Mortgage News

Cohen Financial News

House OKs mortgage protections
Bill seeks to curb abuses of lenders
Bloomberg News
Date:

Article tools
E-mail Share

The House approved legislation yesterday to strengthen consumer protections
for mortgage borrowers as Congress seeks to curb the lending abuses that
contributed to the subprime-mortgage crisis.

The measure, approved 291-127, would require lenders to ensure potential
borrowers have the ability to repay their mortgages and strengthen oversight of
mortgage brokers. It now goes to the Senate.

The bill "seeks to prevent a repetition of events that caused one of the most
serious financial crises in recent times," said Rep. Barney Frank, the
Massachusetts Democrat who chairs Financial Services Committee.

The measure, introduced last month by Rep. Brad Miller, a North Carolina
Democrat, is part of a broader effort in Congress to curb foreclosures,
strengthen consumer protection and restore confidence in the credit markets
after the subprime-mortgage meltdown.

Passage of the legislation would be a setback for the mortgage industry, which
opposes provisions to require lenders to ensure borrowers have a "reasonable"
ability to repay. The bill also would hold companies that package mortgages
into securities responsible for loans that don't meet certain standards.

Opposed by industry
The mortgage industry said the legislation would constrain credit and increase
the number of lawsuits against the industry.
The White House released a statement yesterday opposing those provisions,
saying they "unduly restrict access to credit for potential homebuyers and
reduce refinancing opportunities for current homeowners."

Republicans tried unsuccessfully to dilute the legislation with amendments,
echoing the concerns of the mortgage industry.

"This proposal is a trial lawyer's dream," said Rep. Ed Royce, a California
Republican. "This kind of murky language will invite litigation from every
borrower who misses a payment."

Another point of contention is that the legislation wouldn't override most state
mortgage laws that have stronger provisions. The mortgage industry has
pressed for a uniform national standard, arguing that having to comply with 50
different state laws raises the cost of lending.

In the Senate, Sen. Christopher J. Dodd, a candidate for the Democratic
presidential nomination who also chairs the banking committee, said that he
plans to introduce a companion bill soon.

Strong enforcement
Dodd's measure would establish standards against abusive practices, such as
prepayment penalties and loan steering, and would "provide for strong
enforcement to ensure that those standards are met," the Connecticut
Democrat said in a statement.
U.S. home foreclosures doubled in the third quarter from a year earlier,
according to a report this month by RealtyTrac. There were 635,159
foreclosure filings in the quarter, the research company said.

Reverse Mortgages: Get the Facts Before Cashing In
On Your Home’s Equity
by John Cohen

Whether seeking money to finance a home improvement, pay off a current mortgage,
supplement their retirement income, or pay for healthcare expenses, many older Americans
are turning to “reverse” mortgages. They allow older homeowners to convert part of the
equity in their homes into cash without having to sell their homes or take on additional
monthly bills.

In a “regular” mortgage, you make monthly payments to the lender. But in a “reverse”
mortgage, you receive money from the lender and generally don’t have to pay it back for as
long as you live in your home. Instead, the loan must be repaid when you die, sell your
home, or no longer live there as your principal residence. Reverse mortgages can help
homeowners who are house-rich but cash-poor stay in their homes and still meet their
financial obligations.

To qualify for most reverse mortgages, you must be at least 62 and live in your home. The
proceeds of a reverse mortgage (without other features, like an annuity) are generally tax-
free, and many reverse mortgages have no income restrictions.

Three Types of Reverse Mortgages
The three basic types of reverse mortgage are: single-purpose reverse mortgages, which
are offered by some state and local government agencies and nonprofit organizations;
federally-insured reverse mortgages, which are known as Home Equity Conversion
Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban
Development (HUD); and proprietary reverse mortgages, which are private loans that are
backed by the companies that develop them.

Single-purpose reverse mortgages generally have very low costs. But they are not available
everywhere, and they only can be used for one purpose specified by the government or
nonprofit lender, for example, to pay for home repairs, improvements, or property taxes. In
most cases, you can qualify for these loans only if your income is low or moderate.

HECMs and proprietary reverse mortgages tend to be more costly than other home loans.
The up-front costs can be high, so they are generally most expensive if you stay in your
home for just a short time. They are widely available, have no income or medical
requirements, and can be used for any purpose.

Before applying for a HECM, you must meet with a counselor from an independent
government-approved housing counseling agency. The counselor must explain the loan’s
costs, financial implications, and alternatives. For example, counselors should tell you about
government or nonprofit programs for which you may qualify, and any single-purpose or
proprietary reverse mortgages available in your area.

The amount of money you can borrow with a HECM or proprietary reverse mortgage
depends on several factors, including your age, the type of reverse mortgage you select, the
appraised value of your home, current interest rates, and where you live. In general, the older
you are, the more valuable your home, and the less you owe on it, the more money you can
get.

The HECM gives you choices in how the loan is paid to you. You can select fixed monthly
cash advances for a specific period or for as long as you live in your home. Or you can opt for
a line of credit, which allows you to draw on the loan proceeds at any time in amounts that
you choose.You also can get a combination of monthly payments plus a line of credit.

HECMs generally provide larger loan advances at a lower total cost compared with
proprietary loans. But owners of higher-valued homes may get bigger loan advances from a
proprietary reverse mortgage. That is, if you have a higher appraised value without a large
mortgage, then you may likely qualify for greater funds. Location (for example, your
neighborhood) is only one part of the determination of appraised value.

Loan Features
Reverse mortgage loan advances are not taxable, and generally do not affect Social Security
or Medicare benefits. You retain the title to your home and do not have to make monthly
repayments. The loan must be repaid when the last surviving borrower dies, sells the home,
or no longer lives in the home as a principal residence. In the HECM program, a borrower
can live in a nursing home or other medical facility for up to 12 months before the loan
becomes due and payable.
As you consider a reverse mortgage, be aware that:

Lenders generally charge origination fees and other closing costs for a reverse mortgage.
Lenders also may charge servicing fees during the term of the mortgage. The lender
generally sets these fees and costs.
The amount you owe on a reverse mortgage generally grows over time. Interest is charged
on the outstanding balance and added to the amount you owe each month. That means your
total debt increases over time as loan funds are advanced to you and interest accrues on the
loan.
Reverse mortgages may have fixed or variable rates. Most have variable rates that are tied to
a financial index and will likely change according to market conditions.
Reverse mortgages can use up all or some of the equity in your home, leaving fewer assets
for you and your heirs. A “nonrecourse” clause, found in most reverse mortgages, prevents
either you or your estate from owing more than the value of your home when the loan is
repaid.
Because you retain title to your home, you remain responsible for property taxes, insurance,
utilities, fuel, maintenance, and other expenses. So, for example, if you don’t pay property
taxes or maintain homeowner’s insurance, you risk the loan becoming due and payable.
Interest on reverse mortgages is not deductible on income tax returns until the loan is paid
off in part or whole.

No Slowdown in Foreclosure Filings
Hardest-hit cities are on coasts and in Rust Belt,
according to a new survey
By Les Christie, CNNMoney.com staff writer
Nov. 14, 2007

NEW YORK - California, Florida, and Ohio continue to
dominate new foreclosure filings, as most of the nation
saw increases in the third quarter, according to a new
survey.

During the period ended Sept. 30, 77 out of the nation's 100 largest
metropolitan areas reported rises in delinquencies compared with the previous
three months, according to the latest report from RealtyTrac, an online
marketer of foreclosure properties.

The three most affected states reveal the two main causes of mortgage
payment problems: economic weakness, as exemplified by Ohio, and
speculative excess that led to high home prices and unaffordable mortgages,
as represented by California and Florida.

Making Good on a Bad Real Estate Bet

In the past few months, the foreclosure story has become a tale of two regions.
Some of the hardest-hit states have traditionally been in the Midwest, where
plant closings and job losses have hit the economy there hard.

The other region is the Sun Belt, which is showing even more significant
foreclosure growth as out-sized price increases in the first half of the decade
led to virtually unchecked real estate speculation.

According to the Center for Responsible Lending, 7.2 million households have
subprime mortgages, and more than 14 percent of those are in default. It
projects that one of every five of those loans issued in 2005 and 2006 will end
in foreclosure, with 2.2 million families losing their homes.

Not every state has been clobbered, according to James Saccacio,
RealtyTrac's CEO. "There continue to be pockets of the country - most
noticeably metro areas in the Carolinas, Virginia, and Texas - that have thus far
dodged the foreclosure bullet," he said in a statement.

But, nationally, foreclosure filings, which include all three main stages of
foreclosure, default, or late payments, auction and real estate owned
(properties reacquired by lenders and now being resold), were up 30 percent
compared with the previous three months.

Among metro areas, the highest delinquency rate was in Stockton, Calif., which
totaled 7,116 filings during the three-month period, one for every 31
households. Second was the Detroit area with one per 33 households and a
total of 25,708. Half the cities in the top 10 were in California.

Several Massachusetts cities experienced huge delinquency jumps during the
quarter. Boston filings soared 146 percent to one per every 220 households,
Springfield's increased 151 percent (one per 172) and Worcester 122 percent
(one per 150).

Filings in the Providence, R.I./ New Bedford, Mass. area climbed a whopping
295 percent, albeit from a low base, to one for every 549 households.

The metro areas least affected include Greenville, S.C. (one per 3,289),
McAllen, Texas (one per 2,185) and Baton Rouge, La. (one per 2,074).

Making Good on a Bad Real Estate Bet

Call 1-800-928-6154

You need Java to see this applet.