Friday, May 29, 2015

Will a reverse mortgage be your friend or foe?

Your nest egg is small. Your retirement income is limited. And you're sitting on a highly appreciated asset—your home. A reverse mortgage, which lets you convert some of that equity into cash, might just solve the problem.

Depending on your health and financial stability, however, it could also create new ones.

"Reverse mortgages can be an effective tool for retirees, but the problem is that the interest rates tend to be higher than for other home loans," said Grafton "Cap" Willey, managing director at CBIZ MHM tax accounting and consulting firm. "I've also seen people outlive their ability to take any more equity out of their home and then they're forced to make tough decisions."

Indeed, cash-strapped seniors who spend all their available equity and later fall behind on property taxes and homeowner's insurance, he said, must sell their home and downsize, go back to work if they're able, or face foreclosure.

A reverse mortgage—the federally insured version is called a Home Equity Conversion Mortgage, or HECM—is a loan that enables homeowners age 62 and older to cash out a portion of the equity in their home.

The amount homeowners can borrow varies by lender but generally is based on age, home value and the interest rate at the time they close.

The National Reverse Mortgage Lenders Association offers an online calculator that gives borrowers a better idea of how much they might be eligible to take out.

As the name implies, the mortgage payment stream under such loans is reversed.

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Friday, May 22, 2015

Average mortgage rate falls to 3.8%

    Mortgage rates in the U.S. fell for the first time in a month, cutting costs for buyers during the housing market’s busiest time of the year.

    The average rate for a 30-year fixed mortgage slipped to 3.84 percent from 3.85 percent last week, Freddie Mac said in a statement Thursday. The average 15-year rate declined to 3.05 percent from 3.07 percent, according to the McLean, Virginia- based mortgage-finance company.
    Mortgage rates have fluctuated within a range of about a quarter percentage point this year as investors try to guess the Federal Reserve’s timetable for ending the near-zero rates it has given banks to encourage them to lend. The shift probably won’t happen by the end of June, according to minutes of the Federal Open Market Committee’s April meeting, released Wednesday. While the overnight lending rate doesn’t directly impact home-loan rates, it influences mortgage investors who worry about inflation.
    “We know the general direction of mortgage rates will be higher this year as the economy gets stronger,” said Mark Zandi, chief economist of Moody’s Analytics Inc. “With the economy at full employment, the housing market will be able to gracefully digest it.”
    The average rate for a 30-year fixed mortgage probably will reach 4.3 percent by the fourth quarter, according to the Mortgage Bankers Association. It probably won’t break 5 percent until mid-2016, the trade group said in a forecast this week. Home lending probably will total $1.3 trillion this year, up 14 percent from 2014, as economic improvements spur gains in home sales and prices, according to the association.

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Wednesday, May 20, 2015

Personal Finance: Reverse mortgages: friend, foe?

It is difficult to avoid TV celebrities endorsing reverse mortgages for seniors needing extra income or cash to pay bills. But are these products truly useful options, or dangerous traps?

Used properly and entered into advisedly, a reverse mortgage can be a valuable tool for older homeowners with limited income and significant home equity. But like any financial contract, it must be well understood and should only be considered under appropriate conditions.

Virtually any homeowner can borrow against the equity in their home by taking out a second mortgage, a home equity line, or a new first mortgage. However, repayment typically begins immediately and continues as a monthly obligation until fully repaid.

A reverse mortgage is effectively a home equity loan with a twist. Homeowners who qualify can borrow against a significant proportion of their home equity to spend today, but are not required to repay the loan until their death or until they choose to sell the property. Technically referred to as Home Equity Conversion Mortgages (HECM), these loans are regulated by the U.S. government through the FHA. To qualify, all borrowers must be at least 62 years of age and have a minimum amount of equity in the home. Furthermore, there must be no other loans outstanding against the home (or the borrower must use proceeds of the HECM to pay off any outstanding loans).

The proportion of equity available for borrowing is limited, and there are significant fees associated with origination. However, unlike a traditional mortgage, these loans are nonrecourse: if the market value of the home falls below the loan value, the lender bears all the risk and the borrower has no obligation to offset the difference.

As beneficial as a reverse mortgage can be in the right situation, too many stories surfaced of borrowers who lost their homes because they had not sufficiently understood the terms or had failed to make required insurance and tax payments. Industry data suggested that in 2012 roughly 10 percent of these arrangements were in default because the borrower had spent all the proceeds and did not have the cash flow to keep up with property taxes and insurance premiums as required by the terms of the loan. A default rate that high was cause for concern, and as a result FHA revised its lending standards.

Effective last month, lenders are now required to verify that the borrower will have sufficient income to meet ongoing required expenses including insurance and taxes. In addition, seniors who enter into reverse mortgage agreements may request that the lender withhold proceeds from the loan in an escrow account to assure sufficient coverage of expenses and minimize the risks of unpleasant surprises later on.

The other main pitfall with reverse mortgages is the risk of fraud. Since these products are specifically designed to benefit seniors, the target clientele is frequently the object of scammers. It is therefore essential that potential borrowers contact the FHA (or its parent agency HUD) to verify the lender is legitimate. New rules require that borrowers speak with a HUD-approved counselor before signing a contract. And as always, if you feel pressured or do not completely understand the terms, walk away. If you suspect fraud, contact the FHA to report the purveyor.

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Monday, May 18, 2015

Commercial Mortgages: Volatility and higher rates, but still a good month

Rising interest rates and plenty of volatility have made May a tough month in the commercial real estate world.

But commercial real estate investors are like Tom Brady, the New England Patriots quarterback. Brady, who learned last week that he will be suspended in the wake of the NFL’s investigation into deflated footballs, had a tough month but still comes home to a beautiful house and wife and still possesses four Super Bowl rings.

Likewise, interest rates aren’t quite as good as last month, but they are still pretty darn good — and investors still are doing pretty darn well.

Despite rising interest rates, competition between lenders and different lending sources is fierce. Banks are swarming developers looking for deals to add to their books. As one developer quipped, “I could go to lunch every day of the month with a different lender if I had the time.” While banks are pushing hard for new business, permanent lenders are also trying to get loans booked and find themselves battling each other as well as banks.

Data compiled by Trepp Bank Navigator on the top 100 banks in the country, ranked by commercial real estate loan portfolios, tell the story for what went on in 2014. Overall, these banks grew their loan portfolios an average of 6.8 percent last year. Some of the very largest banks such as Bank of America, BB&T and Regions shrank a bit, while others like M&T Bank and SunTrust had healthy growth.

Wells Fargo, which is winding down its real estate lending office in Richmond, is the largest real estate lender in the country and grew its real estate holdings by a paltry 0.8 percent in 2014, according to the data. Union Bank had a surge in real estate holdings of 75.2 percent when compared with 2013. No doubt the astronomical loan growth was based in large part on its merger with Stellar One Bank. This brought Union’s real estate holdings to $3.01 billion at the end of 2014, ranking it the 76th largest on the list.

The list measures the loans made by banks for land purchases and new development. Development and land loans grew by 15.2 percent during 2014 for the top 100 banks. This growth is an important metric to watch as it marks a turn from most prior years in the recovery, when development and land loans were shrinking.

A study by Mary Ludgin, who is the director of global investment research at Heitman and will be speaking at the VCU Real Estate Trends Conference in October, showed what most banks have experienced in the past seven years. Development activity during this recovery has been tempered. Even though loan growth for development loans was positive in 2013 and strong in 2014, across the country, completions for retail, office and industrial properties are well below 20-year averages. Only apartment completions in 2014 exceeded the 20-year average.

This is a positive for lenders and real estate investors alike, as less supply will eventually mean rental growth and price appreciation as employment and population growth continue. Another positive for investors, but perhaps not so much for lenders, is low rates.

According to the John B. Levy & Company Mortgage Survey, commercial mortgage rates increased during the last month in a fairly significant way, but remain low. Five- and 10-year loans now range from 3.40 to 3.80 percent, respectively, for top-rated mortgages. Full leverage 10-year conduit loans are closer to 4.25 percent.

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Wednesday, May 13, 2015

U.S. mortgage applications fall in latest week: MBA

Applications for U.S. home mortgages fell last week as interest rates rose to the highest level since March, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 3.5 percent in the week ended May 8.

The MBA's seasonally adjusted index of refinancing applications fell 5.9 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, dipped 0.2 percent.

The refinance share of total mortgage activity fell to 51 percent of applications, its lowest level since May 2014, from 52 percent the week before.

Fixed 30-year mortgage rates averaged 4.00 percent in the week, the highest level since March. They were up 7 basis points from 3.93 percent the previous week.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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Tuesday, May 12, 2015

Nomura found liable for selling toxic mortgages to Fannie, Freddie

 A federal judge ruled Monday that Nomura Holdings (NMR) misled Fannie Mae and Freddie Mac made false representations about the quality of mortgages that were used to back $2 billion securities it sold to the GSEs.

According to court records, U.S. District Judge Denise Cote found Nomura liable when he ruled for the Federal Housing Finance Agency, which acts as conservator for the GSEs, after overseeing the non-jury trial.

"The offering documents did not correctly describe the mortgage loans," the judge said in his lengthy, 361-page decision. "The magnitude of falsity, conservatively measured, is enormous."

The FHA has taken two of the world’s biggest banks to trial in an attempt to recoup more than $1 billion over the $2 billion in mortgage bonds sold to Fannie and Freddie.

The FHFA is also suing the Royal Bank of Scotland (RBS), which served as the underwriter, for selling the mortgages into the secondary markets. Nomura and RBS were the first to stand up to the FHFA; several other banks have settled.

The trial is the first to come from some 18 lawsuits by FHFA back in 2011. The Federal regulator wants to recover some losses on some $200 billion in mortgage bonds the GSEs bought.

The FHFA is suing various big financial firms for the alleged misselling of toxic mortgages to Fannie Mae and Freddie Mac during the housing boom. The FHFA says the mortgages defaulted in large numbers, requiring default on the Fannie and Freddie bonds and led the bailout and conservatorship of the government-sponsored entities.

The FHFA said in its filing that 68% of a sample of the loans were not underwritten in accordance with underwriting guidelines and that appraised values were inflated on average by 11.1%.

Nomura and RBS denied the FHFA’s allegations.

“FHFA is pleased with the Court's decision and we are reviewing the various elements of this important ruling,” said FHFA General Counsel Alfred Pollard.  “It is clear the Court found that the facts presented by FHFA were convincing.  FHFA looks forward to submitting proposed damages calculated under the formulae applied in the Court's Opinion.”

If Nomura and RBS are ordered to pay damages, they would in turn receive the mortgage bonds, which are valued at just under $500 million.

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Friday, May 8, 2015

U.S. Mortgage Applications Dip 4.6 Percent

According to the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending May 1, 2015, mortgage applications decreased 4.6 percent from one week earlier.

The Market Composite Index, a measure of mortgage loan application volume, decreased 4.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4 percent compared with the previous week.

The Refinance Index decreased 8 percent from the previous week to the lowest level since January 2015. The seasonally adjusted Purchase Index increased 1 percent from one week earlier to its highest level since June 2013. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 12 percent higher than the same week one year ago.

"Refinance volume dropped last week as rates in the US increased sharply towards the end of the week, with signs of recovery in Europe lifting rates across the globe. Purchase activity increased slightly over the week, and the average loan amount for a purchase application reached a record high, a sign that the mix of purchase activity is still skewed toward higher priced homes," said Mike Fratantoni, MBA's Chief Economist.

The refinance share of mortgage activity decreased to 53 percent of total applications from 55 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.1 percent of total applications. The average loan size for purchase applications rose to a survey high of $297,400.

The FHA share of total applications increased to 14.0 percent from 13.7 percent the week prior. The VA share of total applications increased to 11.9 percent from 11.3 percent the week prior. The USDA share of total applications remained unchanged at 0.8 percent from the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.93 percent from 3.85 percent, with points remaining unchanged from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.

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Wednesday, May 6, 2015

Moody’s: Stopping eminent domain seizures of underwater mortgages a credit positive

 The House of Representatives’ Appropriations Subcommittee approved a bill last week for Transportation, Housing and Urban Development appropriations for the fiscal year ending 30 September 2016.

If passed, the bill will deter municipalities from using eminent domain to seize underwater mortgages from residential mortgage-backed securities transactions at distressed prices in 2016, a credit positive for RMBS.

Moody’s Investors Service says in a client note that if municipalities were able to use eminent domain for such seizures in private-label RMBS, as they have discussed in the past few years, losses for those RMBS would increase.

The bill includes a provision that would nullify the key exit strategy to make the eminent domain plan profitable for its proponents.

The provision would prevent the Federal Housing Administration, the Government National Mortgage Association and Department of Housing and Urban Development from using funds to “insure, securitize, or establish a Federal guarantee of any mortgage or mortgage-backed security that refinances or otherwise replaces a mortgage that has been subject to eminent domain condemnation or seizure, by a state, municipality, or any other political subdivision of a state.”

Proponents of the eminent domain plan reportedly hoped to use eminent domain to force distressed sales of underwater loans and replace them with smaller government-insured mortgage loans that could be sold at a substantial profit.

The bill, which appropriates funds for the agencies for fiscal 2016, would prevent key government agencies from making loans available for such purposes during that time period.

Afterward, no such restriction would apply unless Congress enacts similar legislation the following year. The 2015 Omnibus Appropriations Bill, which became law, included a similar provision restricting the use of agency funds in 2015.

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Monday, May 4, 2015

3 Tips for Refinancing a Fannie Mae Mortgage Under HARP in Phoenix

If you’re questioning what to do about an underwater mortgage, now is a good time to consider the Home Affordable Refinance Program (HARP) if you are eligible. Extended through the end of 2015, HARP is designed to help borrowers who are either underwater or nearly underwater refinance their homes.

Arizona State Credit Union can help borrowers with a Fannie Mae-backed loan take advantage of HARP and the credit union’s related services. While many Phoenix suburbs have already been hit with high rates of subprime foreclosure, it is not too late to benefit from this program. Below are three tips that can help you get your home loan refinanced:

Learn more details about how to qualify for HARP >>>
1. Understand What HARP Can Do for You

The first step in taking advantage of HARP is to understand what it is and how it could help you. In 2009, the Federal Housing Finance Agency created HARP to help homeowners who had very little or no equity refinance their home loans into more affordable options. Recently, HARP 2.0 made changes to the existing program to extend the term and give borrowers who have been unable to refinance by others means a chance to participate.

HARP 2.0 eliminated various fees, removed the 125 percent cap on loan-to-value ceilings for fixed-rate mortgages, eliminated the need for a new appraisal in most cases and made provisions to include second or vacation homes at different fee levels. The program is designed to help struggling borrowers with Fannie Mae loans and a demonstrated payment history find affordable ways to keep their homes.

2. Find Out If You Are Eligible for HARP

In order to participate in HARP, you must meet certain baseline requirements. To be eligible, your loan must be guaranteed or owned by Fannie Mae, and Fannie Mae must have bought the loan before May 31, 2009. You must not have refinanced under HARP before, unless that refinance took place between March and May of 2009.

The current loan-to-value on your loan must be greater than 80 percent, meaning you have less than 20 percent equity in your home. Most importantly, you must be current on your mortgage and have no late payments in the last six months and no more than one late payment in the last 12 months.
3. Select Arizona State Credit Union as Your Lender

Arizona State Credit Union is actively participating in HARP and is a great resource in securing program participation. The credit union offers various type of loans, including fixed-rate, adjustable-rate and jumbo loans. The idea behind HARP is to move your current loan into a more affordable and stable loan under HARP in order to make it easier to maintain your residence.

By refinancing with a new Arizona State Credit Union loan, you might be able to extend the term of your loan and lower your monthly payment amount, making it more affordable to stay in your home. This benefit has the added advantage of allowing you to wait for home prices to rise, should you ultimately wish to sell.

Arizona State Credit Union is a GOBankingRates client.

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