My Financial Healthcheck

Fannie Mae needs another $15.3 billion in bailout money from the Federal Government, they just reported a forth-quarter loss of $16.3 billion.  Somehow when most banks turned 2008 losses in 2009 profits, Fannie Mae losses were $74.4 billion in 2009 compared to $59.8 billion in 2008.  In their mortgage portfolio some 5.38% of its single-family loans were more than 90 days delinquent.  Since Fannie Mae was taken over by the Federal Government in September 2008, they have received $60.9 billion from the Treasury Department.  Freddie Mac, which has received $50.7 billion in taxpayer funds, they have not requested any additional funds recently.  Sales of existing homes fell in January, home resale’s dropped 7.2%, most expects were expecting them to rise.  Analysts expect sales to pick up in coming months as the deadline for the tax credit looms.  Of the sales last month, 38% were from foreclosures.  The Pennsylvania Housing Finance Agency’s emergency mortgage assistance program has helped 3,250 homeowners from foreclosure last year by making emergency loans to them.   The Real Estate Revitalization Act of 2010 if it passes would eliminate certain taxes that were part of the Foreign Investment Real Estate Property Tax of 1980 is supposed to help save the commercial real estate market. 

Reverse Mortgage Basics

What is a Reverse Mortgage?
Reverse mortgages are designed for homeowners age 62 and older. They are called reverse mortgages because the lender advances the homeowner money based on the equity in the house. The amount of money depends on the amount of equity in the house and the age of the borrower. To qualify for this loan, the borrower must live in the home as the main residence. Unlike conventional mortgages, there are no income or credit requirements for these loans. The borrower does not have to make monthly payments for as long as they continue to live in the house. When the last borrower moves out of the home or dies, the loan then becomes due. As with any home, the borrower must continue to pay both property taxes and homeowners insurance. The borrower is also responsible for maintaining the house in good condition.

When Should a Reverse Mortgage be Considered?
If more money is required each month to meet monthly expenses, a reverse mortgage term payment plan might be a good option. Or if large health care expenses are in a borrower’s near future, a reverse mortgage with a line of credit may also be a good option. If a borrower has a balance on their existing mortgage, a reverse mortgage can be utilized to pay off the current mortgage.

Why is Reverse Mortgage Counseling Required?
Section 255 of the National Housing Act requires independent third party reverse mortgage counseling from a non-profit HUD-approved counseling agency. The reverse mortgage counselor will provide unbiased information on the process and will answer all questions so that a borrower can make an informed decision on whether a reverse mortgage is in their best interest.

How Can Reverse Mortgage Counseling be Found?
By entering their zip code in the "Find a Counselor" box, a list of "Reverse Mortgage Counseling Association" member agencies will be produced for the borrower that provides in-person or telephone reverse mortgage counseling in the borrower’s area. A senior homeowner can either choose to call the selected counseling agency from the list or choose the agency and register for reverse mortgage counseling online.

How Much Does Reverse Mortgage Counseling Cost
A reverse mortgage counseling session usually takes about an hour and may cost about $125 depending on the counseling agency. In some cases, the counseling fee may be waived. "Reverse Mortgage Counseling Association" (RMCA) agencies have the option to finance the counseling fee at closing or waive the counseling fee entirely if a financial hardship exists. Each RMCA member agency has a hardship policy. Reverse mortgage counseling can be conducted in-person and in most states by telephone.

What Kinds of Homes Qualify for a Reverse Mortgage?
To qualify for a reverse mortgage, the home must be a single family dwelling or a two-to-four unit property that is owned and occupied by the borrower. Condominiums must be FHA-approved. Townhouses, detached homes, individual condominium units, and some manufactured homes are also eligible.

How Long Can I Live in the Home with a Reverse Mortgage?
The reverse mortgage borrower can continue to live in the house for as long as the taxes and homeowner insurance are paid. A senior can never owe more than the value of the home.

How Much Money will be Realized with a Reverse Mortgage?
The following factors determine how much will be obtained from a reverse mortgage:

1. Age (generally, the older the borrow the more money is available)
2. The appraised value of the home or the FHA mortgage limit for the borrower’s area, whichever is less
3. Current interest rates

What Are the Costs to Obtain a Reverse Mortgage?
Loan closing costs for a reverse mortgage are similar as to what would be paid for a traditional mortgage. Because these closing costs are rarely folded into the interest rate, they can appear sizeable. These costs can range from about $6,000 for a $100,000 home to over $16,000 for a home worth $400,000. Closing costs can be financed into the loan and include the origination fee, mortgage insurance premium, appraisal, and other upfront costs.

What Impact is there on the Heirs of a Reverse Mortgage Borrower?
Over time a large part of the borrower’s home equity may be used up leaving less inheritance to the family. If a borrower’s heirs decide to retain the home, they have up to one year to pay off the reverse mortgage balance in full. The heirs can also choose to pay off the reverse mortgage loan in full by selling the house and retaining any remaining proceeds from the sale.

What are the Limitations on Using the Funds from a Reverse Mortgage?
There are no limitations on how a borrower chooses to use the proceeds from a reverse mortgage loan.

How Are Reverse Mortgage Payments Received?

There are five options available to meet the need of the borrower:
1. Tenure-Equal monthly payments as long as at least one borrower lives and occupies the property as a principal residence
2. Term-Equal monthly payments for a fixed number of months
3. Line of Credit-Unscheduled payments at a time and amount of the borrowers choosing until the line of credit is gone
4. Modified Tenure-A combination of a line of credit with monthly payments for as long as the borrower remains in the home
5. Modified Term-The borrower chooses a combination of a line of credit with monthly payments for a fixed period of months

What Are the Tax Implications of a Reverse Mortgage?
Reverse mortgage loan advances are not taxable and do not affect Social Security or Medicare benefits. Retained loan proceeds cannot exceed the monthly liquid resource limits for Supplemental Security Income (SSI) and Medicaid.

This week, HUD said its new standardized disclosure forms under the Real Estate Settlement Procedures Act (RESPA) "probably weren’t as explicit as it could have been." Also, "RESPA News" released results of its poll revealing difficulties lenders and title agents are encountering with the new GFE and HUD-1 Settlement Statement forms.

As a mortgage professional I am interested to hear comments and feedback on what a mess the new GFE (Good Faith Estimate) has become, especially when dealing with brokers.  How do you take a one page document and make it a three page document and expect it to be consumer friendly???  I believe that some changes will be made in the whole procedure once the mortgage industry pushes back against lawmakers who contrived this mess.  Comments??

Seriously delinquent FHA loans, those 90 days or more late, jumped 62.1% in the past year to 558,944, or 9.4% of FHA loans.  If these numbers continue this trend, taxpayers will eventually have to bail the agency out.  The FHA loan portfolio is a ticking time bomb, despite assures that it is on a sound financial basis.  More than 700 banks, or nearly one out of every 11, are at risk of going under.  The “problem list” has climbed to 702, the highest level since 1993.  Consumer confidence fell in February after threes straight months of improvement.  Nearly 25% of all mortgages are underwater, meaning more is owed on their loans than their value.  Being underwater is one of two main factors in determining a borrower’s likelihood of foreclosure.  Mortgage rates could be rising in the near future as the Federal Reserve completes its purchase of $1.25 trillion in mortgages.  Expects predict a jump of a quarter to half percentage point is likely.  Higher rates will limit what a buyer can afford for a home and the pending end to the homebuyers tax credit in April will also be bad news for the home buying market.

Confidence rose among U.S. homebuilders in February to a three-month high, the index increased to 17, from 15 the prior month.  Readings below 50 mean most view conditions as being poor, expect the index to reverse itself with the bad weather in February.  Two things, higher interest rates and the homebuyers tax- credit expiring in a few months could damping expectations.  Lumber prices have climbed 32% this year which will also hurt builders bottom line.  In a recent report it was shown that 70.8% of all homes sold in the U.S. during the forth quarter of 2009 could be afforded by the nation’s medium income of $64,000.  The record was 72.5% during the first quarter of 209, compared to 55% in the second quarter of 2008.    Indianapolis, Detroit and Dayton were the top three most affordable cities, with New York being the least affordable market.  New home construction rose more than expected in January, the number of building permits issued dropped.   The construction index was up 2.8% while permits were down 4.9%.  Under the Protecting Tenants at Foreclosure Act which Congress passed last May, tenants are usually eligible to stay after the property has been foreclosed as long as they have a valid lease and are paying their rent on time.  Even renters on a month to month lease get 90 days to leave.  Fewer borrowers fell behind on their payments during the last three months of 2009.     

Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could sell it for auction.  These deficiency judgments are time bombs that can go off years after borrowers lose their homes.  Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there’s a second mortgage or other liens.  One way to avoid the judgment if your circumstances qualify is to declare bankruptcy.  New York Attorney General Andrew Cuomo unveiled a major legal action against senior Bank of America executives earlier this month over its controversial purchase of Merrill Lynch.  Industry observers have issued dire warnings for more than a year, suggesting that lenders are on a collision course with potentially billions of dollars worth of commercial real estate losses.   Banks have already recognized about $50 billion in losses, some $1.4 trillion in commercial real estate debt is expected to come due over the next three years.  If rents Americans pay on condos, apartments or homes that are about the same size, and share similar neighborhoods as your home, that in the end determine what your house is worth.   Recent reports have shown that steady or even falling rents have pulled down housing prices, to the point where in many markets it costs about the same amount to own as to lease. It is likely that that prices will fall another 5% or so nationwide, the drop could also be greater since rents are still falling.  

Find Out if You Qualify

To find out if you are eligible for a reverse mortgage loan, take a moment to review the following requirements:

1. All homeowners must be age 62 or greater to qualify for a reverse mortgage. The required counseling must be completed no later than six months before applying.
2. Each homeowner must live in the home as a principal residence at least six months out of the year. The only exception is if a co-owner is living in a health care facility.
3. To qualify for a reverse mortgage, the home must be a single family dwelling or a two-to-four unit property that is owned and occupied by the reverse mortgage borrower. Condominiums must be FHA-approved. Townhouses, detached homes, individual condominium units, and some manufactured homes are also eligible. Mobile homes are not eligible unless they qualify as being manufactured housing. To qualify as manufactured housing a unit must meet the following requirements (only an appraiser can determine if a home meets these requirements):
   • The home must be permanently attached to a permanent foundation when the loan is closed
   • The land must be owned by the borrower or have a long lease of at least 99 years that is renewable or a lease with a remaining term of at least 50 years beyond the 100th birthday of the youngest borrower
   • The home must be classified and taxed as real estate
   • The home must not have been previously installed or occupied at any other site or location
   • The home must have a floor area of at least 400 square feet
   • The home must meet Federal Manufactured Home Construction and Safety Standards, as evidenced by a certification label affixed to the home (only homes built after June 15, 1976 can qualify for this certification)

Only a lender can determine whether a borrower qualifies for certain for a reverse mortgage loan. If all of the above requirements above are not met, a potential borrower may still wish to verify their eligibility by contacting a reverse mortgage lender.

Potential borrowers considering a reverse mortgage loan may wish to attend a reverse mortgage education session offered by a HUD-approved non-profit counseling agency. Please review the list of member RMCA counseling agencies in the Senior Homeowner section of the Web site.

Aging in Place

Many older people need help paying for prescription drugs, health care, utilities, and other basic needs. Millions of older Americans are eligible for but are not receiving benefits that are available from existing federal, state, and local programs.

Developed and maintained by the National Council on Aging (NCOA), BenefitsCheckUp is the most comprehensive Web based service to screen for benefits programs for seniors with limited income and resources. BenefitsCheckUP includes more than 1,800 public and private benefits programs from all 50 states and the District of Columbia.

Click here to Learn More (www.BenefitsCheckUp.org)

Helpful Links

American Savings Education Council (ASEC)
Consumer Action
Consumer Federation of America (CFA)
Consumers Union
Cooperative State Research, Education and Extension Service
Credit Union National Association
Department of Labor (DOL)
Department of the Treasury
Fannie Mae
Federal Consumer Information Center (FCIC)
Federal Deposit Insurance Corporation (FDIC)
Federal Reserve Board of Governors
Federal Trade Commission (FTC)
Financial Literacy 2010
Freddie Mac
IDA Network
Jump$tart Coalition for Personal Financial Literacy
Junior Achievement (JA)
Money2020
Money Talks News with Stacy Johnson
National Community Reinvestment Coalition (NCRC)
National Consumer Law Center (NCLC)
National Consumers League
National Council on Economic Education (NCEE)
National Endowment for Financial Education (NEFE)
Neighborworks Network
Securities and Exchange Commission (SEC

The National Association of Realtor’s pending home sales index rose 1% during January, it had fallen 16.4% in December.  President Obama’s foreclosure-prevention program was touted that it would help some 4-5 million homeowners, so far it has been a bust with many homeowners unable to get any relief from their existing situation.  Home prices fell 11.9% in 2009 as the median price of U.S. single-family home plunged to $173,200, at the end of 2008 the median price was $196,600.  Most expect prices to moderate and stay at these current levels for a extended period of time.  Foreclosure filings dropped almost 10% between December and January, but were still up 15% from the prior same period total.  Most expect the numbers to increase with many of the banks that put a hold on any filing during the holidays to start the process up again.   The largest hit areas were still, Nevada, Florida, Arizona and California.  The two least affected states were South Dakota and Vermont.  Mortgage rates have started a slow climb as the Federal Reserve has stated that they have plans to start raising the discount rate they charge banks.  Appraisal values coming in low and tighter underwriting standards continue to make it difficult to be approved for a new mortgage.

New home sales plunged 7.6% to a 9-month low in December, the largest decline was in the Midwest where sales were down 41% last year.  The existing home sales also sank 16.7% in December, many speculate that the decreases were due to the first time homebuyer credit that was set to expire in November.  New guidelines were announced by the Treasury Department that would require all paperwork be supplied before a trail modification would be approved.  Distressed borrowers will have to fill out a three-page request form that asks them to explain their hardship and list their income and expenses.  They will also have  to sign an IRS 4506-T form that allows servicers to pull their tax transcripts.  Applicants will have to verify their income with paystubs or tax returns.  Servicers must acknowledge receipt within 10 business days and if the file is complete let the borrower know within 30 days if their modification is approved.  Those approved will have to make three timely payments before getting a long-term modification.  So far some 787,200 homeowners are in trial modifications, a far cry from the 4 million homeowners the Obama administration had promised.  Las Vegas had the largest number of foreclosure filings of any city last year, with 12% of its households receiving at least one during the year, Cape Coral, Florida was second with 11.9% of its households.  Nationwide foreclosures grew 21.2% during the year.  Mortgage rates rose towards the end of the month with a 30 Year Fixed Mortgage rate being in the low 5% range. 

Types of Reverse Mortgages

Home Equity Conversion Mortgage (HECM)
HECM’s are insured by the Department of Housing and Urban Development (HUD). They represent about 95% of the reverse mortgage market. HECM’s can be used for any purpose and have either monthly adjustable or annually adjustable interest rates. Some lenders offer fixed rate HECM’s that typically are only used by borrowers wishing to draw down 100% of the available proceeds at closing.

Propriety Reverse Mortgage
These reverse mortgages are not insured by HUD and also can be used for any purpose. They are typically designed for borrowers with high value homes.

Single Purpose Reverse Mortgage
These reverse mortgages are usually available through state and local government agencies to be used for only specific purposes such as for home repairs or property tax deferral. The state housing finance agency in the borrower’s area can provide more information on these programs.

Reverse Mortgage FAQ’s

Who Can Request Counseling?
The borrowers on the property deed or the authorized legal representative of the borrowers can request reverse mortgage counseling. Lenders cannot contact or select a HUD-approved agency to request counseling on behalf of the borrowers. Authorized legal representatives can be a guardian, conservator, or a person holding a durable power of attorney who has been authorized to act in this matter by the borrower.

How Can Counseling be Obtained?
The Reverse Mortgage Counseling Association (RMCA) is the largest non-profit reverse mortgage counseling association in the country. Its member agencies combined have over 230 member counseling locations that employ over 300 reverse mortgage counselors across the country. RMCA members have helped over 75,000 seniors within the last year with their reverse mortgage counseling and continue to counsel over 4,000 seniors each month. Reverse mortgage counseling can be conducted in-person, or by telephone in most states. The easiest way for a senior to find a counselor is to visit the "Senior Homeowner" section of the RMCA Web site entering their zip code in the "Find a Counselor" box and following the instructions.

How Is a Lender Chosen?
It is imperative that a senior select a qualified HUD-approved reverse mortgage lender to help determine eligibility for a reverse mortgage. Please visit "How Do I Choose a Lender" in the Senior Homeowner section of the RMCA Web site.

How Does the Reverse Mortgage Counseling Process Work?

• A potential borrower must first choose a counseling agency (please see "How Can Counseling be Obtained" above) and schedule an appointment directly with the counseling agency. Lenders cannot initiate or participate in the counseling session.
• Once an appointment has been made, the counseling agency will send pre-counseling information for the senior to review prior to counseling.
• The counselor will obtain name, contact and other key information for the counseling session.
• The counselor will discuss the borrower’s needs and circumstances, providing information about reverse mortgages and other alternative types and assistance that may be available to the senior.
• Once the counseling session has been completed and both counselor and senior are satisfied that the essentials of the reverse mortgage are understood by the potential borrower, the counselor will issue a certificate.
• The reverse mortgage counselor will follow-up to determine if the potential borrower needs further assistance, information, or has any questions about the reverse mortgage process.