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

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 week’s reverse mortgage rates are below. The rates are effective for the week beginning September 22, 2009.

APR:

HECM LIBOR 225: 2.496

HECM LIBOR 250: 2.746

HECM LIBOR 275: 2.996

HECM LIBOR 300: 3.246

Expected Rates:

HECM LIBOR 225: 5.89

HECM LIBOR 250: 6.14

HECM LIBOR 275: 6.39

HECM LIBOR 300: 6.64

The HECM LIBOR rates rose slightly this week for the first time in about a month.  Both the APR and the expected rate went up, though the APR remained nearly the same as the week previously, rising only three one thousandths of a point. The expected rates rose five hundredths of a point.

Hello from San Diego! The MBA Reverse Mortgage Conference is under way. Live tweets can be found at www.twitter.com/hecmgirl. The conference has been incredibly interesting so far, featuring a wide variety of participants. This morning’s highlights included previews of new FHA programs and protocols (more to come on this later) and a very interesting exchange regarding reverse mortgage defaults.

The number 1 reason a reverse mortgage “defaults” is the death of the last borrower on the reverse mortgage loan, but default in this context means the loan becomes due and payable (in accordance with the loan contract). However, another large issue regarding defaults are defaults due to the failure to pay title and insurance. While servicers will do so in order to keep the asset (the home), the loan will become due by the borrower if they don’t pay title and insurance. This is an area where many in the industry see potential for improvement.

I wish I had time to write more, but the afternoon sessions are about to begin. More to come later!

This week’s reverse mortgage rates are below. The rates are effective for the week beginning September 9, 2009. As the HECM CMT is no longer being offered, we will no longer report its rates.

APR:

HECM LIBOR 225: 2.501

HECM LIBOR 250: 2.751

HECM LIBOR 275: 3.001

HECM LIBOR 300: 3.251

Expected Rates:

HECM LIBOR 225: 5.85

HECM LIBOR 250: 6.10

HECM LIBOR 275: 6.35

HECM LIBOR 300: 6.60

The rates for the HECM Libor fell over a tenth of a point this week, a nice development after two weeks of nearly unchanged results. This week’s rates are only good through September 14, 2009.

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.

Yesterday we discusssed the potential for reverse mortgage fraud through questionable occupancy.  Today, we will discuss a far more serious type of  reverse mortgage fraud– fraud through power of attorney.

The power of attorney is when an individual is legally authorized to act for another individual with trust and confidence.  However, this can pose a problem in the case of reverse mortgages if the homeowner did not want to take out the reverse mortgage or if the money from the reverse mortgage is funneled improperly, amongst other things.

While it is important for both seniors and lenders to be on guard against this type of reverse mortgage fraud, it is particularly easy for lenders to take action.  Lenders should make sure that the person who gave power of attorney really gave it, as it is something that can be forged.  The person who is taking out the reverse mortgage should also still have an understanding of what it is they are doing.  Brokers generally recommend writing letters of explanation containing the reasons behind a power of attorney to help answer any questions that others might have and prevent the process from being held up unnecessarily.  An investigation into the circumstances can often uncover whether the power of attorney is legitimate or fraudulent.

Seniors should do their best to educate themselves and know the facts behind a reverse mortgage. They should make sure that it is clear to whomever holds power of attorney, as well as their broker, whether or not they consent to the reverse mortgage.

The Expanding Universe

Mortgage and Reverse Mortgage rates clearly fluctuate all the time. Several articles today, however, focus on predicting rates and financial performance as a “science.”  An article on mathematical models of mortgage rates was in the science section of the NYTimes, along with another much longer article on Quants, comparing stock market performance predictions to quantum physics and string-theory.

Putting predicting rates in the same hard science category as Einstein’s unifying theory seems slightly ridiculous. Although both are theoretical, the recent stock market crash has proven that its impossible to predict the behavior of the markets with a high degree of certainty. The bursting of the housing bubble came as a surprise, much like the bursting of the .com bubble but with much much more damaging consequences. 

Yes, many people foresaw that the markets were overextended, but they did not know when, how, or how dramatically they would fail. Thus the models (especially the long-term models) were generally unable to prevent people from losing a large amount of money last year. While that does not make them worthless, it does prevent models from being seen as an accurate predictive measure.

Greater than 50% accuracy may be enough for a model to perform well on Wall Street, but a much higher degree of certainty is necessary for a theory to gain any support in the scientific world. Models prediciting mortgage rates and stock market performance may be scientific in nature and are certainly highly mathematical. However, they should not carry the same weight and are not in the same category as the science behind developing a new cancer drug or determining Einstein’s constant for the expansion of the universe.

Eventually the mortgage rates and the stock market will dramatically rebound.  If the models actually met a scientific standard we’d know when that’s going to happen; sadly, we don’t.

 

Haute Couture for Kids

And now for a change of pace. My hometown paper, the NY Times, just published a great human interest piece on the changing patterns of consumption in America. I really recommend the piece, as some of the anecdotes provide interesting food for thought.

A few examples:

Sasha and Malia wore J.Crew to their father’s Inauguration instead of designer apparel. The Times chalks this up to Obama’s push for fiscal responsibility. While I did not find anything particularly remarkable about the choice to wear J.Crew (which isn’t that cheap), I had trouble thinking of alternatives (Calvin Klein suits?).

Some economists believe that increased consumer spending is the only way to jolt America out of the recession. Of course, this is the opposite of the behavior that is currently being witnessed. Is there something that can be done to spur more spending, or is the change cultural and/or ethical and therefore on a deeper level than policy?

Is consumer spending an ethical issue? At what point is it considered an excess to spend money? I’m curious as to your thoughts.

NY Times: Even Well-off Consumers Aim to Be Less Conspicuous

Until next time.