Wall Street Journal Publishes Front Page Article on Website on Reverse Mortgage Fraud

This morning the Wall Street Journal published an article on reverse mortgage fraud on the front page of their website. It is likely the article will make it into tomorrow’s print edition. The article focuses on the allegedly growing number of reverse mortgage scams, but a closer look at the cases in the article indicates that they appear to be more cases of elder abuse than problems with the reverse mortgage program.

In the case that leads off the article, the borrower was defrauded by the title agent, who defrauded 10 borrowers by taking their money and never giving it to the lender. The title agent, Garry Martin, pleaded guilty to stealing $5 million from over 50 borrowers in mortgage-related frauds. But as the perpetrator of the fraud was a title agent, not indicating a problem with the product at large.

The other two cases mentioned were examples of elder abuse or simple fraud. In one, the son took the mother’s payments. In another, the son took out a reverse mortgage in the name of a deceased mother. He even gave the funeral director an incorrect social security number and birthdate so that the death certificate could not be found by those with the correct information. In both of these cases, the fraud extended far beyond a reverse mortgage.

Reverse mortgages have a lot of protection built in to protect borrowers from fraud, and loan officers in most states and specifically trained in order to discover and prevent fraud. Fraud occurs with almost any financial product, but 29 suspected fraud cases out of 165,000 reverse mortgage loans still indicates a pretty safe product- with fraud only occuring at a rate of 0.02% of the time.

More information is also available at reverse mortgage fraud and scams.

Bank of America HECM Servicing Division Found Out of Compliance By OIG

The Office of the Inspector General (OIG) found Bank of America’s HECM Servicing Division to be out of compliance. The OIG alleged that Bank of America did not comply with two important HUD requirements in its servicing of reverse mortgages. It did not maintain the annual certifications of the borrower’s residency, and it failed to notify HUD in a timely manner when the reverse mortgages became due and payable as a result of the death of the borrower. One reverse mortgage loan file also did not contain an appraisal.

Bank of America disputes the findings of the OIG. Their main objection appears to be that many of the loans in question were not being serviced by Bank of America when the loan was completed or when the borrower passed away, and rather are files that have since been acquired by Bank of America when Bank of America acquired the Seattle Mortgage Company in April 2007. The OIG responded that the acquiring servicer is responsible for receiving the complete file from the prior servicer. Another Bank of America objection is that many of the certificates of occupancy could be found through online methods, while the OIG only reviewed the hard copy files. The OIG responded that while there was a written procedure, it did not appear to always be followed, and the occupancy certificates need to be retained.

A complete copy of the report, including Bank of America’s response, can be found below:

OIG Audit Report of Bank of America

Advertising Changes to Come for HECMs

HUD announced that a new mortgagee letter will be coming in the next 60 days. The mortgagee letter will likely be about advertising, as HUD is apparently not pleased with advertisements that promote borrowers using the proceeds from a reverse mortgage for a vacation or expensive personal items.

However, reverse mortgage proceeds are for the borrower to spend at their discretion. While HUD has been very suspicious of borrowers using reverse mortgage proceeds for annuities or other insurance products, there is nothing to keep them from doing so. Further, a recent article actually promoted seniors putting money from a reverse mortgage into life insurance policies so as to be able to pass the money to their heirs tax-free–an interesting way to use a reverse mortgage for estate planning.

Ads in other countries with similar reverse mortgage programs also use advertising focusing on a vacation or luxury item. The philosophy is that the money is the senior’s to use at their discretion. These are some ways a senior might choose to do so. As a result, it will be very interesting to see what (if any) guidelines on advertising HUD releases with the next round of mortgagee letters. While a reverse mortgage is a loan like any other and does need to be taken seriously as a financial investment, one hopes seniors are still free to take out a reverse mortgage– regardless of whether they take it out for something serious (medical expenses, home repairs) or something more luxurious (yacht, vacation, car).

This Week’s Reverse Mortgage Rates: August 25, 2009

This week’s reverse mortgage rates are below. The rates are effective for the week beginning August 25, 2009.

APR:

HECM CMT 300: 3.44

HECM CMT 325: 3.69

HECM CMT 350: 3.94

HECM LIBOR 225: 2.516

HECM LIBOR 250: 2.766

HECM LIBOR 275: 3.016

HECM LIBOR 300: 3.266

Expected Rates:

HECM CMT 300: 6.48

HECM CMT 325: 6.73

HECM CMT 350: 6.98

HECM LIBOR 225: 5.97

HECM LIBOR 250: 6.22

HECM LIBOR 275: 6.47

HECM LIBOR 300: 6.72

Rates fell this week for both the HECM CMT and the HECM LIBOR. The expected rate for the HECM LIBOR fell over two tenths of a point. The expected rate for the HECM CMT fell just under two tenths of a point. It is great to see the rates declining at such a dramatic rate again.

Reminder: The HECM CMT will cease to be offered on September 1st. This is the last week we will list the rates for the HECM CMT.

NMLS to Help Monitor Loan Officers

One of the most common questions we get from borrowers is whether we know a licensed loan officer in their area. Sometimes we do and sometimes we don’t. However, soon the question will be even easier to answer. Bob Tedeschi’s Mortgage column in the New York Times today focuses on the ways in which NMLS, the Nationwide Mortgage Licensing System, is growing in importance and will become accessible to consumers within the next year.

Currently, the Nationwide Mortgage Licensing System (NMLS) is being used by 48 states with California set to join soon. Minnesota is the loan holdout, but if it does not comply, it is likely to be forced to do so by HUD as a result of the Secure and Fair Enforcement for Mortgage Licensing Act. As a result of the act, all states are required to participate in the licensing system. NMLS requires all loan officers at state-chartered banks to complete at least 20 hours of prelicensing education, to pass a test, and to complete 8 hours of continuing education annually. Those with a felony conviction in the last 7 years are not eligible for a license.

Perhaps most importantly for consumers, NMLS is establishing a database of complaints against loan officers, which will soon be searchable by the public. The searchable database will also include loan originator’s licensing credentials and employment histories. This information should help protect consumers from bad loan officers, and provide consumers with just another safeguard in the process.

Countrywide Can Be Sued by Investors, Rules Federal Judge

A federal judge in Manhattan ruled yesterday that the Helping Families Save Their Homes Act of 2009 did not exempt Countrywide from investor lawsuits. Countrywide had argued that the federal legislation automatically voided its pledge to buy back loans from investors if those loans were modified for troubled borrowers. The Helping Families Save Their Homes Act of 2009 was meant to help encourage servicing companies to modify loans, in part by providing some protection under liability arising from loan changes.

However, many of the mortgages owned by Countrywide (which has since been purchased by Bank of America), are owned by investors. The investors receive interests and principal payments from borrowers over the life of the loans. When the loans are modified, these payments are typically reduced. The investors are arguing that when Countrywide and Bank of America agreed to modify the loans, they breached their contract with the investors.

The ruling in the case said that the legislation did not prevent Countrywide’s investors from trying to enforce their rights under the mortgage servicing contracts. It would be up to the investors to prove that Countrywide’s pooling and servicing agreement requires it to repurchase the loans the bank modifies. The case would be in state court, outside of federal jurisdiction. Countrywide wanted the case to take place in federal court, due to the law being a federal law.

This case has some interesting implications. Right now, the Obama Administration has made it their priority to modify mortgages for borrowers, attempting to help the over 13% of homeowners who are currently delinquent on their mortgages. However, this case shows that even if the servicing companies and lenders agree, other parties, such as investors and hedge funds, may object. Certaintly there are bound to be losers from the housing bust and subprime mortgage crisis- the question is who will bear the brunt of the blow. As individuals argue in their self interest, it appears dangerously likely that the good of the collective whole will suffer.

Breaking News: Bank of America Releases Fixed-Rate Product

On Wednesday night, Bank of America officially introduced its new fixed-rate HECM. The reverse mortgage product, a Fixed HECM 5.56, will be added to Bank of America’s current product offering of the Monthly Libor 225, Monthly Libor 250, Monthly Libor 275, Monthly Libor 300, and the Annual CMT 600. Bank of America also added new disclosures to their application packages. From now on, all application packages for Bank of America loans will include:

– HECM Reverse Mortgage Product Disclosure

– Important Disclosure: Your Payment of Property Charges

– General Questions Regarding HECM Reverse Mortgage Loans

Included in Fixed-Rate Packages Only:

– Truth in Lending Disclosure

– Home Mortgage Disclosure Act (HMDA)

The Bank of America fixed rate product has been highly anticipated for some time, and will hopefully help lower the procesing times for fixed rate loans throughout the industry.

More information can be found in the official press release: 2009-8-18-fixed-rate-release

Concerns with Appraisals Captivate Major Papers

Appraisers are under pressure to inflate property values.

Over the last two days, both the New York Times and the Wall Street Journal have published lengthy articles on the effects of the new Home Valuation Code of Conduct on appraisers. The Home Valuation Code of Conduct, which went into effect May 1, has made lenders responsible for ordering appraisals and negotiating with appraisers. As a result, appraisal companies are complaining that they are being paid less to do more work. In addition, appraisers are often required to travel farther to appraise homes, raising questions as to whether they are familiar enough with the area to provide a valid appraisal. A case highlighted in the Wall Street Journal article was that of a homeowner in Palm Beach Gardens, FL where the appraiser drove 44 miles to evaluate the home and came back with an appraisal that was around $70,000 less than the second appraisal. Furthermore, while the fees the appraisers are being paid have been decreasing, the cost to the consumer has risen by $100 in the past year, with most of the proceeds going to middle men.

Another concern raised by the industry is that being hired by lenders puts more pressure on the appraisers to return with a value that makes the deal possible. Appraisers need to keep the lenders happy to stay employed. If they demand fees that are higher than another appraiser or produce an unfavorable result, the lender may look elsewhere. As a result, some feel that the legislation risks putting ethical appraisers out of business.

Appraisal issues are common in reverse mortgages, and many of the issues raised in the article extend through both the conventional and reverse mortgage industries. As appraisals travel farther, there are more opportunities for mistakes. As appraisers worry about their fees and costs ride, the burden on consumers grows. Thus while the legislation has attempted to curb price inflation in appraisals and reduce the conflicts of interest, it appears to have arguably caused more problems than it has solved. Some in Washington are trying to get the legislation postponed until 2011.

Selling the Property Tax Burden to Private Companies increases the Cost for Consumers; A Reverse Mortgage Can Help

Ontario, NY- home to some of the most expensive property taxes, as a percentage of the value of the home, in the nation.

An article in the New York Times today revealed that selling property taxes to third parties could cost consumers a lot of additional money, with the profiled company adding fees of 18% to property tax debts. Luckily, a reverse mortgage may be able to help seniors in this situation, as it is a common occurence for funds from a reverse mortgage to be used to repay tax debts. Furthermore, money from a reverse mortgage can be set aside into an escrow account to continue to pay property taxes, which must be kept current throughout the reverse mortgage.

Property taxes are an interesting issue because they vary so much by county. One of the highest property taxes, as a percentage of the property value, is in Orleans County in New York State, where property values come to 3.05% of the value of the property. But in St. James Parish Louisiana, property taxes are only 0.145% of the value of the home. That is over 2100% less than in New York. And it’s surprisingly easy for the property taxes on a home to be more than a senior’s fixed income–a situation that can sometimes be helped with a reverse mortgage.

This Week’s Reverse Mortgage Rates: August 18, 2009

This week’s reverse mortgage rates are below. The rates are effective for the week beginning August 18, 2009.

APR:

HECM CMT 300: 3.47

HECM CMT 325: 3.72

HECM CMT 350: 3.97

HECM LIBOR 225: 2.523

HECM LIBOR 250: 2.773

HECM LIBOR 275: 3.023

HECM LIBOR 300: 3.273

Expected Rates:

HECM CMT 300: 6.67

HECM CMT 325: 6.92

HECM CMT 350: 7.17

HECM LIBOR 225: 6.20

HECM LIBOR 250: 6.45

HECM LIBOR 275: 6.70

HECM LIBOR 300: 6.95

The APRs and expected rates for both the HECM CMT and the HECM LIBOR declined this week. While rates for the HECM LIBOR have yet to fall to the level they were at earlier this month, the decline in expected rate of five hundredths of a point will still be nice for borrowers. The rates for the HECM CMT are the same as they were the week of August 4th.

Reminder: The HECM CMT will cease to be offered on September 1st.