HECM reverse mortgages are reputed to carry high upfront fees, which raises two questions addressed here. First, are seniors getting real value in exchange for the high fees? The answer in most cases is "no". Second, can a senior who knows the ropes avoid paying excessive fees? The answer in every case is "yes."
Price Differences Do Not Necessarily Reflect Over-Pricing
In the early part of the previous century, when Coney Island was a playground for both the rich and famous and those who were neither, there were two restaurants that specialized in hot dogs. One was Nathans which charged 5 cents, the other was Feldmans which charged 10 cents. My father, who is the source of this information on Coney Island history, dealt only with Nathans. But Feldman had better furnishings and the clientele were better dressed, which induced many to pay the higher price for the hot dog.
The Feldman hot dog was not over-priced, at least for many years, because the information consumers needed to make a decision between a 5 cent dog delivered in cheap surroundings and a 10 cent dog delivered in elegant surroundings was available at no cost at the moment it was needed. The market worked. Ultimately, consumers reacted against paying for the elegance of a hot dog vendor, and Feldmans failed, while Nathans survived to this day.
Price Differences on HECM Reverse Mortgages
The price differences that prevail on HECM reverse mortgages are enormous by any standard. For example, consider the borrower of 70 with a home worth $600,000 and an existing mortgage balance of $200,000 who is looking to pay off that balance in order to rid himself of the required monthly payment. If on August 14 he responded to an advertisement on TV or on the internet, in all likelihood he would be offered a fixed-rate mortgage at 5.06% with a $6,000 origination fee. This is the market price on that day estimated by NRMLA, the trade association of reverse mortgage lenders, as quoted on www.nrmlaonline.org. If instead he shopped for the same HECM among a group of competitive lenders, he would have found the same loan available at 3.99% with a zero origination fee.
HECM Price Differences Reflect Over-Pricing
Unlike the hot dog case, there is no way that the price differences cited above could reflect a difference in the value that some borrowers attach to the different HECM delivery systems. While the hot dog buyer had all the information needed to decide between the 5 cent and 10 cent dogs, the HECM borrower does not for a variety of reasons.
One-Time Versus Recurring Transactions: In contrast to the purchase of a hot dog, a HECM transaction is a big one and the borrower has no opportunity to learn from repeated exposures. Very few HECMs are refinanced.
Multiple Price Dimensions: Where a hot dog has a single price, HECMs have two prices, the interest rate and origination fee, which can complicate the decision process.
The Focus of Consumers on Draw Amounts Allows Lenders to Obfuscate the Price: The major focus of most consumers is the amount they can draw on a HECM. Much of the advertising has this focus, especially the on-line advertising which invites the consumer to fill out a form on the basis of which the consumer is told how much they can draw. If the consumer does not ask for the price used in the calculation of the draw amount, she may not see it until receiving the various documents that require her signature.
read more at: http://www.huffingtonpost.com/jack-m-guttentag/are-hecm-reverse-mortgage_b_8061770.html
Monday, August 31, 2015
Monday, August 24, 2015
When your mortgage feels like a life sentence
That is because the traditional 25-year mortgage term is becoming a thing of the past as desperate buyers stretch their terms to 30 or even 35 years in a bid to make their repayments affordable.
Both first-time buyers and home movers are being forced to borrow larger sums to keep up with spiralling house prices.
While a longer mortgage term will save money at first, it can ultimately cost tens of thousands of pounds extra in total interest repayments.
Despite the dangers, the appetite for longer-term mortgages is soaring, according to new figures from the Mortgage Advice Bureau.
Some 21 per cent of homebuyers are now searching for mortgages lasting 30 years or longer, up from just eight per cent a year ago.
Brian Murphy, head of lending at Mortgage Advice Bureau, says: “Homebuyers are tearing up the rule book by searching for longer-term mortgages to secure cheaper monthly repayments.” He warns that extending your mortgage term will save you money at first but will ultimately cost you dear.
“The added interest that comes with repaying your debt over a longer period can add up to tens of thousands of pounds.”
Murphy says that stretching the repayment of the average mortgage of £151,668 over 30 years rather than 25 would cut payments by £83 a month but ultimately cost an extra £23,297 in total interest by the end of the loan.
Increasing the term to 35 years will cut initial repayments by £141 a month but cost an extra £47,707 over the lifetime of the mortgage.
red more: http://www.express.co.uk/finance/personalfinance/600127/When-your-mortgage-feels-like-life-sentence
Both first-time buyers and home movers are being forced to borrow larger sums to keep up with spiralling house prices.
While a longer mortgage term will save money at first, it can ultimately cost tens of thousands of pounds extra in total interest repayments.
Despite the dangers, the appetite for longer-term mortgages is soaring, according to new figures from the Mortgage Advice Bureau.
Some 21 per cent of homebuyers are now searching for mortgages lasting 30 years or longer, up from just eight per cent a year ago.
Brian Murphy, head of lending at Mortgage Advice Bureau, says: “Homebuyers are tearing up the rule book by searching for longer-term mortgages to secure cheaper monthly repayments.” He warns that extending your mortgage term will save you money at first but will ultimately cost you dear.
“The added interest that comes with repaying your debt over a longer period can add up to tens of thousands of pounds.”
Murphy says that stretching the repayment of the average mortgage of £151,668 over 30 years rather than 25 would cut payments by £83 a month but ultimately cost an extra £23,297 in total interest by the end of the loan.
Increasing the term to 35 years will cut initial repayments by £141 a month but cost an extra £47,707 over the lifetime of the mortgage.
red more: http://www.express.co.uk/finance/personalfinance/600127/When-your-mortgage-feels-like-life-sentence
Tuesday, August 18, 2015
N.J. has highest rate of distressed mortgages in nation, study shows
A greater share of residential mortgages in New Jersey were distressed at the end of the second quarter of this year than any other state in the nation, new data shows.
The data from the Mortgage Bankers Association's National Delinquency Survey shows 10.2 percent of mortgages in the state are either in foreclosure or at least three months behind on payments, according to Patrick O'Keefe, director of economic research with CohnReznick. The national rate stood at 3.95 percent.
O'Keefe wrote in a memo that New Jersey's distressed mortgage rate was the "highest among all states for the seventh consecutive quarter."
The association's survey also shows the percentage of mortgages in New Jersey in the foreclosure process remained top in the nation despite a drop in the state's foreclosure inventory.
"As has been the case since the fourth quarter of 2012, New Jersey, New York, and Florida had the highest percentage of loans in foreclosure in the nation," Marina Walsh, the Mortgage Bankers Association's vice president of industry analysis, said in a statement.
New Jersey's foreclosure inventory rate was 7.31 percent, according to the report, while New York had the second highest rate at 5.31 percent. The report also noted that both states have a judicial foreclosure process.
"New Jersey's relatively slow pace in reducing it distressed mortgage inventory is partially attributable to its status as a 'judicial foreclosure' state," O'Keefe wrote. "Court supervised foreclosures entail procedures that are more rigorous – and time consuming – than administrative actions."
read more: http://www.nj.com/business/index.ssf/2015/08/nj_distressed_mortgages.html
The data from the Mortgage Bankers Association's National Delinquency Survey shows 10.2 percent of mortgages in the state are either in foreclosure or at least three months behind on payments, according to Patrick O'Keefe, director of economic research with CohnReznick. The national rate stood at 3.95 percent.
O'Keefe wrote in a memo that New Jersey's distressed mortgage rate was the "highest among all states for the seventh consecutive quarter."
The association's survey also shows the percentage of mortgages in New Jersey in the foreclosure process remained top in the nation despite a drop in the state's foreclosure inventory.
"As has been the case since the fourth quarter of 2012, New Jersey, New York, and Florida had the highest percentage of loans in foreclosure in the nation," Marina Walsh, the Mortgage Bankers Association's vice president of industry analysis, said in a statement.
New Jersey's foreclosure inventory rate was 7.31 percent, according to the report, while New York had the second highest rate at 5.31 percent. The report also noted that both states have a judicial foreclosure process.
"New Jersey's relatively slow pace in reducing it distressed mortgage inventory is partially attributable to its status as a 'judicial foreclosure' state," O'Keefe wrote. "Court supervised foreclosures entail procedures that are more rigorous – and time consuming – than administrative actions."
read more: http://www.nj.com/business/index.ssf/2015/08/nj_distressed_mortgages.html
Thursday, August 13, 2015
Weekly mortgage applications up just 0.1% as rates stall
Mortgage applications eked out the slightest of gains as interest rates barely budged from a week ago, according to the latest survey from the Mortgage Bankers Association. Total applications increased 0.1 percent from a week ago but are nearly 18 percent above year ago levels.
Refinance applications were the driver, increasing 3 percent from the previous week to the highest level since May, 2015.
"As rates declined over the past few weeks, refinance activity picked up in terms of share and volume in the most recent week's data.The refi share, at 53 percent, was the highest refi share since April and the refi index increased 3.1 percent to reach its highest level since May," said Lynn Fisher, the MBA's vice president of research and economics.
Purchase applications decreased 4 percent from the prior week, but are 20 percent higher than a year ago.
Interest rates for the popular 30-year fixed rate mortgages were unchanged at 4.13 percent for loans for $417,000 or less, known as conforming and stayed at 4.08 percent for jumbo loans (greater than $417,000).
Mortgage lenders say clients are watching rates closely as the Federal Reserve has clearly signals it will move rates higher as the economy improves. Tolbert Rowe, VP with Bay Capital Mortgage in Easton,Maryland, says there's a question if the Fed talk has already been priced into mortgage rates, "I've been telling my clients that it's an event, how it impacts rates, if at all, I'll let you know after it happens."
read more: http://www.cnbc.com/2015/08/12/weekly-mortgage-applications-edge-up-as-rates-stall.html
Refinance applications were the driver, increasing 3 percent from the previous week to the highest level since May, 2015.
"As rates declined over the past few weeks, refinance activity picked up in terms of share and volume in the most recent week's data.The refi share, at 53 percent, was the highest refi share since April and the refi index increased 3.1 percent to reach its highest level since May," said Lynn Fisher, the MBA's vice president of research and economics.
Purchase applications decreased 4 percent from the prior week, but are 20 percent higher than a year ago.
Interest rates for the popular 30-year fixed rate mortgages were unchanged at 4.13 percent for loans for $417,000 or less, known as conforming and stayed at 4.08 percent for jumbo loans (greater than $417,000).
Mortgage lenders say clients are watching rates closely as the Federal Reserve has clearly signals it will move rates higher as the economy improves. Tolbert Rowe, VP with Bay Capital Mortgage in Easton,Maryland, says there's a question if the Fed talk has already been priced into mortgage rates, "I've been telling my clients that it's an event, how it impacts rates, if at all, I'll let you know after it happens."
read more: http://www.cnbc.com/2015/08/12/weekly-mortgage-applications-edge-up-as-rates-stall.html
Sunday, August 9, 2015
Save Money With Smaller Jumbos
Home buyers trying to purchase a pricey property will probably need a jumbo loan—a mortgage that exceeds government limits. But there are different types of jumbos, and some are a little easier and cheaper to get than others.
But first, a handy breakdown for those befuddled by the confounding terminology of the mortgage business:
Conforming mortgages are capped at $417,000 and backed by government agencies, such as Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the Veterans Administration (VA).
Conforming jumbo mortgages exceed $417,000 and can go up to $625,500—the exact limit depends on housing costs in your area. The loans are sometimes called “super conforming loans” or “agency jumbos” because they’re still guaranteed by government agencies.
Jumbo mortgages exceed government limits and, thus, are typically held by the lender as part of its portfolio or bundled and sold to investors as mortgage-backed securities.
Borrowers typically pay lower interest rates on conforming loans than on nonconforming jumbo mortgages. (Rates and qualification requirements vary by lender.)
Escalating home-sales prices are pushing more buyers into both conforming and nonconforming jumbos, says Tim Owens, who heads Bank of America’s retail sales group.
Jumbo mortgage volume totaled about $93 billion in the second quarter of 2015, up 33% over the first quarter, according to Inside Mortgage Finance, an industry publication.
The volume of government-backed conforming jumbos also saw brisk growth, increasing 32% between the first and second quarters to $34.2 billion—more than double since a year ago, Inside Mortgage Finance data show.
“The agency jumbo market is firing on all cylinders—purchase, refinance and every loan program,” says Guy Cecala, publisher of Inside Mortgage Finance. The biggest jump was in FHA jumbo mortgages, with volume up 136% between the first and second quarters, he adds.
The spike in FHA mortgages, in particular, comes after the agency on Jan. 26 reduced its required mortgage-insurance premiums, Mr. Cecala says. Premiums dropped from 1.35% to 0.85% of the balance on fixed-rate FHA loans with terms above 15 years.
More lenient credit requirements spur borrowers to prefer agency jumbo mortgages over nonconforming loans, says Mathew Carson, a broker with San Francisco-based First Capital Group. He is working with a professional couple borrowing $511,000 for a home in Petaluma, Calif., where the government’s loan limit is $520,950. The couple, both first-time home buyers, could opt for a conforming or a nonconforming jumbo loan but chose a conforming jumbo backed by the FHA. Why? The FHA mortgage required a 3.5% down payment, whereas lenders for a nonconforming loan could require the standard 20% down payment.
see more: http://www.wsj.com/articles/save-money-with-smaller-jumbos-1438786011
But first, a handy breakdown for those befuddled by the confounding terminology of the mortgage business:
Conforming mortgages are capped at $417,000 and backed by government agencies, such as Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the Veterans Administration (VA).
Conforming jumbo mortgages exceed $417,000 and can go up to $625,500—the exact limit depends on housing costs in your area. The loans are sometimes called “super conforming loans” or “agency jumbos” because they’re still guaranteed by government agencies.
Jumbo mortgages exceed government limits and, thus, are typically held by the lender as part of its portfolio or bundled and sold to investors as mortgage-backed securities.
Borrowers typically pay lower interest rates on conforming loans than on nonconforming jumbo mortgages. (Rates and qualification requirements vary by lender.)
Escalating home-sales prices are pushing more buyers into both conforming and nonconforming jumbos, says Tim Owens, who heads Bank of America’s retail sales group.
Jumbo mortgage volume totaled about $93 billion in the second quarter of 2015, up 33% over the first quarter, according to Inside Mortgage Finance, an industry publication.
The volume of government-backed conforming jumbos also saw brisk growth, increasing 32% between the first and second quarters to $34.2 billion—more than double since a year ago, Inside Mortgage Finance data show.
“The agency jumbo market is firing on all cylinders—purchase, refinance and every loan program,” says Guy Cecala, publisher of Inside Mortgage Finance. The biggest jump was in FHA jumbo mortgages, with volume up 136% between the first and second quarters, he adds.
The spike in FHA mortgages, in particular, comes after the agency on Jan. 26 reduced its required mortgage-insurance premiums, Mr. Cecala says. Premiums dropped from 1.35% to 0.85% of the balance on fixed-rate FHA loans with terms above 15 years.
More lenient credit requirements spur borrowers to prefer agency jumbo mortgages over nonconforming loans, says Mathew Carson, a broker with San Francisco-based First Capital Group. He is working with a professional couple borrowing $511,000 for a home in Petaluma, Calif., where the government’s loan limit is $520,950. The couple, both first-time home buyers, could opt for a conforming or a nonconforming jumbo loan but chose a conforming jumbo backed by the FHA. Why? The FHA mortgage required a 3.5% down payment, whereas lenders for a nonconforming loan could require the standard 20% down payment.
see more: http://www.wsj.com/articles/save-money-with-smaller-jumbos-1438786011
Tuesday, August 4, 2015
Tight credit environment? Fed survey says it’s getting better
If anyone thinks that a tight credit environment is holding the mortgage market back, then a new survey from the Federal Reserve shows there may be some light at the end of the tunnel.
According to the July 2015 Senior Loan Officer Opinion Survey on Bank Lending Practices, released Monday by the Federal Reserve, banks reported having eased lending standards for a number of categories of residential mortgage loans over the past three months.
The Fed survey results echo a recent Capital Economics report, which showed that credit conditions are gradually loosening, and that a loosening of credit conditions will help the sluggish recovery.
According to the Fed survey, the easing was coming not from government-insured or subprime mortgages, but rather from jumbo residential mortgages that conform to the Consumer Financial Protection Bureau's qualified mortgage rules.
The Fed survey showed that “modest net fractions” of banks indicated that they had eased underwriting standards on residential mortgages, excluding government-insured and subprime mortgages.
Additionally, “moderate fractions” of domestic banks reported that lending standards for all five categories included in the survey (GSE-eligible mortgages, government-insured mortgages, jumbo mortgages, subprime mortgages, and home equity lines of credit) remained at least somewhat tighter than the midpoints of the ranges that those standards have occupied since 2005.
Meanwhile, the vast majority of banks continued to report that they do not extend home-purchase loans to subprime borrowers.
In fact, of the 66 banks surveyed, only five responded that they wrote loans that they categorized as subprime.
The remaining 61 banks answered “My bank does not originate subprime residential mortgages,” the Fed survey showed.
see more: http://www.housingwire.com/articles/34671-tight-credit-environment-fed-survey-says-its-getting-better
According to the July 2015 Senior Loan Officer Opinion Survey on Bank Lending Practices, released Monday by the Federal Reserve, banks reported having eased lending standards for a number of categories of residential mortgage loans over the past three months.
The Fed survey results echo a recent Capital Economics report, which showed that credit conditions are gradually loosening, and that a loosening of credit conditions will help the sluggish recovery.
According to the Fed survey, the easing was coming not from government-insured or subprime mortgages, but rather from jumbo residential mortgages that conform to the Consumer Financial Protection Bureau's qualified mortgage rules.
The Fed survey showed that “modest net fractions” of banks indicated that they had eased underwriting standards on residential mortgages, excluding government-insured and subprime mortgages.
Additionally, “moderate fractions” of domestic banks reported that lending standards for all five categories included in the survey (GSE-eligible mortgages, government-insured mortgages, jumbo mortgages, subprime mortgages, and home equity lines of credit) remained at least somewhat tighter than the midpoints of the ranges that those standards have occupied since 2005.
Meanwhile, the vast majority of banks continued to report that they do not extend home-purchase loans to subprime borrowers.
In fact, of the 66 banks surveyed, only five responded that they wrote loans that they categorized as subprime.
The remaining 61 banks answered “My bank does not originate subprime residential mortgages,” the Fed survey showed.
see more: http://www.housingwire.com/articles/34671-tight-credit-environment-fed-survey-says-its-getting-better
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