Part 2 in our popular frequently asked questions series is below. More to come!

Q: Is a reverse mortgage taxable?

No. The proceeds of a reverse mortgage do not count as income and are not taxable accordingly. Furthermore, the interest on a reverse mortgage is tax deductible when it is paid. However, the borrower must still pay taxes on the property.

Q: How long must I live in my home before I can get a reverse mortgage?

There is generally no requirement for how long the borrower must live in their home, as long as it is their primary residence. A reverse mortgage can also be used to purchase a new home using the HECM for Purchase program.

Q: Can I refinance a reverse mortgage?

Yes. A reverse mortgage can either be refinanced as a reverse mortgage or a forward mortgage. There is no limitation on the amount of times you can refinance.

This week’s reverse mortgage rates are below. These rates are effective for the week beginning June 30, 2009.

APR:

HECM 300:  3.48

HECM 325: 3.73

HECM 350: 3.98

HECM LIBOR 250: 2.810

HECM LIBOR 275: 3.060

HECM LIBOR 300: 3.310

Expected Rates:

HECM 300:  6.63

HECM 325: 6.88

HECM 350: 7.13

HECM LIBOR 250: 6.39

HECM LIBOR 275: 6.64

HECM LIBOR 300: 6.89

Both the HECM Libor and the HECM CMT saw significant drops in Expected Rates this week, as well as declines in their APRs.

The New York Times featured an article on the HECM for Purchase Program.

Friday featured a welcome piece of publicity for the reverse mortgage industry: Bob Tedeschi’s mortgage column in The New York Times was about the HECM for Purchase Program.  Now that the new underwriting procedures for HECM for Purchase loans have been laid out in a recent HUD mortgagee letter, HECM for purchase loans are beginning to close.  However, as the article points out, New York has not been well represented in that mix due to the fact that HECM for Purchases cannot currently be used to purchase a co-op.

The column mentions the high fees associated with the loan. Taxes are higher in NY than in most other states, so that does not help. The column also points out that the HECM for Purchase program is probably not a good idea should one intend to move again within 2-3 years. And, while Tedeschi cited the importance of reverse mortgage counseling, he also pointed out that the quality of counseling can vary, steering prospective borrowers towards those who have past HUD’s certification test.

All in all, though the column could probably be a little clearer, it hopefully will serve as a good step in educating prospective buyers about the HECM for Purchase program.  And, afterall, there is a saying, “There is no such thing as bad publicity.”

Some reverse mortgage questions get asked over and over again. In honor of that, answers to some common reverse mortgage questions are below. More questions will be posted at a later date:

Q: Can my heirs still inherit my home?

Yes. In a reverse mortgage, the estate is still passed to the heirs. Often, the heirs choose to sell the home with the proceeds going towards repaying the reverse mortgage. The lien cannot be for more than the home is sold for, so if the home is sold for less than the value of the lien, the lender must make an insurance claim for losses to the FHA. Once the home is sold, the estate owes nothing.

If, however, the heirs wish to keep the home, they can pay back the reverse mortgage through cash or other assets. They can also refinance the reverse mortgage into a conventional forward mortgage.

Q: Can I outlive a reverse mortgage?

No. A reverse mortgage is not due until the death of the borrower or until the borrower sells the home or moves to permanent care. There is no limitation, so if you live in your home for another 50 years, the reverse mortgage will still not become due until your death.

Q: Will my Social Security and Medicare be affected?

While government entitlement programs such as Social Security and Medicare are not affected by a reverse mortgage, need-based programs such as Medicaid may be. The pace of the fund withdrawal must be limited to remain eligible. Talk with your loan officer to make sure your payments for the reverse mortgage do not jeopardize your eligibility.

Q: What are the downsides?

The costs of a reverse mortgage can be high and are higher than the costs of a conventional mortgage. If the proceeds are not withdrawn correctly, a reverse mortgage can hurt one’s ability to qualify for Medicaid and other need based programs. If a person’s home has a high value, they may not be able to get enough money out of their home to make a reverse mortgage make sense. If one spouse is under the age of 62 and taken off the title for the purpose of a reverse mortgage, the reverse mortgage will become due upon the death of the older homeowner, which might prove to be a problem for the spouse. Lastly, for homeowners who want to pass their home on to their children or grandchildren, a reverse mortgage may not be the best idea.

Q: I’m selling my home to the bank, right?

No. The deed and title to the home stay in the borrower’s name. Like with any mortgage, the lender adds a lien to the title for the amount borrowed so they can guarantee it gets paid back.

In a report published on Wednesday, the National Association of Realtors (NAR) proposed that Obama’s tax credit for first time buyers should be expanded across the market to all buyers. Concerns were also raised about appraisals.  Lawrence Yun, the NAR’s cheif economist, cited the appraisal problem as “serious,” and characterized by buyers using appraisers who are not from their neighborhood or who are comparing their property to distresed or damaged homes.  These appraisal problems are allegedly pulling down home values, and hurting the industry.

Complaints about appraisals are nothing new. However, the importance of a good appraisal is especially crucial in this economy, where there are so many distressed properties on the market that a home could be compared to. It is nonetheless true that, as we reported, have a foreclosed home within 500 ft. of a property decreases its value significantly.  As the number of foreclosures increase, more properties will be affected. Nonetheless, it is also true that a home that is not in foreclosure should probably not be valued the same as a home in foreclosure.  One is a distressed property, the other is not.

In terms of expanding Obama’s tax credits, the NAR proposes an interesting idea. It is true that an expanded tax credit would probably drive more buyers into the market. However, the influx of buyers would not necessarily cause the market to rebound. We have already seen an increase in home buyers, but property values still remain low and there still remains a lot of properties on the market.  Introducing more potential buyers would likely not change these facts when there are still so many foreclosures dragging down property values in many areas.

NRMLA released two new ethics advisories today: 2009-01 “Ethical Offers of Other Financial and Insurance Products and Services”, which covers recommendations for following the new rules and restrictions laid out concerning cross-selling, including those in the McCaskell ammendment and the recent HUD mortgagee letter. The other ethics advisory, 2009-02 “Lead Generation State Licensing Requirements and Ethical Advertising”, covers lead generation activities, and reiterates the NRMLA ethics committee’s intention to report or publicly name violators. NRMLA members and nonmembers alike should read these advisories, as the ethics committee also announced its authority to remand non-member violators and report them to the approrpriate authorities.

Existing home sales rose in May according to a report released to day by the National Association of Realtors. The level of 4.77 million homes is a 2.4% increase from an adjusted 4.66 million homes in April.  However, it remains 3.6% below last year’s levels.  The increase in homes sold is attributed this time to many returning buyers, who are gravitating towards existing home sales rather than distressed properties. Distressed sales fell to 33% of the sales in May, versus 45% of the sales in April. Yet the median home price, of $173,000 is still down 16.8% from a year earlier.

In other words, first time home buyers tend to gravitate towards homes in foreclosure, due to the lower prices. Yet these sales drag down the home values in the neighborhood, as we have discussed before. Return buyers, on the other hand, are less likely to buy a home in foreclosure. Their increasing market share appears to be good for the housing market as a whole, yet the steady decline of housing prices continues to have the real estate industry concerned.

This week’s reverse mortgage rates are below. These rates are effective for the week beginning June 23, 2009.

APR:

HECM 300:  3.51

HECM 325: 3.76

HECM 350: 4.01

HECM LIBOR 250: 2.817

HECM LIBOR 275: 3.067

HECM LIBOR 300: 3.317

Expected Rates:

HECM 300:  6.75

HECM 325: 7.00

HECM 350: 7.25

HECM LIBOR 250: 6.47

HECM LIBOR 275: 6.72

HECM LIBOR 300: 6.97

Both the HECM Libor and the HECM CMT saw significant drops in Expected Rates this week and small declines in their APRs. Hopefully rates will continue to trend downwards.

HUD announced this week that they would be offering $58 million in grants for housing counseling in 2009.  This is an increase of $11 million from a year ago. The money is especially significant in a time when many agencies and nonprofits are finding their budgets cut, and as pressure rises, both in Congress and in the legislatures, to increase protections for consumers in mortgages and reverse mortgages. As the number of foreclosures and delinquencies are at record highs, there is even more potential for housing counseling to help homeowners avoid getting into difficult predicaments and find the right solutions to get out of them while keeping their homes. Government programs are sometimes notoriously difficult to manuver, and counseling can often help consumers make their way through the forms and red tape–or avoid getting in those situations in the first place.

It is good to see the government recognize the importance of counseling and take steps to help fund this much needed avenue.

A report released by the National Association of Home Builders (NAHB) indicates that the market sentiment index among US home builders has fallen by 1 (from 15 to 16) in their June survey. Many factors appear to support this fall:

- foreclosures have increased

- the home for sale:home sold period is now greater than 10 months, a large number for the housing industry

- mortgage rates have increased dramatically in recent weeks

- new home sales have increased

- housing prices are down 15% in April year over year

and, perhaps most importantly for those participating in the survey, home construction was down 13% in April vs. March.  Construction year over year was at less than half of the April 2008 levels.

It is therefore unsurrpising that home builders are not optimistic about the market right now, especially since new properties to continue to compete against old properties, and the depreciation occuring and difficulty of selling homes does not make building new properties a sure bet.

The front page of today’s Wall Street Journal featured a touching article about the difficulty of getting a mortgage modification.  We have stated the facts in this piece many times, including the crucial fact that 9% of 45 million American homeowners were delinquent on mortgage payments in the first quarter of 2009. Yet, only about 500,000 loans have been modified thus far, leaving at least 3.5 million people without a much needed modification. It has also been stated often that a modification is hard to come by.  While the article goes into more specifics, the stories of piles of paperwork and miles of red tape are already widespread.

Given what is clearly a problem, I wonder if there is not some solution that would do a better job of solving these issues. If a customer has applied for a mortgage modification, is getting stuck in red tape, and there is already a glut of houses on the market, why not order a temporary halt to the foreclosure until the situation can be resolved? It is hard to believe that it is a best practice to penalize a customer for the bureacracy surrounding the new programs that Obama has created (as well as existing ones that are seeing a surge of interest).

As the article pointed out, there are many parties with stakes in a foreclosure. The lenders and investors care about the outcome of an overdue loan as well. However, harried bankers and servicers need to be given the time to adequately resolve these claims. Unfortunately, as more and more homeowners head into foreclosure, time appears to be sorely lacking.

When members of the reverse mortgage industry talk about cross-selling and when prospective borrowers approach a reverse mortgage, they often talk about “long term care insurance.”  Long term care insurance is a product that is completely separate from a reverse mortgage in which borrowers pay premiums in order to hopefully receive coverage/reimbursement to pay for long term care, should they need it. Long term care would include things like a stay in a nursing home or an attendant to help a senior bathe and dress.  It appears extremely difficult to find information on the exact way these programs work in an objective manner online.  From all the chatter it should come as no surprise that at a Senate hearing today lawmakers and watchdog groups cautioned that more consumer protections are needed.

Some of the concerns about long term care policies include that there is no guarantee that a policy purchased today (or 10 years ago) will still meet the needs of the client in 20 or 30 years (people are often advised to buy long term care insurance when they are still in mid-life, before they need it). Since some private long term care insurers are partnering with Medicaid, consumer protections become more dire because at least 30 states will soon have programs to encourage middle-income residents to acquire long term care.  Among the desired protections are ensuring that the premiums do not increase too dramatically, that complaints are addressed in a timely fashion, and that insurance agents are trained.  Consumers are urged to educate themselves about the fee increases in their policy, the events that will activate it, and how they will be protected against inflation.

Finally, as is true with reverse mortgages, many other products can prove to be viable options for those exploring long term care insurance, including mutual funds, investments, and, in some cases, even reverse mortgages.

This week’s reverse mortgage rates are below. These rates are effective for the week beginning June 16, 2009.

APR:

HECM 300:  3.56

HECM 325: 3.81

HECM 350: 4.06

HECM LIBOR 250: 2.818

HECM LIBOR 275: 3.068

HECM LIBOR 300: 3.318

Expected Rates:

HECM 300:  6.89

HECM 325: 7.14

HECM 350: 7.39

HECM LIBOR 250: 6.72

HECM LIBOR 275: 6.97

HECM LIBOR 300: 7.22

While the expected rate of the HECM LIBOR fell this week, APRs continued to rise dramatically, following a pattern we’ve seen in recent weeks.

Many prospective reverse mortgage borrowers have questions about appraisals, and while statistics show that consumers’ valuations of their homes are beginning to fall more in line with the reality, there is still generally a gap between what a borrower thinks their home is worth and what an apparaiser thinks it is worth.

The NYTimes wrote an article on Friday highlighting how a neighbor’s foreclosure can dramatically affect home values.  The article cites a report from the Center for Responsible Lending in Durham, NC, stating that about 69.5 million homes will have their home values decline this year due to the foreclosure of a neighbor.  These homes will lose an average of $7,200, leading to a suspected loss of over $500 billion nationwide.  Meanwhile, Credit Suisse projected that about 9 million homes will go into foreclosure from 2009-2011, leading to a ripple effect of declining prices on neighboring homes.

As Bill Tennant pointed out two weeks ago in his blog post on appraisals, one of the leading factors in an appariser’s valuation of a home is the recent sales of comparable homes in the vicinity. As the Center for Responsible Lending’s report shows, many borrowers are likely to take a greater hit due to the foreclosure crisis than they expected on the value of their homes. The Center for Responsible Lending predicted that borrowers will face a drop of 1.3% of their home’s value if they live within 300 ft. of a foreclosed home, and 0.6% of its value if they live between 300 and 500 ft.

The US Department of Housing and Urban Development (HUD) released a new Mortgagee Letter 2009-19 on Friday afternoon, detailing new changes in the condominium approval process.  The letter covers the two processing options for condominiums: HUD Review and Approval Process (HRAP) and the Direct Lender Review and Approval Process (DELRAP).  The letter can be found at: 09-19ml.

Check back next week for more information.

HUD Secretary Shaun Donovan

HUD Secretary Shaun Donovan said in a Congressional hearing on Thursday that the Government could raise insurance premiums to avoid the nearly 800 million dollar influx of taxpayer money necessary to offset all the FHA losses given the current housing market, the Wall Street Journal reported on Friday.  It would be the first time taxpayer dollars have gone into the reverse mortgage program in its 20-year history.  Donovan argued against raising the premiums, on the grounds that increased premiums or heightened restrictions could lower participation in the program.

Secretary Donovan’s fear of increasing fees and lowering participation ought to be heeded by Congress. The reverse mortgage program is a program that can help a lot of individuals remain in their home and avoid foreclosure, as we have already seen.  By adding more roadblocks, limitations, and/or costs, the government risks making the program inaccessible to the very people they wish to help the most.

The Wall Street Journal released the results of their monthly forecasting survey of economists.  Of interest to the reverse mortgage industry: the economists expect housing prices to continue to decline.  Even more worrisome, they expect the 10-year treasury bond, one of the factors upon which the CMT HECM interest rate is based,  to nearly double to 4.40 by December 2010. Housing starts are also expected to be a low value this year.  The majority of respondants don’t expect the Case-Schiller index to rise until Q1 or Q2 of 2010. Yet, there appears to be a discontinuity between the expected performance of the economy and the expected performance of the housing market. In other words, 92% of the economists believe the economy can sustain a recovery while housing prices are still falling, and given that many see the recession ending soon, it seems like they predict that will be the case.

While predictions are nothing but predictions, a severly increased 10-year treasury bond rate and falling home prices would not be good for the reverse mortgage industry, disqualifying more customers and reducing the amount borrowers are able to receive for their homes.  All that can be done now is to wait…

The reverse mortgage industry received a pleasant surprise this morning when the Wall Street Journal wrote a big feature on reverse mortgages on the front page of the personal journal section.  While much of the article explains what reverse mortgages are and how they work, an interesting piece for lenders is the section on how much money the FHA has lost through reverse mortgages. HUD asked for $800 million taxpayer dollars to boost its loan-loss reserves as housing prices continue to decline.  Jeff Lewis, the chairman of Generation Mortgage, mentioned that about 1/3 of the borrowers who might have closed reverse mortgages two years ago would no longer qualify today due to the declining home values.  Perhaps in connection with this, the article mentions how sudden pricing changes by Fannie Mae have recently disrupted some reverse mortgage transactions, as borrowers realize they will qualify for less money at closing than they did when they began the application process, sometimes even having a shortfall.

The stresses on the industry are  noteworthy, especially as interest in HECMs increases. The number of reverse mortgages being closed has proliferated in recent months, yet housing values do continue to decline.  Hopefully these financial considerations will not too greatly imperil the government programs.

John Dugan

In a story that made headlines yesterday, top US bank regulator John Dugan announced that he is concerned that reverse mortgages could be the next subprime mortgage product to experience rapid growth.  Like subprime mortgages, reverse mortgages are complicated loans that appeal to a vulnerable segment of the population.  However, Dugan’s concerns are not centered on the 90% of loans secured by Fannie Mae. Rather, he is concerned about proprietary products, sensing an opening for those who wish to prey on seniors.  

The Regulator’s remarks were partly to encourage other regulators to set standards for proprietary reverse mortgages. He also encouraged the regulators to be vigilant in cracking down on misleading marketing materials and lenders engaging in cross-selling. Dugan added that the Office of the Comptroller and Currency, where he is the top regulator, is prepared to step in should additional measures be needed.

As a result, Dugan’s comments should not be viewed in such a negative light. His point was that by acting early, regulators can hopefully prevent the next subprime crisis.  His comments are in line with much of the state legislation that we have seen in recent months.  Therefore, rather than scare people away from reverse mortgages, the Regulator’s fears should help skew prospective borrowers towards the FHA products, and otherwise help ensure that the proprietary market is regulated so that all reverse mortgage borrowers are protected.

This week’s reverse mortgage rates are below. These rates are effective for the week beginning June 9, 2009.

APR:

HECM 300:  3.50

HECM 325: 3.75

HECM 350: 4.00

HECM LIBOR 250: 2.821

HECM LIBOR 275: 3.071

HECM LIBOR 300: 3.321

Expected Rates:

HECM 300:  6.70

HECM 325: 6.95

HECM 350: 7.20

HECM LIBOR 250: 6.52

HECM LIBOR 275: 6.77

HECM LIBOR 300: 7.02

Both the expected rates and the APRs increased for the HECM CMT and the HECM LIBOR this week.  Expected rates continued to rise sharply, continuing last week’s ascent.

The city of Baltimore is suing Wells Fargo for systematically singling out African Americans as targets for subprime loans.

Wells Fargo was accused of systematically selling subprime mortgages to minorities in a federal lawsuit filed by the city of Baltimore.  A lawsuit is also being filed by the NAACP, and Illinois and New York are among the states looking into more filings. In Baltimore, more than half the Wells Fargo properties that went into foreclosure currently stand vacant, and 71% are in African American neighborhoods. In New York City, black households making over $68,000 with a Wells Fargo mortgage were 8 times more likely to have a subprime mortgage as white households in the same bracket.  

Filings in the suit include affadavits by two former loan officers attesting that they were offered bonuses to sell subprime mortgages to candidates who would have otherwise qualified for a conventional mortgage and that they targeted minority homeowners for the mortgages. Some of the more egregious claims include that some loan officers withheld client’s employment information so that they would not qualify for a conventional loan or cut and pasted credit reports from one customer into another’s application.  Another loan officer talks about the teams set up to market the mortgages to African American churches. 

While the judge is still waiting on more information from the city of Baltimore to determine if the lawsuit should proceed, it nonetheless remains disconcerting that a company such as Wells Fargo could engage in this kind of behavior for so long withoout anyone noticing it until now.  It sounds like these practices were engaged in at a widespread level for long periods of time. Why didn’t anyone say anything until so many years later?  

It is hard to conceive of anything that could be done to make up for the level of discrimination that took place and the harm done, should the lawsuit be allowed to proceed and Wells Fargo found guilty.  Cases like this one are nonetheless a good reminder of the importance of educating consumers on financial products– hopefully if people learn about mortgages, insurance products, and/or reverse mortgages, for example, they will be less likely to fall victim to scams or unfair deals.

A professor of economics and finance at Yale, Robert Shiller, wrote in Sunday’s New York Times that he does not expect the rebound of the housing market to be very swift.  He wrote about why the housing market often does not follow typical cycles of supply and demand, tending to lag.  The article is especially interesting for its use of historical examples, such as the 15-year long burst housing bubble in Japan and the 7-year market drought in the US in the early 90s.

It is also true, as Shiller points out, that it takes individuals longer to make housing transitions than stock transactions. The decision to move can have a long chain reaction, including new schools, doctors, and houses of worship. When the decision is made by a couple, it requires the consent of both parties.  Then there is the sheer amount of stuff that needs to be packed, moved, and unpacked. Even renters don’t rejoice in the task. 

Such a viewpoint, supported by historical fact, serves to move the debate about the rebound of the housing market from its current waiting game (Is this the bottom? No wait, is THIS the bottom? Or is it THIS?) to one of settling in for the long haul.  Frankly, despite all the articles debating whether we should be optimistic or pessimistic in regards to the market (for example: http://www.reversemortgageguides.org/news/housing-market-declining-and-improving-at-the-same-time) , settling in for a long term slowdown of the housing market appears to be the wisest course of action.

Reverse Mortgage Daily wrote a blog post today focusing on the case of a man in Minnesota who pleaded guilty to swindling his mother and was sentenced to the maximum thirty days in jail and five years of probation.  Amongst the ways the man swindled his mother was through a reverse mortgage, and the writer wondered if there was a way to protect seniors from such crimes without harming the reverse mortgage industry.

I think the answer is yes. 

Every year there are several stories of individuals who have been swindled out of their life savings.  We could protect those individuals without harming the reverse mortgage industry by allowing them to buy insurance that would protect their life’s savings if someone has been convicted of defrauding or swindling them, allowing them to replace a portion of the money they have lost and ensuring that they still have money to live on in their old age. 

Private companies and/or states could offer insurance against swindling/financial fraud. The insurance could be either mandatory or optional, and could taken out by the policy holder at any point throughout their life. In the same way the FDIC ensures up to $100,000 of each individual’s money in case of a bank failure, the financial fraud insurance would serve to protect an individual’s life savings against instances of swindling, theft, or fraud. While the policy would not necessarily be unlimited, policies of even up to $100,000 could do a lot to ensure that individual’s life savings are protected.  Although cases of fraud are not incredibly common, they can be catastrophic to the individuals involved when they do occur.  These policies would benefit those involved in something like the Madoff scandal as well. 

The only way to collect on the insurance policy would be to show that an individual and/or corporation had been convicted of swindling the policy holder.  In this case, the guilty plea from the son would be sufficient to guarantee the mother her pay out.  If such insurance existed and the  mother was able to collect on it, she would be left with more than the eighty dollars currently remaining in her bank account.

Correction: The man was sentenced to thirty days in jail, not thirty years. 

Former Countrywide CEO Angelo Mozilo

Former Countrywide CEO Angelo Mozilo was charged with securities fraud by the Security and Exchange Commission today, along with former COO and President David Sambol and former CFO Eric Sieracki. They are being charged with deliberately misleading investors about the increasing credit risk that Countrywide took to maintain its market share.  Mozilo is also being charged with insider trading. He allegedly sold his Countrywide stock for 140 million dollars in profit when he knew that the business model was deteriorating. The SEC alleges that Mozilo, Sambol, and Sieracki misled investors to believe that Countrywide was primarily a prime mortgage lender, although they actually were doing a large number of subprime mortgages. 

Mozilo’s lawyer says his client acted lawfully and that the charges are “baseless.” It will be interesting to see how the trial plays out. 

Countrywide has since been acquired by Bank of America and is now Bank of America Home Loans.

Every day I talk to clients across the country confused on how appraisals work, and the ultimate value of their home.  I am not an appraiser, just someone with experience reading hundreds of appraisals and understanding in broad terms how appraisers come to report the value of a home.

Today I spent twenty minutes on the phone with a pleasant woman, who is convinced that her home is worth at least $210,000.  We spent much of the call going through every detail of her home, which sounds well-maintained and in great condition.  I know the color of the carpets and walls in every room, the materials used in the updated kitchen, and the time that went into the landscaping.

This twenty minute tour of her home didn’t change the fact that two homes of similar square footage have sold on her street recently for under $150,000.  The hard truth of the current market, full of foreclosures, and short-sales came crashing down on her Reverse Mortgage dreams.  With so few retail sales recently, distress sales make up the bulk of the comparable sales and are exerting unprecedented influence on appraised values.

I am not writing this to tell horror stories about appraisals (although I have some that come to mind), only in the hope that we can all be a little more realistic about today’s real estate market.  Appraisals can not take into consideration the beautifully decorated kitchen, except to perhaps slightly increase the value due to the homes great condition.  Appraisers look at square footage, lot size, and overall condition of the property, number of bedrooms, number of bathrooms, and features, among many other factors.  They look at comparable sales within the area within a certain time period.  Unfortunately, that means that if a home down the street is the same model on the same lot as yours in similar condition it will reflect heavily on your value, even if they did not put the same amount of work into the landscaping or the interior of the home.

The appraiser’s job is not to assess the value of the upgrades made to the home, but only to compare your property’s overall condition to the overall condition of other sales in the area.  Homes currently on the market have no bearing on the value until they have sold, providing a current comparable sale.  Until then, the home on the market only increases property inventory which can actually reduce the value of your home.

Even experienced professionals in the real estate industry are often surprised lately by low appraisals.  Please, heed my advice and research other sales in your area as well as similar properties that are pending sales to be sure you have an informed opinion of the value of your home to save much heartache and frustration, and in some cases money if the appraisal comes back lower than what is acceptable.

Bill Tennant is the Vice President of Access Reverse Mortgage in St. Petersburg, FL. He is a guest contributor to the site.

While the Obama Administration’s Home Loan Modification Program was supposed to help homeowners who have lost their jobs and are having trouble making their mortgage payments, the NYTimes wrote an article today highlighting the many people whom the banks have been unwilling to help because they have never been late on a mortgage payment before.  Some of these homeowners are upside down on their mortgages–others are having trouble simply due to the circumstances of the recession. 

Although it is often dangerous to make generalizations solely based on the case highlighted in the story, it is extremely plausible that banks are unsure how to handle customers with good payment histories who are now running into financial difficulties. The banks and government programs seem to be waiting for people to get into a lot of trouble before bailing them out, rather than helping prevent those problems in the first place.  

Furthermore, the number of subprime and Alt-A mortgages refinanced in May fell 11 percent from April, according to research by Alan White at the Valparaiso School of Law. Given the record number of homeowners behind on their mortgage payments or facing foreclosure, this statistic is problematic and disturbing. 

Many of those affected include seniors.  The woman profiled in the article, Eileen Ulery, is 63, old enough to qualify for a reverse mortgage.  However, her property is upside down, meaning she would be likely to face a shortfall.  

While I agree that on a scale of priorities we should be helping those whose circumstances are most dire first, it does not seem to correlate that homeowners who have been responsible are being penalized. Bank of America Home Loans is quoted in the article as saying they are still putting the programs in place for those not facing a severe threat of foreclosure.  I would hope that those programs are as inclusive as possible, and put together soon so that these individuals do not end up in a dire situation before they can get help.

The Reverse Mortgage Guides Association is pleased to announce the launch of their membership and certification programs.  These programs will provide ways for members to increase their knowledge of the reverse mortgage industry and to prove that knowledge in the form of a rigorous certification test.  

Benefits of Membership

· Membership badge for website and print materials

· Subscription to weekly reverse mortgage news update

· Access to Reverse Mortgage Competency Certification Test for current and potential employees

· Directory listing on www.ReverseMortgageGuides.org

Certification Test Benefits

· Certification badge for websites and print materials

· Demonstrates knowledge and competency to prospective clients

· Test can be used as a screening tool for potential employees

· Test updated quarterly with current guidelines

About the Certification Test

· 30 questions

· Covers all aspects of reverse mortgages and federal compliance including RESPA

· Variety of question-types

· Timed—15 minutes maximum

· 60% or above required to pass

· Test is administered online

· Test results delivered within 2 business days

The cost is only $100 for the annual membership, and $50 per test administration. 

For more information or to sign up, please email reva.minkoff (at) reversemortgageguides.org. 

Fannie Mae announced yesterday that it will no longer buy  CMT based reverse mortgages beginning September 1, 2009.  This means that CMT based reverse mortgages are therefore much less likely to be offered starting on that date.  While on the surface this might look problematic, most lenders and borrowers are already using LIBOR based products, which currently have lower interest rates than the CMT based products.  

Fannie Mae said the reasoning behind the discontinuation of CMTs was to help standardize and simplify the HECM product offerings, build liquidity for the product, and move the market towards securitization. However, another likely factor is that the CMT is based on the US treasury bond, which has been plummeting in value recently due to the recession.  The LIBOR, on the other hand, is based on the London Inter-Bank Offered Rate, which is an international index.  As a result, it is arguably a more stable rate in the current economic climate, dependent on the international situation as opposed to only on the US. 

Lenders will be able to continue to obtain pricing and commitments for CMT based HECMs from Fannie Mae until August 31, 2009.

This week’s reverse mortgage rates are below. These rates are effective for the week beginning June 2, 2009.

APR:

HECM 300:  3.49

HECM 325: 3.74

HECM 350: 3.99

HECM LIBOR 250: 2.816

HECM LIBOR 275: 3.066

HECM LIBOR 300: 3.316

Expected Rates:

HECM 300:  6.59

HECM 325: 6.84

HECM 350: 7.09

HECM LIBOR 250: 6.29

HECM LIBOR 275: 6.54

HECM LIBOR 300: 6.79

Both the expected rates and the APRs increased for the HECM CMT and the HECM LIBOR this week.  Expected rates have risen sharply.

A recent New York Times article focuses on Fannie Mae’s HomeSaver Advance Program, a now-deemphasized program that gave borrowers up to 15,000 in unsecured personal loans to cover missed mortgage payments. However, 70% of the borrowers who took out these loans defaulted.  This instance helps highlight the importance of financial counseling.  The article closes with the example of a New York City program that makes foreclosure avoidance loans available to borrowers who have undergone counseling.  This program has given out 15 loans so far, none of which have defaulted.

Reverse mortgage counseling has come under fire recently, and several states have been debating whether to  pass legislation requiring counseling before all reverse mortgage transactions.  It is often argued that counseling is necessary in order to ensure that the senior borrower understands the reverse mortgage transaction, but if one looks closely, it appears that counseling has the potential to do a lot more than that.  As counselors at the NRMLA Orlando Road Show explained, the purpose of counseling is partly to make sure that the borrower will still have enough money to live on after the reverse mortgage.  The financial counseling portion of the reverse mortgage counseling process is perhaps underestimated, but it articles such as the one referenced above help show that financial counseling may be another way to help homeowners avoid foreclosure–and ensure that the steps they take in the short term will not penalize them in the long run.