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

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.

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.

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 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.

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.

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 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.

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!

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.

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/

The construction industry is not doing well, but does that mean the market is down?

Alright, it’s 10am CST. I have already read five conflicting headlines with respect to the housing market today:

1.  ”Housing Starts Hurt by Steep Drop in Apartment Building” – NYTimes

2. “Sales Drop 10%, But Home Depot Tops Forecasts” – NYTimes

3. “Builder Sentiment High on Affordability” – HousingWire.com

4. “Housing Starts Declined in April” – Wall Street Journal

5. “Signs of Optimism — Home Prices Rise” – Union-Tribune 

So which is it?

These headlines, all from reputed publications, perhaps indicate the extent to which the market is saturated with housing news, as well as the vast amount of confusion in regards to which the direction the housing market is actually heading in.  While it would certainly be easy to write about any one of these pieces, doing so would only steer your opinion in whatever direction the story I discussed took.

The data can be used to defend any viewpoint: Home Depot is doing well, Lowes is doing poorly.  Housing starts for apartment buildings are on the decline. Housing starts for single family homes are stable. Housing prices are rising in some areas. The market still has not rebounded in others.  The question is, which indicator do you deem to be the most important? 

Or should we simply be acknowledging that it is too early to predict the rise or fall of the housing market with any certainty?

This week’s reverse mortgage rates are below. These rates are effective for the week beginning May 19, 2009.

APR:

HECM 300:  3.52

HECM 325: 3.77

HECM 350: 4.02

HECM LIBOR 250: 2.828

HECM LIBOR 275: 3.078

HECM LIBOR 300: 3.328

Expected Rates:

HECM 300:  6.39

HECM 325: 6.64

HECM 350: 6.89

HECM LIBOR 250: 5.26

HECM LIBOR 275: 6.01

HECM LIBOR 300: 6.26

The NYTimes published a very interesting article this weekend documenting how minorities have been disporportionately affected by foreclosures in NY.  The article points to systematic abuses within the system that appear to be partly responsible for the split along racial lines, and can hopefully be prevented in the future.

85% of the worst hit neighborhoods in the New York Metropolitan Area are predominantly black or hispanic.  These neighborhoods are areas where the foreclosure rate is at least double the regional average.  However, perhaps more surprising and troubling is that the crisis is affecting the African American middle class more than the lower classes. Black households making over $68,000 a year annually are more than five times as likely to hold a subprime mortgage than whites of similar or even lower incomes.  These mortgages are the ones most affected when the housing bubble burst.

Furthermore, the African American lending universe is generally constituted of about a dozen banks and lenders, constituting half the loans given to black middle income borrowers in 2005 and 2006.  The terms of these loans were generally less favorable and more risky, with costs that can vary by thousands of dollars depending on the variability of the interest rate. Furthermore, 33% of the subprime loans given out to borrowers in 2007 went to borrowers with credit scores that should have been high enough to qualify them for a conventional loan. There is normally a three percent interest rate difference between subprime and conventional loans, which can add up to a difference of tens of thousands of dollars for the consumer.  The NYTimes points to a $272,000 difference in the interest on a $350,000 loan.  They also mention well-off African Americans with nine to eleven percent annual interest rates on their mortgages, rates that are surprisingly high for the group. 

Now in NY, whole neighborhoods are under assault. Fears of disinvestment are climbing, as homes once owned are becoming rental properties and vacancies increase.

What strikes me so strongly about this story is that it seems like a strong case of discrimination.  While part of the problem stems from members of the African American community not trusting traditional banks in the wake of decades of discrimination,  pushing them to subprime lenders, part of the problem is that it appears that these populations were particularly targeted with unfavorable terms and loans.  Now, we are seeing the consequences and these are the neighborhoods that will be most affected. There is a direct correlation between the increase in the number of foreclosures and an increase in violent crime, making the situation only more dire.

These lenders need to be held responsible, hopefully many of these borrowers will be able to get their mortgages refinanced, and hopefully the city and the country will take steps to ensure that this kind of racial discrimination in the loan market does not continue.

more seniors are in the workforce

According to a poll released by the Pew Research Center today, Americans over the age of 65 are suffering the least during the recession.  Fewer seniors reported trouble making rent or mortgage payments or being forced to cut back on household expenses.  In addition, only 7 percent reported trouble finding health care (a third of the percentage of younger adults), and only 23 percent reported losing more than 20 percent of their investments last year, well below the numbers of those younger.

Finally, the number of seniors with jobs increased by 3.9 percent. While the rise in the number of seniors in the workforce may indicate that some were forced back to work, at least they were able to find jobs. In fact, in the current economic climate, the younger the worker is, the least likely they are to be laid off. 

Some analysts appear unsurprised that seniors have fared well. Their lifestyles are often already scaled back, and their investments are generally more conservative than their younger counterparts. Nonetheless, it is good news.

Obama unveils the first part of his housing rescue plan in February.

The additions to Obama’s housing plan that were laid out on Thursday are designed to make it easier for homeowners to sell houses that are worth less than their mortgages.  The initiative will help incentivize short sales as well as “deed in lieu” transactions.  These proposals will hopefully help assist borrowers who cannot be helped by a loan modification.

“The government will pay mortgage-servicing companies up to $1,000 and borrowers up to $1,500 for successful short sales or “deeds in lieu” transactions.”(WSJ) The government will also spend up to $1,000 to help get the holders of second mortgages to release their liens so the short sales or “deeds in lieu” transaction can be completed.  In addition, additional payments will be provided to lenders, servicers, and investors in areas where home prices have been dropping to assist with loan modifications.  These funds will hopefully help make investors feel more comfortable modifying loans, rather than being overly concerned that they will face additional losses if the modified loans redefault. 

So far 75% of loans are currently being covered by the plan, including those by Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo.  Other companies are evaluating whether they wish to participate.

Given that short sales have accounted for 15-20% of existing home sales this year according to the National Association of  Realtors, this new program should provide benefits to investors, lenders, servicers and borrowers looking to sell homes or find other ways out of underwater mortgages and tough financial situations.  Hopefully it will help make short sales easier to complete and make foreclosure easier to avoid.  

If the popularity of the loan modification plan unveiled by the administration nearly three months ago is any indication, this program should be a huge success.

The plan also has positive ramifications for the reverse mortgage industry due to the new HECM for Purchase program. Negotiating a short sale is often part of the process of a reverse mortgage when the borrower is trying to avoid a foreclosure or underwater on their previous mortgage.  Hopefully, this plan will make reverse mortgages that fall into this category easier to obtain as well.

A house near Grandma's house

My grandmother enjoys telling the story of how I helped them find their new home.  I was about 10 at the time, and they were looking at a house in an area of Riverdale called Fieldston, near what would become my high school.  I don’t remember all the details, but when I saw the house, I told them that they should buy it and then the whole family could move in.  I found rooms for my cousins, my aunts and uncles, my parents, and my brother and I. The house is not that large, but again, I was 10. And it was cozy and gorgeous. 

As the years passed, I have a lot of great memories of my time spent there.  I remember watching the Clinton impeachment trial from the study and my first experience with the Romance channel.  There were family gatherings, tea, chamber music and split pea soup.  And I remember, more than 12 years later, going back for the reception after my grandfather’s funeral. 

It’s amazing how a place can have so many memmories, and a memoir, essay, or post could probably be written about each of them.  And when I first heard about reverse mortgages, it was my grandmother’s house that I thought of first.  Because so many of the stories in our family are tied to places, like The House in Stockbridge and The House on River Road, and, as I grow up, those are the stories I want to tell my children.  Those are the homes I want to show them, so I can say “Look, this is where I grew up.”

I am young. I have very little idea of anyone’s financial situations and could never dream of making a reverse mortgage calculation. And, due to my love of the house and its high property value, I don’t know what I’d choose to do were I the one mulling over the reverse mortgage option. But any time I see a photo of a “grandma’s house,” I’m glad a program like this exists that can help keep grandparents in their homes should they choose to stay there.

The median price for a home in the US fell to $169,000 in the first quarter, according to a report released by the National Association of Realtors.  The number represents a 14% drop from a year earlier. Median prices in metropolitan areas ranged from a low of $30,300 in Saginaw, MI to 570,000 in Honolulu, HI. The median price has been pulled down due to a number of factors including the surge of first-time homebuyers into the market and the large number of foreclosures being sold.

While it is very tempting to see these statistics as quite negative, they also come with some positives.  Yes, it is disconcerting to see the value of homes decline.  Yesterday we discussed the large number of people who are underwater on their mortgages, and declining home values will only serve to exacerbate the problem.  However, the influx of new buyers into the market is a positive sign for the industry.  New buyers will likely remain in the market, turning people who used to rent into prospective buyers and sellers.  The ultimate increase of prospective buyers should increase the demand within the market, leading to a stronger market in the long run.

The US Social Security and Medicare programs are in worse financial shape due to the recession.  The AP reported today that social security is expected to pay out more than it receives beginning in 2016, a year earlier than expected, and run out by 2037, four years sooner than previously reported.  Medicare is expected to pay out more than it receives this year, and run out by 2017, two years earlier than previously thought.

The dire financial straits of both programs mean the government needs to prioritize social security and healthcare reform as soon as possible before it is too late.

Reverse Mortgages are sometimes stereotyped as being high in fees.  While the cost of getting a reverse mortgage is generally the same as that of getting a traditional mortgage on a new home, some of the fee names may seem unfamiliar.   For more information on fees, please see fees.  In the meantime, a laundry list of some common fee names is below:

1. Appraisal Fee

2. HECM Counseling Fee

3. FHA Reverse Mortgage Insurance

4. Loan Origination Fee

5. Title Settlement Fee

6. Title Insurance

7. Title Exam

8. Recording Fees

9. Wire Fee

10. Title Delivery

11. Flood Cert

12. Credit Report

13. Doc Prep Fee

14. Title Notary Fees

15. Flood Insurance (if you live in a flood zone)

16. Any Repair Cost

This week’s reverse mortgage rates are below. The rates go into effect on May 12, 2009. The rates indicate that the CMT is higher than it was last week, while the LIBOR has fallen. 

HECM 300: 3.53

HECM 325: 3.78

HECM 350: 4.03

HECM Libor 225:  2.618

HECM Libor 250: 2.868

HECM Libor 275: 3.118

HECM Libor 300: 3.368

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.

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!

As many of you have probably noticed, www.reversemortgageguides.org just launched the new version of their site on Wednesday night. The reverse mortgage site adds a new forum feature, as well as new articles on topics like interest rates, fees, and the application process.  Check it out!

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.

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?

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.

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 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

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.