Fannie Mae announced a plan on Thursday that will allow borrowers facing foreclosure to lease their homes. The program, called Deed for Lease or D4L for short, allows borrowers facing foreclosure to hand their deed to the lender in exchange for paying the market rate rent on the home for at least 12 months.

To qualify for the program, borrowers have to have mortgages insured by Fannie Mae, be unable to qualify for President Obama’s mortgage modification program, and be unsuccessful renegotiating with their lenders. While eligible borrowers would have to voluntarily give up the deeds to their homes, they would be able to stay for at least a year, providing that they paid the market rate rent. Rents would then be renewable on a month-to-month basis. Eligible borrowers must document that the new market rate rent is no greater than 31% of their gross income to qualify for Deed for Lease.

The Deed for Lease program is an extremely interesting and valuable way to keep delinquent borrowers in their homes, or merely to allow time for a transition. The program may be especially valuable for families with children, whom they do not want to remove from their schools in the middle of the year. It will help give families more time to come up with options. It will also help underwater homeowners– especially in areas that have seen property values drop significantly.

Furthermore, since tenants of qualifying borrowers are also eligible for the program, Deed for Lease will help tenants whose landlords face foreclosure. As a result, it appears that, though Fannie Mae provided no estimates for how many borrowers will be eligible for the program, Deed Lease looks to be a promising alternative to severely delinquent borrowers with Fannie Mae loans facing foreclosure–and for their tenants.

More information about the program can be found at www.efanniemae.com.

This week’s reverse mortgage rates are below. These rates are effective for the week beginning November 3, 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: 5.91

HECM LIBOR 250: 6.16

HECM LIBOR 275: 6.41

HECM LIBOR 300: 6.66

The HECM LIBOR APR remained almost unchanged for the sixth consecutive week. However, the expected rates continued to rise. This week saw a dramatic increase by .08 for the borrowers.  It will be interesting to see when the APR finally changes, and, when it does, whether the expected rates will adjust is the same direction.

Last week a bi-partisan deal was announced in the Senate that will likely pave the way for the new homebuyer’s tax credit to be extended through April 2010.  The deal also includes plans for a significant expansion of the tax credit, raising the income requirements to $125,000 per individual and $225,000 per couple from $75,000 per individual and $150,000 per couple. This expansion means that many more individuals will be eligible for the tax credit than were previously. Finally, the deal added a $6,500 tax credit will be available to homeowners wishing to move out of their current home into a more expensive one.

I have been thinking about the deal all weekend, and I worry about its effects. While the goal of the credit is to strengthen the market and help bring home prices back up, increasing income requirements and adding a tax credit to incentivize trading up seems like it risks exacerbating the current problems in the housing market.  Many of the current problems in the housing market have been created by homeowners (many first-time homeowners) taking out mortgages that were more than they could afford to pay in order to buy homes. Even when they could afford the mortgage, the recent economic problems have led many to be out of work or find their401(k)s and pensions to be less than they had expected. Consequently, the number of foreclosures and mortgage delinquencies reached all time highs in recent months.

In light of these developments, some proposed that maybe homeownership should no longer be an essential part of the American Dream.  It was argued that it is a disservice to put people into homes they cannot afford. While the tax credit is not a very large sum of money, it is enough money to push individuals to act in uncertain times.  A realtor in Portland, ME commented that nearly 70% of their clients were motivated by the tax credit. Yes, the housing market could use a boost, but when individuals are making a significant long-term financial decision for a short-term financial incentive, it seems like many poor choices can occur.

Reverse mortgages and refinances are available to help homeowners who find themselves over-extended, but reverse mortgages are only available to those over 62, and refinances and short pays have been extremely hard to get.  To avoid another housing crisis, the government does need to stimulate the market, but putting more borrowers into homes they cannot afford does not seem to be a safe way to do so.

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.

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.

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 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

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.

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.

HUD just announced today that effective October 1, 2009, the principal limit factor (PLF) on reverse mortgages will be reduced by 10%. The new PLF table can be found at:  http://www.hud.gov/offices/hsg/sfh/hecm/hecmhomelenders.cfm.  This PLF table will go into effect for all loans taken on or after October 1, 2009.

These changes to the principal limit are not a large surprise, given the appropriations bills now going through Congress.  The reverse mortgage program was not designed to be supported by a credit subsidy, and since the appropriations bill is also unlikely to grant a subsidy, program changes are the only way to keep the reverse mortgage program operating in the new fiscal year (which begins October 1, 2009).  Nonetheless, these changes are not likely to be embraced by the reverse mortgage community, as they will prevent some seniors from receiving the amount of money from their homes necessary to be eligible for the program.  A reverse mortgage was designed to help as many seniors as possible. This is likely to reduce their ability to do so.

The mortgagee letter can be found below:

Mortgagee Letter 09-34

A column in The New York Times today revealed that nearly 30% of adult children contribute to their parent’s care, on average spending $2,400/year. The expenses can cover everything from unpaid medical expenses to daily chores like stocking a refrigerator.  The time and expense of caring for an aging parent can be a large stress on adult children– financial and emotionally. However, as the article notes, there are many sources that can help reduce the burden.

For some seniors who continue to live in their homes, a reverse mortgage can serve as a possible solution, providing another source of income to help pay for medical bills, adult day care, and the like. Another important point raised in The New York Times column is that there are a number of other resources available to assist seniors and their families, which are often inadvertantly overlooked. The column talks about the services that can be provided by a geriatric care manager, who can help assess a family’s needs and put the family in touch with the appropriate resources.  Lawyers and geriatric care managers can also be a resource to help families navigate the complex red tape and bureacracys that sometimes surround senior programs.

One of the biggest takeaways I gathered from the article is that there are a variety of programs that seniors can qualify for, even if their income is over $100,000.  Another is the importance of planning ahead.  The article discusses, power of attorney, for example. As seniors and their families think about the future, issues like power of attorney, long term care insurance, and wills should be addressed sooner rather than later.

In a piece in the New York Times today, Edward Glaeser, the famed Harvard economist, made the following comment:

“When housing prices soared, ordinary Americans found it increasingly hard to afford a house. I would certainly cheer if Detroit produced a wonder car for $10,000 that could get 50 miles to the gallon and go from 0 to 60 in five seconds. I would also cheer if the housing industry could produce a beautiful and energy efficient 3,000-square-foot home for $100,000. The same logic pushed me to boo when housing became outrageously expensive. During the boom, I hoped that housing prices would stop rising and even decline.”

Glaeser’s sentiment leads to the following reflection: Isn’t there something appealing about a big beautiful home for $100,000? If housing is a basic right of all Americans (let alone all human beings), then wouldn’t it follow that low housing prices would be a good thing?

Imagine a world in with housing prices were so low that individuals purchasing their homes with cash was commonplace. While mortgages would still exist, they would no longer be necessary for all homebuyers. Perhaps a mortgage would become an option, like the decision purchasers make every day when deciding to make a purchase with cash, credit, or debit. Or, arguably more accurately, like the decision car buyers make when choosing whether to take out a loan or pay with cash.

It is true, as Glaeser pointed out, that low housing prices do have a more dramatic effect on the financial markets than most expected. However, this is only due to the symbiosis that exists between the housing industry, the mortgage industry, and the home goods industry.  So many of the problems in the housing crisis were caused by homes being used as an investment vehicle. When home prices fell, borrowers were stuck with homes that were worth much less than their mortgage payments.  As more and more borrowers lost their jobs in the subsequent Great Recession, even many whose homes still retained equity found themselves unable to afford their mortgages.  And the housing crisis was exacerbated.

The idea of affordable housing for all is a very appealing one.  While it does seem hard to imagine a world in which affordable housing for all could be made a reality and where housing prices could fall so as to make homeownership affordable without crashing the economy, before we spend all our time wishing housing prices would go back up, we should consider solutions (esp. long term) where housing does become more affordable, home ownership more stable, and an individual’s right to housing less susceptible to the whims of the economy.

The media has recently been full of stories about homeowners losing their homes to foreclosure, but there is a side that has received relatively less exposure: the effects foreclosure has had on many pets.

While a story in the Chicago Tribune several months ago discussed a pet food pantry that was helping homeowners who could no longer afford to look after their pets, a sadder tale is emerging in Arizona.  As the two co-owners of Robin Hood Animal Rescue face foreclosure, 70 cats and dogs are at risk of being euthanized. Some of the animals have special needs (as is the case in most animal shelters), and the shelter has housed some of the animals for four or five years.

There is a lot of irony in an animal rescue shelter needing rescuing itself, but after so many years of speaking out against euthanizing unwanted animals, the shelter is now the one in need of rescuing. The heartbreaking story can be found at abc15.com. Those wishing to help can also visit Robin Hood Animal Rescue’s website.

An article in the Wall Street Journal today focused on a noteworthy new phenomenon: more homeowners are taking in renters.  In some cases, homeowners are taking in renters in homes they still live in as a way to help make ends meet. In others, homeowners are becoming landlords, renting out homes they are unable to sell. This seems to be a popular option when the homeowners are forced to make a quick move- especially in the distressed real estate market. While to qualify for a reverse mortgage, a single family residence cannot be a rental property, nor can any portion of it be a rental property, renting out a home may be a good option for those who do not qualify for a reverse mortgage, but need the income from their home.  In addition, multi-family homes with separate apartments may be rented and still qualify for a reverse mortgage as long as the homeowner continues to occupy the home.

There are some additional costs that come with being a landlord.  Landlord insurance is about 25% higher than homeowners insurance, and landlords who use property manages may wind up paying them 3-12% of the rent.  However, a tenant can be a good source of income, helping homeowners be able to continue to afford mortgage payments or break even on a property.  When homeowners need to relocate in a short time frame, taking on a tenant helps alleviate the financial burden of paying for two mortgages at once (or a mortgage and rent).

An article on Forbes revealed today that even within the Forbes list of America’s 500 Most Expensive Zip Codes, home prices have taken a large hit in the past year. The top 3 zip codes on the list experienced declines of 23%, 23% and 24% respectively. The list as a whole saw a 7% drop on average.

But one of the things that is interesting about the list is that prices were not necessarily being pulled down by foreclosures.  Several zip codes (in Atherton, CA, Hastings-on-Hudson, NY and East Hampton, NY) were used as examples of places where prices have dropped significantly without homes being in foreclosure. No homes are in foreclosure in Hastings-on-Hudson, yet prices have dropped 9%.  In Atherton, only 10 homes are in foreclosure with prices dropping 23%. Rather, it appears the glut of homes on the market has helped to drive prices down. In East Hampton, at the current rate, it would take 25 years before all the homes currently on the market are sold. This cannot help but have an affect on home prices.

The five most expensive zip codes in America:

1. Alpine, NJ  ($4,139,041)

2. Atherton, CA ($3,849,133)

3. New York, NY ($3,521,514)

4. Duarte, CA ($3,444,773)

5. Beverly Hills, CA ($3,367,167)

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

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

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

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

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

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

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

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

Appraisers are under pressure to inflate property values.

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

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

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