Rising Mortgage Rates Increase Concerns About Housing Market

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.

Record 12% Of Homeowners Behind on Mortgage or in Foreclosure

In more depressing housing news, the Mortgage Bankers Association announced Thursday that a record 12% of homeowners are behind on their mortgage or in foreclosure. They do not expect the number of foreclosures to crest until the end of next year.

In an interesting twist, the foreclosure rate on prime fixed-rate loans has doubled in the last year. They now comprise the largest share of new foreclosures. The financial crisis has also hit many of those previously thought to be invulnerable: Nearly 6% of fixed-rate mortgages to borrowers with good credit are in the foreclosure process.

The foreclosures also appear to be clustered: 46% are located in California, Florida, Arizona, and Nevada.

We’ve tried to keep much of the blog focused on how to get out of foreclosure for those who are affected by the crisis. Those over the age of 62 can qualify for a reverse mortgage, which can help many avoid foreclosure. There are also many state resources that can assist, such as the one in Illinois discussed here.

If there are any options I’ve left out, please comment with them.

15 year Fixed Rate Mortgages Become More Popular

A NYTimes graph displaying traditional forward mortgage rates for the NY region

Although reverse mortgages require no mortgage payments, many homeowners still have traditional forward mortgages. It is in the context of this traditional market that the following information applies:

The New York Times reported this weekend that 15 year fixed rate mortgages have surged in popularity recently. The number of 15 year fixed rate mortgages increased 56.6% from January to February. While these mortgages may seem attractive, sometimes saving borrowers tens of thousands of dollars in interest payments, lenders counsel that with higher payments, those with 15 year mortgages are more likely to have trouble making payments should they lose their job or encounter another financial emergency. One lender in the article proposed getting a 30 year mortgage and making the payments to pay it off in 15 years, but that way if there were an emergency, the borrower would have a cushion.

I do think that unorthodox thinking appears to be one of the best ways to get through the recession and through nearly any crisis. It is unsurprising that borrowers are looking for low rates (rates on the 15 year fixed rate mortgage are the lowest they’ve been since June 2003). In addition, being able to pay off a mortgage in 15 years is becoming a more and more tempting opportunity for borrowers who don’t want to have to make mortgage payments in retirement–another factor that has made reverse mortgages tempting.

This Week’s Reverse Mortgage Rates: May 27, 2009

This week’s reverse mortgage rates are below. These rates are effective for the week beginning May 27, 2009.

APR:

HECM 300: 3.47

HECM 325: 3.72

HECM 350: 3.97

HECM LIBOR 250: 2.813

HECM LIBOR 275: 3.063

HECM LIBOR 300: 3.313

Expected Rates:

HECM 300: 6.29

HECM 325: 6.54

HECM 350: 6.79

HECM LIBOR 250: 5.84

HECM LIBOR 275: 6.09

HECM LIBOR 300: 6.34

Note that while APRs have declined for both the CMT and LIBOR this week, the expected rates have increased.

Homeowner Confidence Declines, But Most Optimistic About Future

Zillow’s quarterly Homeowner Confidence Report reveals all-time low levels of confidence in their homes, with 60% of homeowner believing that their homes have lost value in the last 12 months. However, they are still more optimistic than the reality: 80% of homes have lost value in the last year. The 60% level indicates the closest homeowners have come to predicting the reality of the market since the survey began at the beginning of 2008.

On a positive note, 74% of survey participants believed that value of their home would not decline any further, with 27% believing their home values will increase. In the Northeast, the most optimistic region, 77% of survey participants believed that the value of their home would not decrease, while 33% believe it will increase.

Therefore, although homeowners are aware of their declining property values, they seem to believe that the situation will improve. In a real estate market where so much is based on perception, this seems to be a positive sign.

FHA Loans Made More Difficult for Mobile Homes

HUD just released a new mortgagee letter, Mortgagee Letter 2009-16, which provides guidance on the manufactured housing eligibility requirements for FHA mortgage insurance. The changes addressed in the letter are only those that can be implemented immediately.

The main gist of the letter seems to be that manufactured homes must now meet the following requirements to be eligible for FHA mortgage insurance/a reverse mortgage:

1. Floor area of 400 sq. ft. or more

2. Constructed after June 15, 1976 in conformance with the Federal Manufactured Home Construction and Safety Standards, with the proper certification label affixed.

3. Classified as real estate

4. Mortgage must cover both the manufactured unit and its site, and cannot have a term of more than 30 years after the ammoritization begins

5. Built and remains on a permanent chassis

6. Designed to be used as a dwelling with a permanent foundation built to FHA criteria

7. The finished grade elevation beneath the manufactured home (or, if a basement is used, the grade beneath the basement floor) shall be at or above the 100-year return frequency flud elevation. If the manufactured home is located in a coastal high hazard area, all new constructions must meet FEMA regulations and existing constructions must have met FEMA’s elevation and construction standards as required by HUD regulations in 24 CFR 55.1.

Additional mortgagee letter topics include the underwriting eligibility, loan closing, warehouse lines-of-credit, and data quality, again for manufactured homes.

The original letter can be downloaded here.

Minnesota Governor Vetoes Reverse Mortgage Legislation

Minnesota Governor Tim Pawlenty

Minnesota Governor Tim Pawlenty vetoed the SF 489 on Thursday, the Reverse Mortgage legislation that was being debated in the state legislature there. Pawlenty wrote that while he agreed with the goal of the legislation, it might have the unintended consequence of making reverse mortgages less available in the state of Minnesota and increasing the costs. Governor Pawlenty also felt that the suitability criteria as defined in the bill was too vague, and asked the bill’s authors for greater specification in order to avoid unnecessary litigation.

The vetoing of the bill is a positive step, avoiding vague legislation, and helping to ensure that the goal of protecting consumers does not prevent the product from being available or accessible. In addition, Governor Pawlenty’s acknowledgement of the many benefits of a reverse mortgage and support of the product are other positive signs for the reverse mortgage industry.

Reverse Mortgages Abroad: Australian Market Hits 2.5 Billion

Australia’s Reverse Mortgage Market, also known as a lifetime mortgage, was nearly 2.5 billion dollars at the end of 2008, a 23% growth from 2007, according to a report from Deloitte. The report is especially interesting because it includes statistics on the type of borrowers taking out lifetime mortgages, which appear very similar to the US reverse mortgage program.

-The average age of a borrower in a lifetime mortgage is 74. However, the average appeared to be trending younger as the number of new loans being taken by those under 70 was 37% vs. 30% of the outstanding loans. It is unsurprising that the state of the economy would drive younger borrowers to be more likely to take out a lifetime mortgage.

-While the number of lifetime mortgages being taken out seems to be fairly uniform across the states (with the exception of Tasmania and the territories), Queensland and New South Wales have the highest share of the lifetime mortgage market, with an average of 22.5% of all new loans. This is especially interesting because in the United States, the prevalence of reverse mortgages appears to vary widely based on region and state.

– However, many of the lifetime mortgages are clustered around capital cities. For example, about 85% of the loan settlements in 2008 in Victoria and Western Australia took place in the capital cities. One wonders if this discrepency is a question of demand or of supply.

G’day mate!

Obama Administration Considers Proposing a New Mortgage Regulator

: 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.

Introducing the Reverse Mortgage Guides Forums

I just wanted to take a minute to let everyone know about a new feature on our site, the Reverse Mortgage Guide Forums. The forums are a place for people to post reverse mortgage questions and answers, and hopefully begin a dialogue in realtime within the confines of the site.

While no registration is necessary, posts are being moderated to prevent spam, offensive content, etc. Please take a moment to check them out and join the conversation.

The forums can be found by clicking on the “Forum” tab off of any page on the site or at the url below: http://www.reversemortgageguides.org/forums/