The Senate announced a bi-partisan deal yesterday to extend the new homebuyer’s tax credit through April 2010. The deal will extend the $8,000 tax credit, which was set to expire in weeks, on homes with values up to $800,000.  While the previous tax credit only applied to homebuyers with salaries of up to $75,000/year for individual and $150,000/couples, the deal raises the requirement, so that the tax credit will now apply to homebuyers with salaries of up to $125,000/year for individuals and $225,000 for couples. This will serve to make the vast majority of homebuyers available for the tax credit. In addition, a  new $6,500 tax credit will be available to home owners wishing to move out of their current homes into more expensive ones.

The extension of the tax credit is expected to cost the government $10.2 billion, which will be offset by delaying a tax-break for U.S. based international corporations from 2010 to 2017.

The extension of the tax credit (as well as the new credit for current homeowners) is expected to help the housing market and real estate industry bounce back from the housing crisis.  It is hoped that the tax credit, which has been successful in the past year, will help the market return to its former strength in 2010.

Yesterday, Congress passed the continuing resolution we discussed yesterday, extending the HECM loan limit through the 2010 fiscal year.  The continuing resolution is now headed for the President’s signature, which it is expected to receive.  The continuing resolution means that the reverse mortgage loan limit will remain at $625,500.  The change reduces uncertainty about the future of the loan limits for HECM reverse mortgages.  As mentioned yesterday, the continuing resolution also includes jumbo conforming loans and conforming loans, two kinds of forward mortgages.

An appropriations bill has been proposed that will extend the FHA reverse mortgage limits until the end of 2010.  The current limit of $625,500 is currently set to expire at the end of the year unless new appropriations are made. The appropriations bill still needs to pass the House of Representatives and the Senate. The extensions would also apply to Jumbo Conforming Loans and Conforming Loans, two kinds of forward or conventional mortgages.

Many in the industry appear to be hopeful that the bill will be passed before the limits expire.  It is probably too early to become extremely concerned about the expiring limits, but with the bill needing to pass through both houses of Congress, it is something to keep an eye on.

A day after positive news about existing home sales and housing prices, the data on new home sales sent a negative current through the economy.  This morning it was reported that new home sales fell unexpectedly after 5 months of consecutive increases. Home sales fell from a seasonally-adjusted 417,000 new home sales in August to 402,000 in September, a decrease of 3.6%.  But a survey of economists had predicted that the number of home sales would rise to 440,000 in September, leading to a prediction nearly 10% higher than the actual amount.

This is not the first time we have seen mixed housing data. While it is easy to speculate on the ups and downs of the market, only time can tell whether the bumps are telling of actual trends or merely slight deviations from the mean.  This month, all the positive data about home prices and existing home sales, as well as climbing orders for long lasting goods, show that the industry may be beginning to recover, even if that recovery is a slow one with some set backs along the way.

In the Case-Schiller report data released this morning, US home prices continue to show improvement in August. The Standard & Poor’s/Case-Schiller index showed a seasonally-adjusted 1 percent improvement in August over the previous month.  16 of the 20 cities in the index saw their prices rise. Only four–Cleveland, Las Vegas, Charlotte, and Seattle–saw their home prices decline.

While the numbers are still down compared to last year, the continued upward trend is a nice change from last winter, when all cities saw their prices decline for several months on end.  Many believe that the housing market is now turning around.  However, the prices are down significantly.  The average price today is equivalent to 2003 levels.  In Detroit, they are at the same levels they were at in 1995.  Compared to last August, prices are down 11.3 percent.  As a result, many of the problems we have seen recently in regards to underwater homeowners and foreclosures seem likely to continue in the near future. As the New York Times said, in many places, it’s as if the housing boom never happened.

This week’s reverse mortgage rates are below. These rates are effective for the week beginning October 27, 2009.

APR:

HECM LIBOR 225: 2.494

HECM LIBOR 250: 2.744

HECM LIBOR 275: 2.994

HECM LIBOR 300: 3.244

Expected Rates:

HECM LIBOR 225: 5.83

HECM LIBOR 250: 6.08

HECM LIBOR 275: 6.33

HECM LIBOR 300: 6.58

The HECM LIBOR APR remained almost unchanged for the fifth consecutive week. Meanwhile, the expected rates continued to rise, though they only rose by three hundredths of a point.  One wonders when the APR will finally change, and, when it does, in which direction it will go.

In the past, we have explained reverse mortgage terms. Today, we will explain some home mortgage terms:

Some Important Home Mortgage Terms Explained

Banks and other lenders offer mortgages to borrowers who want to buy homes and don’t have the required cash to make upfront payment for them. The lenders utilize the homes as collateral or security for their loans. If the borrower defaults on the contracted payments, then they can lose their homes to foreclosure. There are various forms of mortgage loans and various mortgage terms used in mortgage related discussions. You can also refer to a dictionary for home mortgage terms to have a better understanding. Following are some important mortgage terms that you would frequently come across in mortgage deals.

Adjustable Rate Mortgage

ARMs or adjustable rate mortgages usually have a fixed rate of interest at the beginning of the loan term and subsequently, they get reset to the market average. For instance, a 5/1 ARM would carry a fixed rate of interest for the initial five years and subsequently, it would get reset to the market rate every year. These loans are beneficial for those people who secure a mortgage when interest rates are escalating.

Fixed Rate Mortgage

Fixed rate mortgages come with a predetermined rate for the whole tenure of the loan. These loans are advantageous for locking in an affordable rate and for borrowers who need the security to understand that they would have a uniform monthly payment.

Annual Percentage Rate

APR or Annual Percentage Rate represents the real borrowing costs of a mortgage loan. Individuals with good credit scores typically qualify for lower APRs.

Down Payment

This is a portion of the home value that you have to pay at the beginning of the loan. A bigger down payment would lead to improved terms for the loan since it guarantees the lender that they would receive the payments.

Loan Term

The loan term is the length of time throughout which the loan has to be paid off. The higher the loan term, the less would be your monthly payments. However, if the tenure is extensive, then you would land up paying a huge amount of interest throughout the whole term of the loan.

Mortgage Points

Mortgage points or discount points are charges that you pay at the beginning of the loan. Every mortgage point is equal to 1% of the loan amount. Hence, if you are asked to pay 3 points on a $200,000 loan, you would pay $6,000. Lenders permit you to pay points or prepaid interest to lessen your interest rate.

The government’s $8,000 tax credit to new homebuyers has been under a lot of scrutiny in recent months. The tax credit was designed to help stimulate the housing market and lead to increased home ownership. To that end, it has been extremely successful.  However, abuses within the system appear to have also been quite high.  While the reverse mortgage industry found itself under scrutiny for what appear to be under about a dozen complaints, the federal government has started 167 criminal investigations and 107,000 civil investigations into possible fraud.   Of the 1.4 million people who claimed the over 10 billion dollars in tax credits in 2008-2009, 60% had incomes under $50,000– leading to questions as to whether they could even afford a home.

The new homebuyer tax credit has certainly had many positive effects.  Of the 1.4 million home sales, 350,000 to 400,000 were estimated to be a direct result of the credit’s availability.  That accounts for 25-30% of the eligible home sales. In some areas, real estate agents have reported that up to 70% of their clients were considering buying a home as a direct result of the tax credit. With sales of existing homes at their highest level in two years, many are attributing the strong numbers to the tax credit, which expires November 30.  Sales increased 9.4% in September according to the National Association of Realtors.

So which is it? It seems that the tax credit likely has had a positive effect on the market. However, the rock-bottom prices and increased inventory have also likely contributed to many first-time buyers choosing to enter the market.  The increase in first-time homebuyers is a good sign for the real estate industry, but it is still a disconcerting one. If 60% of the 1.4 million people who claimed the tax credit from 2008-2009 had incomes of under $50,000, could they really afford to own a home? Will we see another foreclosure crisis within the mortgage industry down the line as these homebuyers are faced with rising rates or declining incomes? The answer to these questions remains to be seen.

While the pros of the tax credit may outweigh the cons, with the damage to the real estate industry wiping out the savings of many throughout the country, if the credit is extended, it should be done so with caution.  While the image of every American owning a home is a promising one, the government has an obligation to ensure that those owning homes can actually afford to do so.  Otherwise, history is at risk of repeating itself.

Sources: The New York Times: Home Tax Credit Audit Shows Abuses
The New York Times: Tax Credit Lifts Home Sales to Two-Year High
The Associated Press: Northeast Home Resales Post 11 Pct Annual Increase

HUD released the long awaited new RESPA FAQs this morning. The document contains many common questions and answers about complying with RESPA.

RESPA, the Real Estate Settlement Procedures Act first passed in 1974, is the source of many of the basic federal reverse mortgage required disclosures, including the HUD-1 statement and the Good Faith Estimate (GFE).  Most of the questions in the RESPA FAQs released this morning address the HUD-1 and GFE. There is also a specific section on reverse mortgages.

RESPA Rule FAQs

After already announcing a delay of the implementation of Mortgagee Letter 2009-19 to case numbers assigned on or after November 2, 2009, the Reverse Review reported today that HUD has delayed the implementation further. Guidance is expected from HUD in the next two weeks clarifying Mortgagee Letter 2009-19 and offering additional leniencies to address the difficult current market conditions.  The changes will then go into effect on December 7, 2009.

For those who forgot, Mortgagee Letter 2009-19 changed the condominium approval process and condo unit eligibility for reverse mortgages. The Mortgagee Letter can be found at Mortgagee Letter 2009-19.

Today’s Wall Street Journal featured a very interesting article on how Bank of America is using reverse mortgages to save senior borrowers. The cases include situations where Bank of America has taken a significant write down to allow the borrowers to stay in their homes.  But not all borrowers may receive the same treatment as the borrowers highlighted in the article. As the story notes, most borrowers who received the modified reverse mortgage had taken out option ARMs.

Option ARMs (Option Adjustable Rate Mortgages) have become “the new subprime mortgages,” leading many borrowers into foreclosure. 32% of option ARM borrowers were delinquent or in foreclosure last month, compared with 48% of subprime mortgage borrowers.  Unlike subprime mortgages, option ARM mortgages generally went to borrowers with good credit, including seniors with significant equity in their homes looking to refinance. The option ARMs have also proved difficult to modify, since the low interest rates on the loan often cannot be lowered any further.   Lawsuits have been filed by borrowers claiming they were misinformed of the loan’s complicated structure, which in many cases can lead payments to balloon after a few years.

As a result of the lawsuits, as well as the settlement of a suit against Countrywide, which was since acquired by Bank of America, Bank of America has agreed to modify option ARMs and subprime mortgages where possible.  While it appears that Bank of America has so far only issued about 20 reverse mortgages to borrowers with option ARMs, it looks like a good start to fixing a significant problem. Borrowers with option ARMs from Bank of America may want to talk to their servicer or the bank about a modification, perhaps with a reverse mortgage.

Bank of America announced this morning that it is resuming offering fixed-rate reverse mortgage loans in Illinois.  The decision comes after Bank of America has reviewed its policies relative to Illinois’ High Risk Home Loan Act (HRHLA) and determined that the loans can be offered as long as they meet the following criteria:

- Closing costs, defined as all costs paid by the borrower directly or indirectly, do not exceed 5% of the total loan amount.

- Bank of America’s  high cost worksheet must be completed.

- Bank of America’s high cost worksheet must be submitted to fulfillment and indicate that the loan has “passed” the high cost test.

Says the letter, “Bank of America stands behind its commitment to provide clarity and transparency to home lending. To that end, we have chosen not to engage in the production of high cost loans.”  Bank of America also announced that loans declined when the product was suspended September 16th can now be re-submitted for approval. The decision should come as welcome news to reverse mortgage lenders in Illinois.

This week’s reverse mortgage rates are below. These rates are effective for the week beginning October 20, 2009.

APR:

HECM LIBOR 225: 2.495

HECM LIBOR 250: 2.745

HECM LIBOR 275: 2.995

HECM LIBOR 300: 3.245

Expected Rates:

HECM LIBOR 225: 5.89

HECM LIBOR 250: 6.05

HECM LIBOR 275: 6.30

HECM LIBOR 300: 6.55

The HECM LIBOR APR remained almost unchanged for the fourth consecutive week.  However, expected rates rose significantly. The expected rates are up .15 this week.  One hopes this is not the beginning of an upward trend. After a short week last week, these rates will be good for a full seven days.

A report by a bipartisan Congressional oversight panel ruled today that the Home Affordable Modification Program (HAMP) is not doing enough to help the current drivers of the foreclosure crisis – borrowers with good credit who have lost their jobs and those with complex mortgages. While the administration has lauded HAMP as it reached the crucial mark of 500,000 mortgages given trial modifications, the report counters. Many of those with modified mortgages will see their payments rise significantly after 5 years, leading some to argue that foreclosure is being postponed, not avoided.

It is true that the problem in the foreclosure crisis now is no longer sub-prime mortgages. Alt-A mortgages, and other products with ballooning rates, have hit many hard.  Many borrowers with good credit have also been hit, especially those that have lost their jobs or have seen their home values plummet in recent months.  Finally, as we have reported, foreclosures in high value areas have increased as well. As a result, modifying sub-prime mortgages or mortgages with high interest rates will not help many of the borrowers at risk or already in foreclosure. A new solution will be necessary to allay the losses of the recession.

This weekend’s New York Times features a special section on retirement. The section, which can be found online as well as in print, features articles on Medicare, job hunting, 401Ks, and even reverse mortgages. However, it is frustrating that the piece on reverse mortgages is very vague and generic.  The piece talks about reverse mortgages as a last resort, primarily for those who do not want to leave the home to their heirs.  But this is the opposite of what some other media pieces have talked about in recent months, where a reverse mortgage was used as an estate planning tool in order to help borrowers pass on larger amounts to their heirs by avoiding the estate tax.

Nonetheless, with the exception of the vague reverse mortgage information, many other articles within the section may be useful to our readers.

Reverse Mortgage Guides added two new videos for consumers to the site today.  The videos can also be found on YouTube.  Reverse Mortgage Guides is excited to be able to offer this valuable feature to our visitors.

The videos can currently be found on the “What is a Reverse Mortgage” page and the “Pros and Cons” page.  More videos will be added soon.

In addition, if you would like to contribute a video to the site, please comment below or contact reva.minkoff (at) reversemortgageguides.org.

This week’s reverse mortgage rates are below. These rates are effective for the week beginning October 14, 2009.

NOTE: The rates initially published on October 13th were incorrect by 1 thousandth of a point. Please consult the rates below moving forward.

APR:

HECM LIBOR 225: 2.495

HECM LIBOR 250: 2.745

HECM LIBOR 275: 2.995

HECM LIBOR 300: 3.245

Expected Rates:

HECM LIBOR 225: 5.65

HECM LIBOR 250: 5.90

HECM LIBOR 275: 6.15

HECM LIBOR 300: 6.40

The HECM LIBOR APR remained almost unchanged for the third consecutive week.  The expected rate only decreased by one hundredth of a point. Due to the Columbus Day Holiday, these rates will only be in effect from October 14th to October 19th.

This weekend Gov. Arnold Schwarzenegger signed AB 329 into law in California. The bill finally establishes the Reverse Mortgage Elder Protection Act of 2009. The bill prohibits cross-selling, requires the lender to provide the borrower with no fewer than 10 nonprofit HUD-approved counseling agencies, and requires the lender to provide the borrower with a checklist of issues to discuss with the reverse mortgage counselor.  The loan application will be unable to be approved without the signed checklist.  However, given that the first two requirements are included in national legislation, the main feature of the bill will be the addition of the checklist to the reverse mortgage counseling process.

The provisions of the bill will be administered by both the California Department of Real Estate and the California Department of Corporations.

The bill can be found at: AB 329

Today marks the one week anniversary of the shift to the new HECM roster.  The new roster means that the new requirements for reverse mortgage counselors have gone into effect.  Only counselors that have met these requirements will be permitted to provide HECM counseling. As a result, the number of agencies providing HECM counseling have, for the time being at least, decreased dramatically. Some states, such as Delaware and Hawaii, do not have any local counseling agencies that have met the new requirements and are on the HECM roster.  However, since many counseling agencies provide counseling on a national level by phone, borrowers in these states are unlikely to feel any ill effects.

The list of new counselors can be found at: https://entp.hud.gov/idapp/html/hecm_agency_look.cfm

NRMLA President Peter Bell testified in front of the House Subcommittee on Housing and Community Development today as part of a panel of witnesses on the future of the FHA. While Commissioner Stevens’ statements were written up in the New York Times, Bell’s comments provided a number of interesting anecdotes on the state of the reverse mortgage industry.

Bell talked about the risks to both borrowers and lenders. Borrowers risks include finding out they do not have enough money to remain in the home due to property taxes and insurance. These issues, which we have covered extensively in the past few weeks, only effect 2% of borrowers, and efforts are underway to help mitigate those risks.  Lenders risks include being stuck funding a loan that is unable to get a certified by HUD.  HUD is reducing this risk, by decreasing the Principle Limit Factors last week, and eliminating the need for a credit subsidy to the reverse mortgage program.

However, Bell’s main purpose in his testimony appeared to be to convince the House Subcommittee to extend the current reverse mortgage limits and to ultimately return to the prior Principle Limit Factors.  HECMs have had a net gain of 7 billion dollars in the course of the program, and Bell argues that reverse mortgages have not played a role in the FHA’s recent capital reserve problems.  Reverse mortgages are expected to operate on a break even or better basis in the future.

Furthermore, recent changes to the program will impede the ability of seniors to get a reverse mortgage. Over 20% of reverse mortgage borrowers in the last year would not have qualified if the Principle Limit Factors had been reduced to their current levels when they applied for the loan.  New technology has reduced costs for lenders, and Bell maintains that the numbers used by the Office of Management and Budget (OMB) are not realistic, since the average lifetime of a reverse mortgage loan is 7 years regardless of the age of the borrower. Older borrowers average the same length of time with a reverse mortgage as younger borrowers.  Bell was passionate that the reverse mortgage program has been self-sustaining and will continue to operate as such.

The President of NRMLA, Peter Bell, is currently testifying about reverse mortgages for the Subcommittee on Housing and Community Opportunity. His testimony (as well as the rest of the hearing) can be viewed at:

http://boss.streamos.com/wmedia-live/financialserv/16489/300_financialserv-qwertyuiop_070131.asx

As the committee chairwoman said earlier, without the FHA, there would be no mortgage market right now. We will have more coverage of the testimony as it occurs later, for those of you who are unable to watch live.

The hearing appears to be more about the health of the FHA and the amount of reserves remaining, but so far contains interesting information for those interested in the business side of reverse mortgages, wholesaling, and the mortgage industry as a whole.

In a move that is designed to help the housing industry, the Wall Street Journal reported today that Fannie Mae and Freddie Mac are working on a program to help smaller banks get the short term credit needed to help them make home loans. This would come in the form of Fannie Mae and Freddie Mac making advance commitments to buy home loans that meet a certain criteria.  The program builds on a pilot program already underway between Freddie Mac and NattyMac and Provident Lender Associates LP.

While it seems that much of this plan has yet to be announced, any assistance to small banks appears to be welcome.  Another column in the Wall Street Journal pointed out that there are over 8,000 mortgage lenders nationwide (not counting reverse mortgage lenders).  When one considers that the majority of mortgage loans tend to be completed by the three major banks- Wells Fargo, Bank of America,  and JP Morgan Chase. These three lenders alone account for 52% of new home mortgages, up 15% from the 37% market share for the top 3 lenders in 2007.  An increase in market share for the top lenders likely doesn’t bode well for the industry though. As a result, it will be interesting to see if the plan with Freddie Mac and Fannie Mae will help revitalize the mortgage industry by helping the smaller lenders.

Apartment vacancies reached 7.8% nationwide in the 3rd quarter, the highest point since 1986. The rate is expected to continue to rise in the winter months, which have continually seen lower demand for renters, as people are more likely to move during the warmer months. Nationally, effective rents have fallen 2.7% this past year, to around $972. However, this number is deceiving, as some markets have been hit harder than others. In fact, in the third quarter, 26 markets saw their vacancy rates improve, while 11 saw them remain stagnant. 42 markets saw their vacancies increase, the most dramatic being in Omaha, Nebraska, where they went up by 1.1% to 7.4%.

But the increased vacancy rates are not always correlating most strongly to decreases in rent. The biggest rent decreases are being found in San Jose, CA and New York City, with declines of 8.0% and 6.8% respectively. The decreasing rents and increasing vacancies have made it easier for renters to negotiate on prices and to shop around until they find the perfect place (and price). In addition, many former renters have bought homes for the first time taking advantage of the federal tax credit and the low housing prices.

This week’s reverse mortgage rates are below. These rates are effective for the week beginning October 6, 2009.

APR:

HECM LIBOR 225: 2.494

HECM LIBOR 250: 2.744

HECM LIBOR 275: 2.994

HECM LIBOR 300: 3.244

Expected Rates:

HECM LIBOR 225: 5.66

HECM LIBOR 250: 5.91

HECM LIBOR 275: 6.16

HECM LIBOR 300: 6.41

While the HECM LIBOR APR remained constant this week, the expected rate declined considerably, dropping two tenths of a point. Borrowers should see savings from such an interest rate decline, and hopefully the low rates will continue.  This is the first full week that the new PLF limits will be in effect.

September’s HECM volume report as published by HUD (U.S. Department of Housing and Development) showed that the number of HECMs endorsed increased by about 500 loans from August to September. The number of HECMs endorsed in September was 9,473, while 8,933 HECMs were endorsed in August. However, this number does not reflect the dramatic increase in the number of case numbers assigned the last week in September during the final days of the former PLF limits. As such, the number of HECMs endorsed should rise rapidly in October and November, as they are processed and closed.

In the meantime, the HECM lenders in the top 10 remained unchanged from August. These top 10 lenders are measured by the total number of HECMs endorsed so far this year, explaining why some lenders that have left the reverse mortgage business are still in the top 10.  The list is as follows:

1. Wells Fargo

2. Bank of America

3. World Alliance Financial Corp

4. Financial Freedom

5. One Reverse Mortgage

6. MetLife Bank

7. Countrywide Financial

8. Generation Mortgage

9. Urban Financial Group

10. 1st AAA Reverse Mortgage

It will be very interesting to see if this list changes in the next two months as the number of HECMs endorsed increases dramatically. The complete list for September can be found on the HUD website. The changes will be reflected on the Reverse Mortgage Guides website in the Lender Directory within the next week.

Tax and Insurance questions were one of the most interesting issues raised at the MBA Reverse Mortgage Conference in San Diego earlier this month.  As the reverse mortgage product evolved, they are also two questions that are likely to be closely attended to.

A report by the Government Accountability Office (GAO) cited the phrase “Never lose your home” as a problem in reverse mortgage advertising because if a borrower does not pay the tax and insurance obligations on the home, the borrower can be foreclosed upon. Right now 2% of all reverse mortgages go into default due to so-called T&I issues. However when these issues were discussed at the MBA conference, it appeared that there were things that borrowers could easily do to avoid these potential problems. Many just did not know they could do so.

One is to set up a tax and insurance set-aside account.  Doing so would take some of the reverse mortgage proceeds and set them aside to pay taxes and insurance on the home. This would assure that the borrower always has the money to pay for taxes and insurance and that they are paid automatically.  It is one easy way for a borrower to handle the tax and insurance obligation. However, many borrowers currently do not take advantage of this option.

Another is that there are many tax exemptions for seniors.  However, many seniors do not realize they are eligible. Seniors should inquire with their states and municipalities about property tax exemptions that they may be eligible for.  While there is often a lot of red-tape surrounding these exemptions, they can save seniors significant amounts of money.

Tax and insurance obligations do not need to be reasons for a reverse mortgage to default. If borrowers are responsible and plan in advance, they can alleviate the obligations before they ever become a problem.

Financial Freedom announced that effective immediately, it too is discontinuing fixed-rate reverse mortgage loans in Illinois. This comes after Bank of America stopped offering its fixed-rate product in Illinois.  All these changes are due to concerns about the Illinois High Risk Home Loan Act (HRHLA) which only applies in the state of Illinois. The act is designed to protect borrowers against high-cost loans, and applies to all kinds of loans and mortgages.  Under the threshold set by HRHLA, many fixed-rate products are high cost, since the total closing costs often exceed 5% of the principal limit of the loan.

It is important to note that the fixed-rate product changes in Illinois do not affect any other states. Meanwhile, borrowers in Illinois can still complete reverse mortgages using the LIBOR, while local lenders wait for changes to the HRHLA to be enacted.  That said, MetLife and Reverseit are still offering their fixed-rate products… at least for the time being.