Over 20% Of Homeowners Owe More Than Home Is Worth

A new study released by Zillow late last week indicates that about 21.9% of all homeowners, 20.4 million people, owe more than their home is worth.  This is known as being “upside-down” on a mortgage.  And although a reverse mortgage can never go upside-down, an upside-down forward mortgage generally prevents the borrower from qualifying for a reverse mortgage. 

Partly in order to combat this issue, the federal government is considering raising the limit at which homeowners with loans owned or guaranteed by Freddie Mac and Fannie Mae can refinance their mortgages.  Currently the limit is a mortgage that is 105% of the property’s value.  However, more than 1 in 10 homeowners have a mortgage that is more than 110% of the property’s value. Thomas Lawler, an independent housing consultant, is quoted as saying that when a borrower owes 30% more than their home is worth, borrowers are more likely to walk away than refinance. Increasingly, this seems to be the case more and more often.

I wish I could come up with a positive spin on this article, but my hope is simply that the statistics will help spur the state and federal governments to change modification policies and increase the pressure on the banks to grant the short pays and loan modifications necessary to help both keep people in their homes and ensure that they have options while they’re there.

 

NRMLA Orlando: Basking in the Afterglow

 

The Hyatt Regency Grand Cypress, where the conference was held.

The Hyatt Regency Grand Cypress, where the conference was held.

I got back last night from the NRMLA Reverse Mortgage conference in Orlando, and I am already in withdrawal. The conference was wonderful and far more exciting than Chicago.  In addition, the weather was about 20-30 degrees warmer, and the hotel had a pool, a fake “beach,” and a talking macaw. While the setting was hard to beat, the information at the conference once again proved to be quite informative.  

 

Some highlights:

– The session on “Making Counseling More Effective,” which pulled from a large variety of people.  While the Q&A portion got pretty heated, the clarification of the new protocol (whenever it is finally released) was quite useful.  More to come next week.

– The addition of Peter Fatizzi, of Realty XPerts, to the panel on HECM For Purchase led to wonderful insights on how realtors, builders, and lenders can work together.  Peter’s relationship with Jourdan Hoover (of Wells Fargo Home Mortgage) I think put forth a good model for the way lenders can potentially build a client base through interacting with others in the real estate industry–and just how much the product can help their clients. However, the panel also inadvertantly pointed out the importance of clearly explaining the product, leading to questions about the ethical obligations of the industry to make sure a senior is financially stable after a reverse mortgage.  This theme was echoed throughout the conference and especially in the counseling session.

– Amanda Norvell, of TRUE Marketing, and Tara Hornsby, of the Orlando Magic, shared some very creative ways their companies are using technology.  While many of the comments did not directly relate to the reverse mortgage industry, it was a good catalyst to begin thinking creatively about the opportunities presented by facebook and twitter.

– It was quite enjoyable to tweet the conference (see @hecmgirl for tweets), leading NRMLA to start a twitter account at the end (@NRMLA).  Look for twitter to play an increasingly large role in the industry.

– And finally, in the free stuff category, hats off to The Reverse Review for the fantastic cupcakes, as well as Customized Lenders Services, INC. for paddleball. 

Looking forward to seeing everyone at the next event!

 
 

Will $75 Billion be enough?

Federal officials announced today that 10 of the country’s largest banks will need to raise $75 billion in capital. Banks that are required to raise new capital have been given a month to tell regulators their plan to raise the capital and six months to finish their plans.  Treasury Secretary Tim Geithner discussed that after the completion of these stress tests “banks can get back to the business of banking” and “should result in a more efficient, stronger banking system”.

There are a few ways that the big banks can raise capital including selling assets or issuing new shares. Wells Fargo said it would raise $6 billion through the sale of common stock while Bank of America will try to raise part of its $34 billion by selling off smaller divisions. 

While $75 billion is a sizable amount to us small folk, many analysts predicted numbers as high as $200 billion for banks to raise to get themselves out of this mess. Let’s hope its enough.

 

Power of Attorney: What you need to know

The last time we talked about power of attorney was during the fraud series and how to safeguard seniors from friends and family that may take out a reverse mortgage without the borrower’s knowledge. But here are some facts that will be helpful for you to know when using a Power of Attorney. 

Power of Attorney can only be used for 2 reasons. First, when the customer cannot sign the loans due to physical or mental inability. In this situation, a doctor’s note must be obtained stating that the borrower cannot sign due to either mental or physical inability. The note must also state the date that the borrower came into their care and their debilitating condition. In this case the borrower does not need to complete HECM counseling and the POA must attend on the borrower’s hehalf. 

The second reason a power of attorney can be used if it is more convenient for the power of attorney to sign because the borrower chooses not to deal with the process. In this case, the borrower must complete the HECM counseling themselves and sign both the HECM counseling certificate and loan application. It is only a total of 5 signatures, and the POA may sign the rest of the documents. It is also reccommended that the POA attend the HECM counseling as well.

And if you have not noticed, we launched our new site this afternoon. Like the new look?

 

Reverse Mortgage Warning Signs

While reverse mortgage fraud is less common than some would have one believe, it still occurs.  Below are some warning signs and what you can do to stop them:

1. If You Don’t Receive An Estimate or a Good Faith:  Lenders should be able to tell a borrower how much money they can expect to receive up front.  There are many reverse mortgage calculators available online (reverse mortgage calculator) that can also tell borrowers this information.  As a result, be suspicious if a lender doesn’t tell the borrower how much money they can receive or can’t provide an explanation of how the amount was determined.  

In addition, at closing, lenders are required to provide the borrower with a “Good Faith,” which lists all of the costs and fees of the reverse mortgage.  The borrower should make sure a good faith is presented and that they are familiar with its contents.

2. Never Heard of the Lender

If you have never heard of the lender before, it makes sense to check the HUD website or another lender list and make sure that they are listed and accredited. 

3. Don’t Talk About Counseling

Reverse mortgage counseling by a third party is a mandatory part of the reverse mortgage process. Be wary of anyone who does not talk about counseling or dismisses it as unnecessary. It is required to get a federally insured reverse mortgage and, depending on the state, most proprietary ones.

4. No One Answers the Phone

If your calls go unanswered, especially for long periods of time, it might be best to proceed with caution. Everyone is busy and many loan originators travel to meet with clients and for closings.  However, there should be an answering machine if this is the case.

5. Try to Cross-Sell

Cross-seling, the practice of selling more a product along with a reverse mortgage, is prohibited. One of the most common reverse mortgage scams  involves the lender convincing the borrower to take out a reverse mortgage and use the proceeds to buy insurance or make investments.  A lender cannot, by law, speak to the borrower about anything other than a reverse mortgage.  Therefore, if a lender tries to sell a borrower a product– especially an investment product– be wary.  It is not permitted.

 

Is the Housing Market Getting Better or Worse?

 

The WSJ featured this photo of a bulldozer tearing down houses in Southern California.

The WSJ featured this photo of a bulldozer tearing down houses in Southern California.

Today has been filled with mixed messages in regards to the housing market.  Is it performing well or poorly? The Wall Street Journal published images of bulldozers tearing down half-finished homes in Southern California because the lender determined the cost of completing the homes would be more than they could be sold for.  On the other hand, the New York Times published a front page story about how the market in Sacramento is rebounding— a potentially good sign.  Sales are up 45% since last year. Sales in Las Vegas, another market hit hard when the housing bubble burst, are up 35%. 

 

So which is it? It seems hard to tell. It is easy and addictive to follow all the housing articles published recently, but, after writing on several of them, it appears that the bottom line keeps remaining the same:

– Yes, there are a lot of foreclosures, permeating classes where they’ve never been felt before. 

– Yes, many markets have been extremely hard hit by the housing crisis.  Las Vegas, Phoenix, California, and Miami are four of the worst. Very few, if any, areas have emerged unscathed.

– Yes, the new $8,000 tax credit has helped buyers, leading many first-time homeowners to enter the market.  Perhaps as a result, many areas have seen sales increase this past year and in the past few months.

It therefore seems safe to draw the following conclusions:  

1. The nation was hit hard by the housing crisis.

2. Foreclosures still abound, as neither the economic nor the housing crisis have lifted yet.  This is especially true amongst the middle-class, who in many cases took longer to feel the effects of the crisis.

3. However, foreclosures mean that prices have been pushed down in many markets, leading to a glut of new buyers who, in addition to pursuing the tax credit, can pay less in a mortgage payment than they can in their monthly rent, saving money by buying a home.  This situation is especially profound in the depressed market, but leads many analysts to think that there are signs of life in the market.

What do you think? Is the housing market getting better or worse?

 

This Week’s Reverse Mortgage Rates: May 5, 2009

This week’s reverse mortgage rates are below. The rates go into effect on Tuesday, May 5, 2009.  Both the LIBOR and the CMT have fallen since last week.

HECM 300: 3.50

HECM 325: 3.75

HECM 350: 4.00

HECM Libor 225:  2.664

HECM Libor 250: 2.914

HECM Libor 275: 3.164

HECM Libor 300: 3.414

 

States Hold Banks Accountable for Foreclosed Properties

The Wall Street Journal published a fun piece this morning about how a number of towns in CA, Indio, CA in particular, have made it a criminal misdemeanor for lenders not to keep up with foreclosed properties. The law goes after banks that have allowed properties to fall into disrepair, with concerns such as high weeds, algae in pools, and dead grass.   Apparently, it has generally been effective.  After at first only writing checks to pay the fines, it seems that lenders such as Countrywide, Washington Mutual, and Fannie Mae are coming into compliance.

Reverse mortgages are often a great way to potentially keep people in their homes and help avoid foreclosure, but when foreclosure is unavoidable, it is nice to see a community holding the lenders responsible for picking up the pieces.  

At the same time, the Associated Press released an article on the increasingly high number of vacant homes in the Midwest, where vacancy rates in some areas are over 40% empty. Brian Bernardoni, Policy Director for Chicago’s Board of Realtors, was quoted today in the Associated Press as saying that vacant homes hurt a neighborhood’s “curb appeal,” making it that much harder for the neighborhood to recover. However, if lenders take care of vacant and foreclosed homes, preventing them from becoming refuges for squatters and keeping up the outer appearance of the buildings, the neighborhood may not suffer as much damage–in both the short and the long run.

 

Mortgage Legislation Fails in Senate

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.