that Mozilo, Sambol, and Sieracki misled investors to believe that Countrywide was primarily a prime mortgage lender, although they actually were doing a large number of subprime mortgages.

Mozilo’s lawyer says his client acted lawfully and that the charges are “baseless.” It will be interesting to see how the trial plays out.

Countrywide has since been acquired by Bank of America and is now Bank of America Home Loans.

Guest Contribution: Appraisals

Every day I talk to clients across the country confused on how appraisals work, and the ultimate value of their home. I am not an appraiser, just someone with experience reading hundreds of appraisals and understanding in broad terms how appraisers come to report the value of a home.

Today I spent twenty minutes on the phone with a pleasant woman, who is convinced that her home is worth at least $210,000. We spent much of the call going through every detail of her home, which sounds well-maintained and in great condition. I know the color of the carpets and walls in every room, the materials used in the updated kitchen, and the time that went into the landscaping.

This twenty minute tour of her home didn’t change the fact that two homes of similar square footage have sold on her street recently for under $150,000. The hard truth of the current market, full of foreclosures, and short-sales came crashing down on her Reverse Mortgage dreams. With so few retail sales recently, distress sales make up the bulk of the comparable sales and are exerting unprecedented influence on appraised values.

I am not writing this to tell horror stories about appraisals (although I have some that come to mind), only in the hope that we can all be a little more realistic about today’s real estate market. Appraisals can not take into consideration the beautifully decorated kitchen, except to perhaps slightly increase the value due to the homes great condition. Appraisers look at square footage, lot size, and overall condition of the property, number of bedrooms, number of bathrooms, and features, among many other factors. They look at comparable sales within the area within a certain time period. Unfortunately, that means that if a home down the street is the same model on the same lot as yours in similar condition it will reflect heavily on your value, even if they did not put the same amount of work into the landscaping or the interior of the home.

The appraiser’s job is not to assess the value of the upgrades made to the home, but only to compare your property’s overall condition to the overall condition of other sales in the area. Homes currently on the market have no bearing on the value until they have sold, providing a current comparable sale. Until then, the home on the market only increases property inventory which can actually reduce the value of your home.

Even experienced professionals in the real estate industry are often surprised lately by low appraisals. Please, heed my advice and research other sales in your area as well as similar properties that are pending sales to be sure you have an informed opinion of the value of your home to save much heartache and frustration, and in some cases money if the appraisal comes back lower than what is acceptable.

Bill Tennant is the Vice President of Access Reverse Mortgage in St. Petersburg, FL. He is a guest contributor to the site.

Obama’s Homeowner Relief Program Still Excludes Many

While the Obama Administration’s Home Loan Modification Program was supposed to help homeowners who have lost their jobs and are having trouble making their mortgage payments, the NYTimes wrote an article today highlighting the many people whom the banks have been unwilling to help because they have never been late on a mortgage payment before. Some of these homeowners are upside down on their mortgages–others are having trouble simply due to the circumstances of the recession.

Although it is often dangerous to make generalizations solely based on the case highlighted in the story, it is extremely plausible that banks are unsure how to handle customers with good payment histories who are now running into financial difficulties. The banks and government programs seem to be waiting for people to get into a lot of trouble before bailing them out, rather than helping prevent those problems in the first place.

Furthermore, the number of subprime and Alt-A mortgages refinanced in May fell 11 percent from April, according to research by Alan White at the Valparaiso School of Law. Given the record number of homeowners behind on their mortgage payments or facing foreclosure, this statistic is problematic and disturbing.

Many of those affected include seniors. The woman profiled in the article, Eileen Ulery, is 63, old enough to qualify for a reverse mortgage. However, her property is upside down, meaning she would be likely to face a shortfall.

While I agree that on a scale of priorities we should be helping those whose circumstances are most dire first, it does not seem to correlate that homeowners who have been responsible are being penalized. Bank of America Home Loans is quoted in the article as saying they are still putting the programs in place for those not facing a severe threat of foreclosure. I would hope that those programs are as inclusive as possible, and put together soon so that these individuals do not end up in a dire situation before they can get help.

Announcing the Reverse Mortgage Guide Association Membership and Certification Program

The Reverse Mortgage Guides Association is pleased to announce the launch of their membership and certification programs. These programs will provide ways for members to increase their knowledge of the reverse mortgage industry and to prove that knowledge in the form of a rigorous certification test.

Benefits of Membership

· Membership badge for website and print materials

· Subscription to weekly reverse mortgage news update

· Access to Reverse Mortgage Competency Certification Test for current and potential employees

· Directory listing on www.ReverseMortgageGuides.org

Certification Test Benefits

· Certification badge for websites and print materials

· Demonstrates knowledge and competency to prospective clients

· Test can be used as a screening tool for potential employees

· Test updated quarterly with current guidelines

About the Certification Test

· 30 questions

· Covers all aspects of reverse mortgages and federal compliance including RESPA

· Variety of question-types

· Timed—15 minutes maximum

· 60% or above required to pass

· Test is administered online

· Test results delivered within 2 business days

The cost is only $100 for the annual membership, and $50 per test administration.

For more information or to sign up, please email reva.minkoff (at) reversemortgageguides.org.

Fannie Mae Will Discontinue CMT Based Reverse Mortgages in September

Fannie Mae announced yesterday that it will no longer buy CMT based reverse mortgages beginning September 1, 2009. This means that CMT based reverse mortgages are therefore much less likely to be offered starting on that date. While on the surface this might look problematic, most lenders and borrowers are already using LIBOR based products, which currently have lower interest rates than the CMT based products.

Fannie Mae said the reasoning behind the discontinuation of CMTs was to help standardize and simplify the HECM product offerings, build liquidity for the product, and move the market towards securitization. However, another likely factor is that the CMT is based on the US treasury bond, which has been plummeting in value recently due to the recession. The LIBOR, on the other hand, is based on the London Inter-Bank Offered Rate, which is an international index. As a result, it is arguably a more stable rate in the current economic climate, dependent on the international situation as opposed to only on the US.

Lenders will be able to continue to obtain pricing and commitments for CMT based HECMs from Fannie Mae until August 31, 2009.

This Week’s Reverse Mortgage Rates: June 2, 2009

This week’s reverse mortgage rates are below. These rates are effective for the week beginning June 2, 2009.

APR:

HECM 300: 3.49

HECM 325: 3.74

HECM 350: 3.99

HECM LIBOR 250: 2.816

HECM LIBOR 275: 3.066

HECM LIBOR 300: 3.316

Expected Rates:

HECM 300: 6.59

HECM 325: 6.84

HECM 350: 7.09

HECM LIBOR 250: 6.29

HECM LIBOR 275: 6.54

HECM LIBOR 300: 6.79

Both the expected rates and the APRs increased for the HECM CMT and the HECM LIBOR this week. Expected rates have risen sharply.

Financial Counseling May Help Homeowners Avoid Foreclosure

A recent New York Times article focuses on Fannie Mae’s HomeSaver Advance Program, a now-deemphasized program that gave borrowers up to 15,000 in unsecured personal loans to cover missed mortgage payments. However, 70% of the borrowers who took out these loans defaulted. This instance helps highlight the importance of financial counseling. The article closes with the example of a New York City program that makes foreclosure avoidance loans available to borrowers who have undergone counseling. This program has given out 15 loans so far, none of which have defaulted.

Reverse mortgage counseling has come under fire recently, and several states have been debating whether to pass legislation requiring counseling before all reverse mortgage transactions. It is often argued that counseling is necessary in order to ensure that the senior borrower understands the reverse mortgage transaction, but if one looks closely, it appears that counseling has the potential to do a lot more than that. As counselors at the NRMLA Orlando Road Show explained, the purpose of counseling is partly to make sure that the borrower will still have enough money to live on after the reverse mortgage. The financial counseling portion of the reverse mortgage counseling process is perhaps underestimated, but it articles such as the one referenced above help show that financial counseling may be another way to help homeowners avoid foreclosure–and ensure that the steps they take in the short term will not penalize them in the long run.

New Content: Jumbo Reverse Mortgages

Jumbo reverse mortgages can work well for highly valued homes

We recently added an article on Jumbo reverse mortgages. Jumbo reverse mortgages, which can often be a good program for those with homes valued at over 2 million dollars, are a proprietary product. The fees may be higher and the percentage of the value of the home that the borrower can get is generally lower than in an FHA-backed reverse mortgage. However, for some borrowers, a Jumbo reverse mortgage can still provide a greater amount of proceeds than an FHA-backed HECM. You can view the article at http://www.reversemortgageguides.org/reverse_mortgage/jumbo_reverse_mortgage