Can you spot the predator?

This is just a Public Service Announcement for Predatory Lending - but I have seen and heard first hand many, many unethical and unscrupulous people (much more than you have) and I can tell you, this isn't so far from the truth.

They don't have to be slimy greaseballs. 

They look just like you and me.

Foreclosure Rescue and Reverse Mortgages are the New Predatory Arena. 

HINT: That means to always work with a professional that you can trust. 

Other Hint:  That means NOT someone who sends you a flyer, knocks on your door, or calls you at home at dinner time.  Just in case you didn't already know that.

 

 

5 Reverse Mortgage Issues You Didn't Know

Here's 5 Reverse Mortgage pitfalls your loan officer probably didn't tell you about.

Don't blame them. To be honest, your loan officer might not have known about them. Despite their 30 years in the business, they've probably never done a Reverse Mortgage. We're seeing many loan officers entering the field of Reverse Mortgages for the first time.

Here's your chance to teach your loan officer a thing or two...

1. Your Heirs cannot keep the Reverse Mortgage.
   If you pass away, the house now moves to your heirs, they'll need to refinance into a traditional loan. I have a client right now who's Mother left her home to her three grown children. While there is plenty of equity in the home, none of the three want to, or can, take on an additional mortgage at this time. They would like to sell but would rather wait until the market is better. They may not have a choice. Trusts, Probate and Living Wills also cloud the issue.

2. If you enter a Long Term Care Facility, you cannot keep the Reverse Mortgage.
   Your loan will become due and you will have to sell or refinance into a traditional loan. Having proper Long Term Care Insurance and financial planning can mitigate the effect of this. I know of a couple of Long Term Care specialists. They could write a book on the the devastating experiences they've seen. Talk to a specialist now. Want a referral?

3. Most Reverse Mortgages are adjustable.
   While we are just now seeing the beginning of fixed rate options, these are not your standard fixed rate loans and terms. Fixed or adjustable, your interest rate is going to typically be higher than that of a traditional mortgage. Of course on the bright side, you qualifying is very much easier!

4. Reverse Mortgages don't come free.
   Origination fees, mortgage insurance premiums, closing costs and a monthly service fees are all common. The overall and long term cost of any loan is critical. Don't focus on just the interest rate or just the origination fee. While all factors are important, the length of time you will keep this loan helps determine what loan is best for you. Find a Trusted Reverse Mortgage Professional.

5. A Reverse Mortgage can be considered income.
   More often than not it isn't, but be forewarned when applying to some governmental agencies and benefit programs. While this is not a usually the case, in some certain instances this may be a remote possibility. Proper care and counsel is always advised.

For some people a Reverse Mortgage can make enormous lifestyle differences. For some people a Reverse Mortgage is the best loan option. For others a Reverse Mortgage just doesn't fit or could be the worst choice they could make.

Do you know enough to make the right decision?

Tax Lien Investing

Last year a good friend of my wife had watched a late night infomercial where they were selling a program that taught you how you could buy homes for next to nothing.  Buying Tax Liens.  After watching the hour long program she thought it was "all good".  She ordered the $500 package and was eager to start on becoming independently wealthy - just like the program touted.

Somewhere along the line she started to think.  If she was buying a home for pennies on the dollar, she was certainly coming out a winner.  So who was the loser?

She called me for my insight.  I told her that someone has to lose.  Chances are the home was not vacant and abandoned as the commercials always seem to show.  Instead, if she bought a tax lien home she might be displacing an elderly person or maybe a homeowner that was down on their luck.  Maybe the original homeowner passed away - the current heirs to the estate (think sons, daughters, and grandchildren) didn't know about the delinquent tax bills.  I posed the question to her that would she feel right to take the equity away from that grandchild, maybe preventing her from going to college?

In the end she returned the 38 CD set and fought for months to get her money back. 

I read a news story today about an 89 year old Widow.  She is losing her 35 acre farm due to her failure to pay a $38 tax bill.  That's no typo - that was Thirty Eight Dollars!  The tax bill was from 2003 and was purchased in 2005 by a Tax Lien speculator.

Oh, did I mention she was blind?

Prairie State Properties LLC, the owner of the Tax Lien is set to make out pretty good.  They have  "Billie Bob's Tax Lien Sale System" down.  Win - Win just isn't in their vocabulary. 

NOTE:  What Prairie State is doing is perfectly legal.  It's a loop hole in the system.    I'm all for capitalism.  I'm not for "Pirate-ism".  Stealing equity, stealing capital, stealing anything is just not ok.  It's really not ok when you put a face to it.

 

  

Technorati Tags: Tax Lien Sales, Fraud, Theft

Understanding the Jumbo Reverse Mortgage

I started this series by explaining the basics of one of the most popular reverse mortgages in the country, the HECM or Home Equity Conversion Mortgage.

It does have certain advantages and disadvantages. The most popular advantage has to be that it's insured by the FHA. However it was probably what the HECM couldn't do that most likely inspired Fannie Mae to come up with their own brand of reverse mortgage "The Home Keeper". Just as with the anything, the Home Keeper also has certain pros and cons.

So there we were, with two very different kinds of Reverse Mortgages. One offered by the Feds and the other offered by a private corporation heavily regulated by the Feds. This being America, the land of opportunity, it was only a matter of time before someone got to thinking as to why the Feds (and Fannie) were the only ones having all the fun. But what could a private lender offer that the others hadn't already covered?

Living in the San Francisco Bay Area all I have to do is look outside my window for the answer. Jumbo's!

What's a Jumbo?

If you recall, the HECM is a FHA program. That means the maximum loan limit is determined by the county in which the home is located. That might range anywhere from $200,160 to $362,790. The Fannie Mae product is also limited by what we call the conforming limit. This is set forth by the O.F.H.E.O. (the regulators of both Fannie Mae and Freddie Mac). Currently the conforming limit is set at $417,000, anything above that figure is considered a Jumbo.

Who sets that limit and how do they figure it?

Hang on, here's where it gets really technical. The OFHEO uses the percentage increase in the average house price from October to October in the Monthly Interest Rate Survey of the Federal Housing Finance Board (FHFB) to adjust the maximum limits for the subsequent year.

Want to read that report? Here's the latest 78 page .pdf from OFHEO. If you want to see where they pulled that data here is the Monthly Interest Rate Survey for September(it's all of 1 page!) from the FHFB. If the average home price this October is higher than that of last October, the maximum conforming limits will be adjusted upward by the percentage increase in price. Simple right?

"But what if..."

Now, those sharp readers amongst us have already asked the obvious question. "What if the price doesn't go up? What if it goes down?"

They have a rule for that. Remember all real estate is cyclical. What goes up shall come down. Should the annual average stay the same or be less than the previous year they'll put a freeze on it, (defer it) for 1 year. In case you missed it, last year the limit did not increase. Can you say "deferral"?

That deferral from last year's decrease would be netted against any increase this year in determining the 2008 limits. If a decrease in average price this year is followed by another decrease next year (which it has), the maximum loan limits will decline in 2008 by at least this year's percentage decrease in average prices.

Are you completely confused yet?

You should be. If you are not completely and utterly confused and this makes perfect sense to you - you're hired! When can you start? Will the corner office be ok?

To confuse you more, there are various talks going on at this moment to raise the limit contrary to the data and formula that has been used in the past. Our "Governator" Arnold Schwarzenegger just asked Congress for an exception to the rule, just for us Californians of course. He asked for us to be included in with Hawaii and Alaska, the only two states that are presently above the $417,000 limit. That limit ceiling is 50% higher than those other 48 states!

The Moral of the story:

Whatever happens, a Reverse Mortgage is confusing at best. Which of the three product categories (HECM, Home Saver, or Jumbo) and the five different distribution of loan proceeds (Lump Sum, Line of Credit, Term Monthly Payment, Tenured Monthly Payment, combination Payment) is best for you?

Are you sure? That's why it is vitally crucial to use a Reverse Mortgage Professional. They have the tools and the knowledge to decipher the information and point you to the best Reverse Mortgage solution to fit your needs.

If you are considering a Reverse Mortgage, give me a call. Together we can sort it out.

(925) 288-9977 Ext. 104

Technorati Tags: jumbo reverse mortgage, reverse Motgage help, reverse mortgage professional

Understanding the "Home Keeper"

The Home Keeper in this day and age of foreclosures sounds ominous at best.  In reality it is nothing to fear, it's just Fannie Mae's brand or version of a reverse mortgage. 

Using a topical acronym, Fannie Mae is a GSE - or government sponsored enterprise.

They are the largest buyer of home mortgages and as this pertains to reverse mortgages, they are the largest investor in Reverse Mortgages including the federally insured Home Equity Conversion Mortgage (HECM).

Differences

Not content with just the FHA version of reverse mortgage (The HECM) in '96, Fannie Mae came out with their own.They called it the  Home Keeper.  It was implemented to fill  the gaps left open by the Federal HECM product. 

Items like:

• Higher Property Values,
• Condos, PUDs, and other property types,
• and even Purchases

Did you know you could purchase a home with a reverse mortgage?   - Now you do!  Read below for more details.

Most of the same requirements apply - you have to be 62 or older, principle residence, and so on.

Why Home Keeper?

Home Keeper may allow you to borrow more than a HECM as the current limit for Fannie Mae is higher than the FHA limit (two separate agencies).   The actual amount is determined by factors such as your current age, the value of the house, and current rates. 

The borrower can elect to receive funds in a variety of ways including a lump sum, or a set monthly payment, or a line of credit, or a combination.

Interest Rates?

The interest rate for a Home Keeper loan is an ARM.  It adjusts monthly.  Surprised?  The index is the current weekly average of the one-month secondary market CD rate, as reported by the Federal Reserve.   Add the Index to the margin and there is your rate.  Caps?  Unfortunately there is no cap on the monthly adjustment but there is a lifetime cap of 12% above the initial rate.  This surprises some people.  Then again, the monthly change may be minimal depending on the current marketplace.

Buying a home with the Home Keeper

Yes, you can use the Home Keeper for a purchase!  And do it as a single transaction.  Many times this is done in conjunction with the sale of a prior house.  Doing it in this manner can drastically reduce the costs involved, thereby providing more available income to the homeowner.  This transaction is usually seen when moving from a larger home to a smaller one, or maybe moving closer to loved ones.

One word of caution: Consult your tax professional as there is a potential tax consequence in certain situations.

As always, if you don't need more information - give me a call!

Mike Mueller (925) 288-9977 Ext  104

  

Technorati Tags: Home Keeper, reverse mortgage, HECM Explained

Understanding HECM

I mentioned on an earlier post that HECM loans were rising.  Not the rate, but the popularity or sheer quantity of loans being funded.   That prompted a reader to call me to help explain what a HECM was.  So what is a HECM loan?

 The Home Equity Conversion Mortgage (HECM) is the oldest reverse mortgage product.  It is the "original" from way back in 1989.  Ahh, it seems like just yesterday.

HECM is insured by the Feds!

A HECM loan is going to be insured by the Fed's through the FHA, they are a subsection of HUD or Housing and Urban Development.  To make it easy, we can just call them all the FEDs.  The Feds don't loan the money directly but they are going to guarantee this loan. For many people this insurance is a very important feature.  They want the security of having the government guarantee on the loan. 

How much can you borrow?

The amount of money a borrower is eligible to receive depends on a couple of factors.  Your age, the value of your home, interest rates and where in the state you live. 

Location is important.  The county that you live in determines the limit to which HECM values your home.  Each county has a limit to which the FHA will insure loans.  Sometimes that limit is well above the value, and then sometimes it is not.

Currently (for 2007), the FHA loan limit varies from $200,160 (for rural areas) to $362,790 (for high-cost areas).   This changes annually and there is a chance that it will be increased significantly in the near future.  Here in Contra Costa and Alameda County that limit is that $362,790 limit.

Generally speaking, the older you are and the more valuable the home, the more money you may receive.

What if my home is above the HECM Limit?

Simple, if your home is above the limit, the amount available to you is just calculated as if the value was at the area limit.   For a home in my area, if it was really valued at $650,000 a HECM loan would assume it was valued at a mere $362,790.  The amount you would have available would be determined by that $362,790 ceiling as opposed to the actual value.

That Fed insurance comes at a Price!

From the National Reverse Mortgage Lenders Association Website;

"As part of the closing costs, the homeowner must pay a mortgage insurance premium (MIP) equal to 2 percent of the maximum claim amount (lesser of the home value or county lending limit) up-front, plus an annual premium thereafter equal to 0.5 percent of the loan amount. The insurance premium guarantees that if the loan servicer goes out of business, the government will step in and make sure the homeowner has continued access to his or her loan funds."

Let's decipher that.  Let's use a $300,000 loan amount.  The up front mortgage insurance premium that the borrower would have to pay is going to be $6,000.  Additionally, there is an annual fee for that insurance of $1,500.  This could be built into the proceeds of the loan and doesn't have to be paid out of pocket by the borrower.

That Mortgage Insurance Premium combined with the limit set forth by the FHA will sometimes negate the advantages of a HECM reverse mortgage.  Then again, in some situations a HECM can provide a significantly higher loan amount than other options.

The good news?  There are plenty of other programs available!

The other good news?  Since it is almost impossible for a consumer to determine which particular program is best for them all by themselves, it is vitally crucial to use a Reverse Mortgage Professional.  I know that doesn't sound like good news but by using a professional they can easily run the numbers and determine the pros and cons for each separate program.  Use a Pro and get the good news!

Next I'll explain Fannie Mae's version "The Home Keeper" and then we'll get into my favorite, the Jumbo Reverse Mortgage!

Technorati Tags: HECM Explained, FHA Reverse Mortgage, HUD Reverse Mortgage

HECM is on the rise

Typically when something is on the rise, especially in today's market, that's not always a good thing. Defaults are on the rise. Rates are on the rise. Scams are on the rise.

When you see a headline in the paper boldly stating that HECM is on the rise I don't want you to be alarmed. HECM stands for Home Equity Conversion Mortgage. It's the way H.U.D. refers to Reverse Mortgages under the FHA label. So when you hear HECM just think Government Backed Reverse Mortgage. Simple.

Tim Paul, who writes a blog called Reverse Mortgage Information had an interesting graph illustrating the recent rise in HUD backed reverse mortgages. It shows a pretty steep curve, especially in the last couple of years.

I was interviewed yesterday about reverse mortgages and in particular those of the HECM version. The interviewer was from the east coast where many FHA loans are originated. I explained that while we could do HECM mortgages here in Jumbo-Land, CA it would be more likely that one of the "other" flavors would work better.

You see HUD and FHA put certain limitations depending on the county that you live. Those limitations often preclude the viability of a FHA mortgages. What that means to our client is that often times it's better to use a different loan program. Generally speaking, for the San Francisco Bay Area, that means a Jumbo Reverse Mortgage Program.

AARP has a great calculator on their site for two of the three common types of Reverse Mortgages. You can access it here: http://www.rmaarp.com

It will compute the HECM and the Fannie Mae versions only. Fannie Mae calls theirs the Home Keeper Mortgage. Fannie has limits too. Currently $417,000. The AARP calculator leaves out the third and maybe most important program right now (to those that live in the bay area, the jumbo reverse mortgage. Most jumbo limits are around $2,000,000.

The important part to take away from all this is that there are many different reverse mortgage products. It's not just one flavor, one brand, one version that is out there. There are many. Each version, the structure of the loan, the manner in which the money is dispersed has unique advantages and disadvantages. Which one is right for you? Only a true reverse mortgage professional will be able to point you in the right direction.

Which brings us back to this chart. There are conversations underway right now in Washington, D.C. that may raise the limits for FHA. If this happens I can see a quick change to this chart in the following months.

Thanks for the chart Tim!

Technorati Tags: HECM, Reverse Mortgage Professional