My Financial Healthcheck

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.

Why Do I Need Counseling

The US Department of Housing and Urban Development (HUD)requires that all borrowers taking out a reverse mortgage participate in a counseling session with a a HUD approved Reverse Mortgage Counselor. These counselors work for non profit organizations and must have successfully completed certification examination with HUD.

The counseling session covers a lot of information about the reverse mortgage but generally has the following objectives:

• To educate the client around many different aspects of the reverse mortgage process
• To ensure that the homeowner understand the costs, benefits, features and options available under the reverse mortgage program
• Provides an opportunity for the homeowner to ask questions about the reverse mortgage, safe in the knowledge that the counselor has no financial stake in whether they decide to take out a reverse mortgage.
• Help the client review their personal situation to asses the likely benefits and drawbacks for taking out reverse mortgage.
• To identify other resources and programs that may help the homeowner and may supplement or sometimes replace the need for a reverse mortgage.

Although loan counseling is mandatory, it is also an opportunity to learn more about reverse mortgages and gain valuable insight into to what extant this loan will meet their needs. Taking out a reverse mortgage is one of the larger financial decisions that homeowners will make and the counseling session can help homeowners sort through their options and be confident about making a fully informed decision.

How Do I Choose A Lender

Choosing a reverse mortgage lender is a critically important step. Homeowners should consider contacting and interviewing several lenders before deciding who they wish to work with, good lenders will understand and respect your comparison shopping and will be prepared to work to win your business.

Things to consider when selecting a reverse mortgage lender.

• Rates and fess: Closing costs, and monthly serving fees are limited by government regulation, however this sets a maximum level and not all lenders charge the maximum fee allowed. Even more importantly the differences in the interest rate, even small ones, can significantly effect the both the total cost of the loan and the amount of loan proceeds the borrower can access Although the rates and fees are not the only thing to be considered, it is worth checking to make sure you are getting the best deal you can.
• Lender Expertise: Being a great reverse mortgage lender usually involves much more than simply selling a product. The lender you work with should be willing and able to discuss the details of how each loan option works and be prepared to ensure that you are completely comfortable with your decision. If a lender you speak with is unwilling or unable to answer your questions, its worth looking around to find another who will.
• Lender Ethics: Most lenders work on commission, and even if they don’t, their organizations still only make money when they originate a loan. However, a good reverse mortgage lender will want to make sure that you personal situation. In this way lenders can help suggest what loan features might work best for you and in some cases may suggest you delay making a discussion on whether to take out a reverse mortgage until you have explored other options.
• Warning signs: Sadly, there are individuals who do not live up the the best ethical standards that you should expect from a lender. Warning signs include:
  • Exaggerated or misleading Promises: A Reverse Mortgage is not "free income for life" or a "free benefit program" any lender making a claim like this should be avoided.
  • Attempts to sell other financial products or investments (insurance annuities etc.) with the proceeds of the reverse mortgage are another warning sign. Many of these services are not in the best interests of the homeowner but do generate a hefty commission for the salesman. Claims any product must be purchased in order to get the reverse mortgage are untrue.
  • Hard sell and vague general reassurances: Homeowners should be wary of any lender who attempts to pressure a home owner into making a decision quickly, or before they fully understand what they are getting into.
• Where to Start:
  • The U.S. Department of Housing and Urban Development maintains a list of all Lender eligible to make reverse mortgages here, http://www.hud.gov/ll/code/llslcrit.cfm
  • National Association of Reverse Mortgage Lenders Association (NRMLA) maintains a list of its Members who have voluntarily agreed to abide by a professional code of conduct here. http://www.reversemortgage.org/Default.aspx?tabid=255

State officials continue to offer suggestions to help stem the foreclosure tide, the ideas are reduce loan principal, reduce interest rates or extend terms of the loan for those who are risking default on their loans.  It was recommended that homeowners with option arms get help since most will have their interest rates adjust higher in the next couple years.   The other suggestions were limit paperwork, expand counseling and mediation efforts, suspend foreclosure proceedings and help the unemployed.  Home construction fell in December 4%, permits were up 9% in November, existing home sales sunk 16.7% in December which was a much weaker figure that expected.  The decline was blamed on the then expiring First Time Homebuyer credit in November which was extended until April 2010. Some think the extension of the credit will recharge the housing market, I don’t.  Home prices fell in November for the first time in seven months,  they declined 2% from October, I see this as a trend which may continue.  Many homeowners have tried to apply for modifications but have been waiting many months to hear if they qualify for a permanent adjustment to their mortgage. The President’s plan to help some 4 million homeowners has been a failure, as has been HERA and the recent changes with regards to the GFE (Good Faith Estimate) which so far is a mess since every lender has a different interruption on what to do.  All these efforts were to demonize the banks and help consumers, just the opposite has happened, people are more confused with the process.  The process of getting a mortgage has become more difficult, it’s very hard to get approved now, if the appraisal does not kill a deal then the tightened guidelines will.

For those First Time Homebuyers who are taking advantage of the $8,000 tax credit, don’t expect to spend the money very quickly.  On November 6th of last year the rules changed, no move e-filing, so your return could take up to four months to process. Now buyers must file documentation with their return, including proof of residency, a signed mortgage statement and drivers license.  The number of homeowners in trial mortgage modifications rose to 787,231 at the end of 2009, the President’s plan called for helping some 4 million homeowners…and Washington thinks they can run the healthcare system???  The FHA is increasing the premium they charge for it’s upfront mortgage insurance from 101.75% to 2.25% and is looking into increasing the monthly ongoing premium also.  For a individual borrowing $200,000 the fee increase will cost $1,000.  The new policy also will reduce the amount of money sellers can provide to homebuyers at closing to 3%, down from 6%, of the home’s price.  Expect the next change this year to be the need for a larger down payment and the need to better credit scores. 

HOUSING FEDERAL
HOUSING COMMISSIONER
www.hud.gov espanol.hud.gov
January 21, 2010
MORTGAGEE LETTER 2010-02
TO: ALL APPROVED MORTGAGEES
SUBJECT: Increase in Upfront Premiums for FHA Mortgage Insurance
Effective for FHA loans for which the case number is assigned on or after April 5, 2010,
FHA will collect an upfront mortgage insurance premium of 2.25 percent. This policy change will
increase premiums for purchase money and refinance transactions, including FHA-to-FHA creditqualifying
and non-credit qualifying streamlined refinance transactions.
Programs Covered by Insurance Premiums Shown Below
The upfront and annual premiums and the requirements described in this Mortgagee Letter
apply to all mortgages insured under FHA’s Single Family Insurance Programs except those listed
below:
- Title I
- Home Equity Conversion Mortgages (HECMs)
- Hope for Homeowners (H4H)
- Section 247 (Hawaiian Homelands)
- Section 248 (Indian Reservations),
- Section 223(e) (declining neighborhoods)
- Section 238(c) (Military Impact areas in Georgia and New York)
Upfront Premiums
FHA will charge an upfront premium in an amount equal to the following percentages of the
mortgage:
Purchase Money Mortgages and Full-Credit Qualifying Refinances = 2.25 percent
Streamline Refinances (all types) = 2.25 percent
HOPE for Homeowners (Delinquent Mortgagors) = 2.00 percent
Home Equity Conversion Mortgages = 2.00 percent
2
Annual Premiums
Annual premiums will not change at this time.
For FHA traditional purchase and refinance products, the annual premium, shown in basis points below, is to be remitted on a monthly basis, and will be charged based on the initial loan-to-value ratio and length of the mortgage according to the following schedule:
LTV
Annual for Loans >15 Years LTV
Annual for Loans < 15 Years < 95
50 BPS < 90
-None- > 95
55 BPS > 90
25 BPS
HOPE for Homeowners (delinquent mortgagors)
In accordance with guidance issued in Mortgagee Letter 2009-43, HOPE for Homeowners borrowers will pay 75 basis points (.75 percent of the base loan amount), regardless of the loan-to-value ratio, which is collected monthly.
Home Equity Conversion Mortgages (HECMs)
The annual premium for all HECM borrowers is 50 basis points (.50 of the outstanding mortgage balance) and is collected monthly.
First-Time Homebuyer with HUD-Approved Pre-Purchase Counseling
The National Housing Act, as amended by the Housing and Economic Recovery Act in 2008, authorizes upfront premiums of up to 3.00 and authorizes premiums of up to 2.75 percent for first-time homebuyers who complete HUD-approved pre-purchase counseling. Since the upfront premium rate of 2.25 percent remains below the statutory cap, no variable rate for counseled first-time homebuyers is provided for under this Mortgagee Letter.
If you should have any questions concerning this Mortgagee Letter, call 1-800-CALLFHA. Persons with hearing or speech impairments may access this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).
Sincerely,
David H. Stevens
Assistant Secretary for Housing-
Federal Housing Commissioner

In a ruling last month, Charles J. Thomas, a New York Supreme Court Judge voided a reverse mortgage and its subsequent refinancing on the grounds that the borrower’s mental illness made her unable to understand the reverse mortgage.

In the case, Matter of Doar, 31393/07, the borrower, Ms. Hermina Brunson, took out a reverse mortgage with Financial Freedom on her home in Queens for $300,000 in December of 2001, refinancing for $375,000 in June of 2003.

However, at the time, Ms. Brunson was being treated for chronic paranoid schizophrenia. By the end of 2001, her psychiatrist testified that Ms. Brunson was hearing voices, believed her neighbor was trying to take her home away from her, and claimed that she no longer had the deed to the home.

Despite the counseling session lasting 45 minutes over the phone, the judge wrote that it was “not meant to be perfunctory or a mere rubber stamp of the banking or mortgage industry. It was intended to secure that the rights of elderly homeowners were protected.  The mortgagee is entrusted with the responsibility of conducting an inquiry of the applicant’s understanding of the mortgage agreement.”

Judge Thomas continued, “There is no evidence that Ms. Brunson understood the terms of the mortgage or the Counseling Certificate that she signed on June 20, 2003.” He faulted the counselor for not unearthing the borrower’s mental illness and her delusions regarding her home. Most significantly for the industry, Judge Thomas ruled:

While the Certificate of Counseling is an indication that information was given to the homeowners it is not dispositive of the issue of the mortgagor’s knowledge and understanding of the implications of a reverse mortgage or that the National Housing Act has been satisfied.  That determination rests ultimately with the court.

As a result, the responsibility is on the lender to prove that the borrower understood the reverse mortgage, regardless of whether or not they received a counseling certificate.

The judge further faulted the counseling process, noting that there was no evidence as to the qualifications of the counselor, whether the counselor spoke to Ms. Brunson or only to her brother, if Ms. Bunson’s questions were answered, and what information the counselor provided.

While recent counseling reforms such as the qualification of the counselor addresses some of these issues, this is still a situation that could be repeated today.

In the ruling, Financial Freedom was ordered to void the mortgage, but the Guardian of the borrower is directed to reimburse Financial Freedom for monies paid out at the closing which includes taxes, water charges, and the New York City Department of Social Services liens.  It is unclear whether Financial Freedom will appeal.

The Government National Mortgage Association (GNMA) guaranteed a record $1.598 billion of reverse mortgage MBS (HMBS) in December, bringing 2009 issuance to $8.538 billion.

Ginnie Mae’s HMBS volume is up 629% compared to the $1.357 billion issued in 2008. 

Reverse mortgage lenders started turned to Ginnie Mae last year after Fannie Mae drastically adjusted its pricing strategy and are showing no signs of turning back as investor demand continues to increase.  In fact, “There really isn’t enough supply,” said David Fontanella of Knight Libertas at the National Reverse Mortgage Lenders Association Annual conference late last year.  

With more reverse lenders waiting for Ginnie Mae approval to issue HMBS, volume in 2010 should continue to climb.

Chart: Ginnie Mae HMBS 2009

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More Realtor Education Is Needed To Increase HECM For Purchase Volume.

With the Federal Housing Administration predicting a surge in HECM for Purchases next year to 3,420, up from 423 in FY 2009, it seems a little surprising that the industry is not more optimistic about the program.

“Everyone in the industry was really excited about it when we realized we were going to get the HECM for Purchase product,” said Monte Howard, Affinity Relationship Director at Generation Mortgage.  But this excitement has proven to be short-lived as the dramatic burst in business has yet to be realized.

After several conversations with professionals in all parts of the reverse mortgage industry, it is clear the problem with the unique reverse mortgage for purchase program is education.  This education needs to take place on several levels, but the first is educating realtors.

Derry Hampton, a reverse mortgage professional at Security 1 Lending and a licensed realtor for nearly 25 years, pointed out just how little realtors know about the product and how much they are being neglected as an ally by many in the reverse mortgage industry.

“No one’s talking to the realtor about how this can fit into their business,” said Hampton, “I think really it’s up to the reverse mortgage industry to learn how to work with the real estate industry.”

Hampton, a member of the National Association of Realtors (NAR) and the California Association of Realtors said, “In California alone, [there are] 170,000 members of California Association of Realtors—that’s the new market for the reverse mortgage industry…. What we need to do is teach about this product.”

Homebuilder’s were given a big fat Holiday present from Washington when Congress passed a piece of legislation in November that allowed these companies the right to apply losses incurred in 2008 and 2009 to income earned in any five years through 2007.  Previously, losses could be counted against profits over just two previous years.  In other words you and I just paid for this tax break, so much for all the rhetoric about no pork (since bill was put into the legislation expanding unemployment benefits), and lobbyists not being allowed to influence lawmakers, all campaign hype and Washington acting the same as it ever has.  New home construction remains slow as builders keep an eye on a growing foreclosure pipeline.  The year 2009 ended will rates jumping up from a low of 4.75%ish for a 30 year fixed in November to back in the low 5%’s.  Refinancing plunged at the end of December by over 30%. The reasons for this are the chance for inflation and the Federal Reserve stopping their purchase of mortgage –backed securities.  Most are predicting that rates will head up towards 6% mid 2010.  A record 3 million households were hit with a foreclosure notice in 2009, 21% higher than in 2008 and more than double 2007’s total.  The dramatic increases occurred despite President’s Obama’s Home Affordable Modification Program promise to reduce foreclosure filings.  July was the peak month with more than 361,00 homes receiving a notice.  Some 680,000 borrowers had received temporary workouts, a far cry from the 3 million Obama preached when the program was announced in early 2009.  Nevada had the highest rate of foreclosures at 10%, California had the most filings at 632,573.

Home prices flattened out in October, The S&P/Case Shiller Home Price index was unchanged in October after 4 consecutive months of gains.  The gains in past months can be mostly attributed to government incentives, and low interest rates.  It’s anyone’s guess if home prices will start rising again or are about to take a second dip.  Homebuyer’s abandoned the market in November, they signed 16% fewer sales contracts than the month before.  The Pending Home Sales index had increased each of the previous none months.  The main blame is once again government intervention, the first time homebuyers tax credit was set to expire in December 1st, it has since been extended until June.  The majority, 51% of closings in November were first time homebuyers.  There could be another surge in sales with the credit expiring again next year and the outlook for higher interest rates pushing people to buy sooner than they might have planned.  Manhattan home prices have dropped up to 15% from 2008, the big question is whether year end bonuses will help change the trend.  New construction permits in the city were down 90% in 2009.  The Treasury Department in December announced that they would offer Fannie Mae and Freddie Mac unlimited capital for three years to reassure investors in the debt and the mortgage bonds they guarantee.  The average rate on a typical 30-year fixed rate mortgage rose last week to 5.14%, the highest since August.  Rates averaged 5.04% in 2009, compared to 6.05% in 2008 and 6.34% in 2007.

Only 18.7% of borrowers who had their loans modified in the second quarter were delinquent three months later, much better than the 30.7% in the first quarter, mainly due to banks making sure the loan modifications were affordable and sustainable.  Prime borrowers’ delinquency rate jumped 19.6% from the previous quarter, also the number of foreclosures in process topped 1 million for the first time.   November existing home sales jumped 7.4%, most of the increase due to what was originally going to be the last month for the first time homebuyers tax incentive.  At the end of November the average 30 year fixed rate was 4.88%, two weeks in December it rose to 5.125%.  Home prices will continue to fall in 2010, one reason is the tax credit will not be extended and with mortgage rates rising and lending will continue to be difficult.  New homes sales unexpectedly dropped in November, they fell 11.3%, expect them to be flat during the winter if the weather is bad.  The U.S. Treasury lifted a $200 billion limit on the amount it was ready to pump into each of the two mortgage firms Fannie Max and Freddie Mac.  Most troubled homeowners that enter into a trial mortgage modification plan will see their credit scores suffer as a result.  Once borrowers receive a permanent modification, their payment status is listed as current, the delinquency remains on their credit reports for up to seven years.  After four months of gains, home prices flattened in October, they have risen more than 3% since May.