Years ago I worked with an organization of state treasurers and the chief financial officer of Pennsylvania went on a tear about how horrible and awful reverse mortgages were.  Her main gripe was that when using a reverse mortgage, people lost their homes period.

However, given today’s ruined retirement portfolios, maybe reverse mortgages deserve a second look.  A popular real estate news site, RIS Media, provides that second look through its article on the Top 9 Reverse Mortgage Myths.  Included is the top worry that most people have,

Myth: If I take out a reverse mortgage the lender will own my home.
Fact: False. Homeowners still retain title and ownership to their homes during the life of the loan, and can choose to sell the home at any time. As long as the house is maintained and property taxes and homeowners insurance are paid, the loan cannot be called due.

There has also been concern about whether a senior can be evicted from the home, but the article states that as long as the borrower adheres to the guidelines, they still retain ownership of thehome.  Another concern was that heirs are cheated from their inheritence, but honestly… wouldn’t you rather your elderly family member live in comfort than hand-to-mouth as they age?  And if the home is something they MUST have, the heirs do have the ability to keep it by paying the balance of the loan.

Photo from Consumer Action.

In what appears to be a delayed reaction to the subprime mortgage meltdown (it’s the government so of course it took some time), the HUD settlement statements have changed so buyers will have more clarity on their closing costs.

The Good Faith Estimate is the first major document affected.  The lender must have on the first page how long the locked-in interest rate is available, the loan amount, the term of the loan, the initial interest rate, and monthly mortgage amount.  Lenders must also disclose whether an interest rate can rise, if the cash loan balance can rise, whether the monthly payment can increase, if there is a prepayment penalty, and if there is a balloon payment.  Also on the first page are whether or not there will be an escrow account for insurance and taxes and how much that will be.  Finally, the lender must show the total estimated settlement charges (closing costs).

The second page of the new good faith estimate details expenses including origination fee, required services (appraisal, credit report, flood certification, etc.), cost of title services, government recording charges, transfer taxes, escrow, daily interest charges, initial escrow amount (which will be insurance and taxes), and the cost of homeowners insurance.

Finally, the back page includes a “shopping cart” section where the buyer can shop the loan.  Lenders are not crazy about this because FROM THEM the buyers get that they can look around for better loan options.  However this should keep a lender honest because it eliminates junk fees (they all must be included with the loan origination fee).

How are they kept honest?  If there is more than a 10 percent increase between the good faith estimate and the HUD settlement statement, the lender has 30 days to cure the discrepancy.  If the overage is the fault of the lender, they must refund the buyer the amount of the overage.  However, there is a caveat.  If the buyer picks someone not on the lender’s list to provide the survey, credit report, flood certification, or other items required by the lender, then the lender is not at fault if the HUD is more than 10 percent of the GFE.

I feel more protected now, how about you?

Six months to a year after homeowners have been helped out on the mortgage payment - either through loan modificiations, forebearance, or other grace periods - they are still falling behind on their mortgage payments.  According to MSNBC.com, nearly 40 percent of homeowners fall behind again.

But nearly 40 percent of homeowners who had their monthly payments cut by 20 percent or more last year were delinquent again within a year, according to a report Monday from the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

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With the economy still weak and employers continuing to cut jobs, “even if you’ve gone through a modification, your situation may deteriorate,” said Fred Phillips-Patrick, director for credit policy at the thrift office.

Still, the economic recovery depends upon job growth.  Without consumer confidence in the ability to hold on to a job and without solid employment prospects, the real estate market along with the financial health of the country remains in limbo.

Getting your home loan may have just gotten harder thanks to some new rules by Fannie Mae and the FHA.  Make no mistake the rules are very much needed and should keep unqualified buyers out of the housing market until they CAN qualify.

FHA loans may be requiring a higher credit score.  Fannie Mae has raised its minimum credit score from 580 to 620, effective December 12, 2009.  If your score falls below 620, you would have to pony up a 20 percent down payment to qualify for the Fannie Mae guarantee.

Tucson Arizona Homes for Sale goes into some detail about additional Fannie Mae changes.

A third change concerns maximum debt-to-income ratio. Fannie Mae will no longer approve loans with debt ratios exceeding 45 percent except with very strong assets and very high credit scores.

In no case whatsoever may debt-to-income exceed 50 percent.

Today’s interest rates remain low, though we expect them to rise in 2010 (but not more than up to 6 percent).

Today’s 30 year rates with 30 day lock 12/15/09
FHA 4.875
VA 4.875
Conforming 4.875*
USDA 4.875
Jumbo 3.875* with LTV to 90%

*rates assume credit score of 660 with  no lender fee on government loans and 1 pt zero pt program available and loan amount of 150,000>,jumbo loans have limited ltv up to 2,000,000 rate is for 5/1 arm. conforming, loan amounts and credit score restrictions may apply credit income property requirements may vary. Rates and fees vary by lender.

Anytime you are behind or think you might get behind on your mortgage, communication is key with your mortgage company, your insurer, your utility companies, your Realtor… everyone.

“In our society as a whole, people should realize they should communicate when they have a problem rather than sticking their head in the sand and hoping it’ll go away or fix itself,” my friend Robert Carroll said after taking the short sale and foreclosure class yesterday.

It’s so true - communication is key.  Your mortgage company understands that people sometimes face financial difficulties and they definitely would rather work with you than go through the trouble and expense of foreclosing.  It’s estimated that it costs about $60,000 to foreclose, so a period of forebearance, loan modification, short sale, or deed in lieu is a better option.

Banks are getting better about working with homeowners - possibly because the Obama administration and U.S. Treasury Department is now cranking up the pressure for them to do so.   In fairness, some companies were already doing a better job than others (Wells Fargo has a good reputation for working with homeowners). According to CNN.com,

Responding to complaints that too many borrowers are stuck in trial adjustments, administration officials said they will now focus more heavily on getting borrowers into permanent modifications. Government swat teams will go to the institutions to see what the holdup is and banks will have to submit progress reports twice a day during December.

Trial modifications are occurring because homeowners and lenders have negotiated a lower interest rate, but they have to then wait three to six months at this lower payment plan to see if they make payments on time before it becomes permanent.  To get a loan modification, you still must have the ability to pay.  If you don’t have the ability to pay, a short sale could be an option as long as you communicate with your lender.  Failing that, a foreclosure will be in your future.

Photo by Deman through Flickr Creative Commons.

My task this weekend - in addition to chauffeuring my daughter to several parades so she can fulfill her duties as a baton twirling queen - is to look into the mortgage loan modification process.  One of my friends was telling me last night how she was able to obtain a modification which has provided her family with enough relief (her next home loan payment isn’t due until February 2010) that they are getting caught up on bills and will survive Christmas.

We’re not behind on our mortgage payment, thankfully.  However our income this year has drastically changed because of the real estate market.  Though many agents continue to do very well, I looked up the performance by some of the super agents and found they too are earning significantly less.  This told me I’m not the only agent who is working twice as hard for less income.  It’s hard for everyone out there and I eagerly look forward to when it gets better.

Meanwhile to get through the leaner times, the loan modification programs may be the relief so many of us need until the economy stabilizes more.  Over at Bible Money Matters, an article about modifications provides some great links to see if your home is backed by Fannie Mae or Freddie Mac and - if not - how to qualify,

To be eligible for the loan modification you must meet these criteria:

• Your loan must have been obtained on or before January 1, 2009.
• First-lien loans on owner-occupied properties with an unpaid principle balance up to $729,750
• Document income with signed IRS 4506-T, two most recent pay stubs, and most recent tax return.
• Sign an affidavit of financial hardship.
• Modify by December 31, 2012.
• Have a mortgage payment that is no longer affordable, examples include significant change in income or expenses.

I’ll be looking into this to see and sharing the options with my friends and clients.  Fantastic fantastic information here!

Photo of 2803 Surrey Road in Nashville.

Call me bitter if you will, but the grilling servicers in the loan industry are receiving on Capitol Hill today are what I call “Just Desserts.”  From Business Week:

Far too few homeowners are getting modification help either in debt forgiveness or reduction in interest rates. Even when loans are modified, the adjustments aren’t sticking and the loan goes bad anyway.

Time and time again I’ve heard people begging for help.  They don’t get the help.  I had one buyer who made a full price offer on a short-sale - it would’ve been short about $5000 for the lender.  The lender refused because they’d prefer a foreclosure and losing $60,000 than an immediate out for a $5000 hit.

And lenders know it!

Deloitte’s David Sisko, who leads the firm’s default management/loss mitigation service business, points out that some servicers are exacerbating the problem by cutting corners. At some point, he says, they’re just going to have to suck up and take a hit on their own profits to help the rest of us get through this deluge of problem loans. “

Let us hope the 25 mortgage servicers in Washington this week speaking with officials from Treasury and Housing and Urban Development can come to a fair solution.  We need one.

Rural Housing Loans are all the rage in my neck of the woods because we have enough rural areas that qualify.  Sponsored by the USDA, the loans are 100 percent loans that waive the monthly mortgage insurance.  To be eligible, you’ll still need to meet credit score requirements.  In addition, the home you purchase must be owner-occupied, no in-ground swimming pools are allowed, and if you’ve filed for bankruptcy, that has to be discharged for 36 months.

There are some income limits - specifically for a one to four person home, the income is limited to $74,600.  For a home with five to eight people, you can’t earn more than $98,450.

For a new construction Rural Housing loan, the requirements vary.  For example, the builder must provide at least a one-year builders warranty, certification is required for both plan/thermal and septic/step system systems, a soil treatment letter is required.  For full details, you can contact a qualified lender in your area.

Additionally, you can visit the USDA web site here for more info.  Here’s a nifty map that shows homes currently for sale (though I didn’t find any in my area) that would qualify for Rural Housing loans.

Appraisers have a hard row to hoe these days.  Realtors and lenders, buyers and sellers are all mad at them because two and three years ago they “inflated” prices.  Now they aren’t taking any chances and seem to be “deflating” prices.  Or they mark a home as being located in a declining market area allowing some lenders - at their discretion - to require a bigger down payment or they don’t fund the loan at all.

All in all, though, I think appraisers are doing the best they can with what’s been handed them.  One appraiser I just spoke with has been handed a big pile of mess to deal with.  She’s been asked to appraise a home that has been foreclosed on and the people who lost the home are hostile about the eviction.  But she’s expected to go in - even though she had nothing to do with the foreclosure or eviction - and face an angry family so she can determine the value of the home on behalf of the bank.

I wouldn’t want to be in her shoes right now.  Not at all.

Though an outright foreclosure is by far the worst experience for a seller, short sales are one of the most unpleasant experiences a buyer (and Realtor!) can experience.  Recently the National Association of Realtors distributed a quiz for agents to figure out how much they know about these transactions.  I missed one because it was a trick question!  But here are some of the quiz results:

What is a short sale?  When a listing sells for below the amount the seller owes on the mortgage.

When is a short sale accepted?  (This was the trick question) When a contract is formed between buyer and seller. It’s tricky because short sales have to be approved by the lender - they are agreeing to accepting less than what is owed, so my answer was when the lender approves the offer.  However, the lender can’t sell what’s owned by the seller so the contract must be between the buyer and the seller.

Some of the potential downfalls of a shortsale was the last question and these are both correct answers: The short sale can negatively impact the seller’s credit score and the seller may have to sign a note promising to pay back the remaining mortgage debt.

I don’t like short sales, but they’ve become a fact of life in today’s market.

Photo from The Wilmington Search blog.