This week’s reverse mortgage rates are below. The rates are effective for the week beginning August 4, 2009.
APR:
HECM CMT 300: 3.49
HECM CMT 325: 3.74
HECM CMT 350: 3.99
HECM LIBOR 250: 2.779
HECM LIBOR 275: 3.029
HECM LIBOR 300: 3.279
Expected Rates:
HECM CMT 300: 6.67
HECM CMT 325: 6.92
HECM CMT 350: 7.17
HECM LIBOR 250: 6.39
HECM LIBOR 275: 6.64
HECM LIBOR 300: 6.89
Rates for the HECM LIBOR and HECM CMT rose again this week, though the APR for the LIBOR declined. However, the rate of increase in expected rates was lower this week than it has been in past weeks.
Reminder: The HECM CMT will cease to be offered on September 1st.
A front page story in the Wall Street Journal this morning highlighted an interesting trend; high-end homeowners are being left behind in the housing market rebound. Stimulus programs, such as the $8,000 new homebuyer tax credit and low mortgage rates, are dependent upon income and home values. The jumbo mortgages necessary to take out a high-cost home have come with higher rates and lenders requiring an increasingly large portion as the down payment (20-30% of the property value). All this comes at a time when prospective buyers have had an even harder time selling their homes, making coming up with money up front difficult. As a result, while the market has begun to turn upwards for many first-time buyers and lower value homes, the market is still stagnant for those in the upper and upper-middle classes.
While it is perhaps unsurprising that stimulus programs might choose to target those with lower incomes, the recession has hit those with higher incomes as well. Many of the people affected by the stock market crash and financial fraud scandals are those who were making upwards of $150,000/year. After losing their jobs and/or the majority of their 401Ks, some members of this group are taking pay cuts in order to land new jobs. As home values decline however, this group also is beginning to have a hard time making mortgage payments and qualifying for relief. Jumbo mortgages are currently the type of mortgages with the highest default rate.
The government should do something to make sure that the upper middle class and upper classes are not completely cut out of the stimulus programs–at least so far as real estate is concerned. Their homes are taking some of the largest hits in a distressed market, to the point where selling is not possible without losing hundreds of thousands of dollars. And in markets such as California, some are extremely upside down on their mortgages. While they may be well off in comparative terms, they could still lose their homes (and many are), could still lose their jobs and source of income (and many have), and they still should be granted some form of relief.
A report released in June by the U.S. Census Bureau predicts that people aged 65 and over will soon outnumber children under 5 for the first time in history. Furthermore, the population aged 80 and over is expected to increase 233% between 2008 and 2040, a phenomenon never before seen. The population aged 65 and over meanwhile is expected to grow 160 %, compared to 33% for the total population of all ages. These predictions encompass global demographics- not just those of the United States.
An increasingly older population presents many new challenges. Health care and social security are just two of the programs under increased scrutiny. Economic models may need to change as individuals spend larger portions of their lives in retirement. An older population may lead to labor supply issues, with the question of how the younger population will be able to support all their elders.
The report also points out that an increasing share of the elderly population will be located in developing countries in the years to come. This could pose a new set of challenges. The developed health care and social service networks of Europe and the United States have not yet come to many parts of the developing world. With chronic noncommunicable diseases are now the major cause of death among older people in both the developing and nondeveloping world, the global health care system faces a new problem of treating diseases like cancer and heart disease throughout the globe-and dealing with the aging populations once they do.
It is unsurprising that the population is aging, and that, in the years after the baby boom, the elderly population will soon be a larger proportion of the world’s population. As birth rates decline, especially in the developed world, it is also logical that the older members of the population may outnumber the younger ones. But the challenges that come from these problems remain to be resolved.
Within the reverse mortgage program, it will be interesting to see if, over time the minimum age of the borrower is pushed back to reflect the longer lifespan. One wonders if the percent equity available from the home will decrease to yield a more sustainable program as people live longer. And one expects the program to grow as an increasing number of seniors become eligible for it.
In the beginning of July, New Hampshire passed HB610, a bill banning yield spread premiums (YSPs) and including more restrictions about cross-selling. The bill goes into effect tomorrow, and, as it does, Generation Mortgage announced to its brokers that it is pulling out of the state. The bill was passed to help ensure that brokers are not compensated extra for selling borrowers higher interst loans (which is an even larger concern on the forward mortgage side).
However, lenders trying to avoid HB610 and similar legislation may be out of luck– the Federal Reserve is trying to push the mortgage industry to pay originators in the form of a flat fee, though some experts believe that compensation based on interest rate would still be allowed. If the federal legislation goes through, lenders will be hard-pressed to find states that allow YSPs. Even if the legislation does not pass, the debate and abuse on the forward mortgage side makes similar state legislation more likely.
Representatives from many of the mortgage industry’s leading mortgage servicing companies met with members of the Obama administration in Washington on Tuesday. The meeting was called to discuss ways to improve the administration’s housing rescue plan and loan modification program. It was called in light of the fact that the program, while launched in February to great fanfare, has only completed trial modifications on over 200,000 loans so far. The administration’s goal remains 500,000 trial mortgage loan modifications by November 1st. In what is perhaps an effort to increase the pressure on mortgage servicers to modify more loans, the Obama administration also announced that it remained on track to release a report on the individual mortgage servicing companies by August 4th. The report will contain the number of trial modifications offered to eligible borrowers and the number of trial modifications currently under way.
Some seem to fear that adding additional pressures to the mortgage servicers will cause banks to take additional losses on the loans. However, it is commendable for the administration to push for the loan modifications–especially in a program that has had so many complaints over the past few months. I’d argue that while the losses taken by the banks will in aggregate certainly be larger than that taken by the homeowner whose loan was not modified and gets foreclosed upon, the significance of the foreclosure is greater for the homeowner than for the bank. Furthermore, it is perhaps easier for the administration to then aid the bank, rather than aid each of the millions of homeowners whose homes have been pushed towards the brink of foreclosure as a result of the economy-the people who this program was designed to help.
The Case-Shiller Index from January 2000 - January 2009 shows the housing bubble well. Many believe the worst is now over.
The Case-Shiller index for May indicates that the housing market may have hit bottom in April. Home prices continued their upturn in May, with prices down only 17.1% from last year, versus 18.1% in April. Prices also increased in May versus April by a half a percentage point, the first positive monthly return on the index in three years! However, when adjusted for seasonality, the prices show a slight drop.
Nonetheless, the positive message from the data is clear. While in February we reported that all 20 metropolitan areas on the Case-Shiller index had experienced a price decline from the previous month, this month, only 5 of them did: Las Vegas, Phoenix, Miami, Seattle, and Los Angeles.
Despite the decreasing rate of decline, analysts still don’t expect the market to stabilize much less prices to rise until late next year at the earliest. However, the market has exceeded expectations recently- maybe it will rebound sooner as well.
This week’s reverse mortgage rates are below. These rates are effective for the week beginning July 28, 2009.
APR:
HECM CMT 300: 3.47
HECM CMT 325: 3.72
HECM CMT 350: 3.97
HECM LIBOR 250: 2.785
HECM LIBOR 275: 3.035
HECM LIBOR 300: 3.285
Expected Rates:
HECM CMT 300: 6.62
HECM CMT 325: 6.87
HECM CMT 350: 7.12
HECM LIBOR 250: 6.31
HECM LIBOR 275: 6.56
HECM LIBOR 300: 6.81
Rates for the HECM LIBOR and HECM CMT rose again this week, though the APRs for both products declined. The expected rate for the HECM LIBOR rose by a tenth of a point this week, while the expected rate for the HECM CMT rose by seven hundredths of a point. One would hope that the rates will stop rising soon.
Wilmington Savings Fund Society (WSFS), FSB announced earlier today that effective today they will begin winding down 1st Reverse Mortgage Company’s operations. Starting on July 31st, 1st Reverse will no longer accept any new applications. They remain committed to completing all loans currently in the pipeline (or in the pipeline by July 31st). This includes processing, underwriting and funding the loans.
The news about 1st Reverse Mortgage is slightly disconcerting in light of Senior Lending Network folding earlier this month. While 1st Reverse was not as large of a player as Senior Lending Network, it did complete a significant volume of loans. Although the time seems ripe for the reverse mortgage industry to grow and prosper, the folding of these companies lends some support to the argument that the problems in the real estate market are negatively impacting the reverse mortgage industry, rather than providing the industry with enough business to flourish despite the economy.
As the House continues to debate their appropriations bill, much recent reverse mortgage news has covered speculated and proposed changes in the bill, including questions as to whether the increased property value limit ($625,500) will be extended, and how the FHA will avoid the $798 million taxpayer subsidy requested for the program. The bill approved by the House Appropriations committee on last week instructs HUD to reduce the principal amounts borrowers can receive through the program.
However, the most important point at this time in the bill’s process is that nothing has been finalized. The bill must be approved by the House, then the Senate, then a Conference Committee made up of members from both houses of Congress meets to reconcile changes in the bill, and then the President must sign it for it to become law. This whole process will likely not be completed until well into the fall. I therefore think that at this time, the best course of action is not to panic or react to proposed changes before they become a reality. Obviously lobbying has its place in the legislative process, but at an early draft stage, it seems to be unnecessary for the industry to sit on pins and needles reacting to every change (or proposed change) to the bill before it is in front of the whole Congressional body. And even if a change passes the House or the Senate that is unfavorable, it is still likely that it might not pass through a conference committee in tact. Let’s give the complexity of the legislative process its due.
The National Association of Realtors revealed today that home sales continued their increase in June, with the sale of previously occupied homes rising 3.6% from May. It was the highest number of sales since October of 2008 and beat analysts expectations by 50,000 homes. In perhaps more telling numbers, the median sales price was $181,800. While this is up from $174,700 in May, it is down from the $215,000 median sales price in June of last year.
Meanwhile, other reports are asking whether housing prices may have stabilized. The Federal Housing Finance Agency’s housing price index, based on repeat sales of the same houses, rose 0.9% in May from April. It is nearly unchanged since November (source: Wall Street Journal, front page, 7/23/09). However, the index seems to be deceiving. It does not include subprime or other unconventional mortgages, which are the source of many of the problems in the housing market and which appear to have driven down the prices throughout the country.
These signs seem to be positive for the housing industry. But jobless claims are still high, and foreclosures, new homes, and unsold properties do not seem to play a large role in these reports. While it is nice to see two indicators moving in such a positive direction, other downward indicators seem to mean that it might not be wise to get too optimistic just yet.
