Monday, October 12, 2015

New rules to make mortgage shopping less clunky

Shopping for a new home now? Or planning to go house hunting this spring? You'll want to pay attention to some new mortgage disclosures that rolled onto the scene beginning in October.

The goal is to protect consumers from taking on too big of a mortgage, rushing into a loan before they understand the real cost or signing documents without realizing they're agreeing to some cumbersome conditions.

"It's designed to bring the prospective home buyer into a better position to understand the whole transaction," said Andy Slettebak, director of lending for the non-profit NeighborWorks America.

Janneke Ratcliffe, assistant director of the Office for Financial Education at the Consumer Financial Protection Bureau, said the new disclosures are an improvement compared with previous disclosures. They were created to be easier to read and give consumers more information up front about the home-buying process. Three key features, she said, are:

1. A lender now must provide you a Loan Estimate Form within three days of receiving your application.

The three-page Loan Estimate discloses the estimated costs of taxes and insurance, and how the interest rate and payments may change in the future. You could spot potential risks associated with the loan, such as if this particular product possibly includes a penalty for paying the loan off early. Or maybe there's a balloon payment — a larger than usual one-time payment at the end of the loan.

One key bit of detail: This form allows you to better compare loans by seeing how quickly you'd reduce the loan principal in five years. You'd see the total mortgage-related costs over five years.

Do some shopping for mortgages and a home before obtaining a Loan Estimate.

Before you receive this new document, you need to provide the lender with your name, your income, your Social Security number, the property address, an estimated value of the property and the desired mortgage.

2. Consumers must receive their closing documents at least three days before closing so they have a real chance to review the paper work.

Here's where some extra consumer protection could shake up the process a bit.  The new three-day window gives you a chance to compare your final terms to what you received earlier in that loan estimate. You'd receive a five-page closing disclosure.

You'd know exactly what cash you need to bring to the closing table. You'd also want to check such things as your interest rate, loan amount, and monthly payment. You can see what you'd be charged for a late payment

Douglas Robinson, a spokesman for the non-profit NeighborWorks America, said some consumers had complained during the foreclosure crisis that the closing documents that were brought to the table were different from what was presented earlier. Now, consumers would have more time to review the terms and get more information if they want.

see more : http://www.usatoday.com/story/money/columnist/tompor/2015/10/11/new-rules-make-mortgage-shopping-less-clunky/73592806/

Friday, September 18, 2015

30-year mortgage rates rise again

For the second straight week, average long-term U.S. mortgage rates inched up this week as financial markets awaited the Federal Reserve's crucial decision on interest rates.

Mortgage giant Freddie Mac said Thursday the average rate on a 30-year fixed-rate mortgage edged up to 3.91 percent from 3.90 percent a week earlier. The rate on 15-year fixed-rate mortgages rose to 3.11 percent from 3.10 percent.

Capping months of feverish speculation, Fed policymakers may finally raise a key interest rate on Thursday. A rate hike by the Fed could bring higher rates for home loans. The Fed has kept its key short-term rate at a record low near zero since the financial crisis struck seven years ago.

With the job market now considered essentially recovered from the Great Recession, many economists say it's time to start edging toward normal rates. Others argue that many other factors — notably a sharply slowing China, the tumult in markets and persistently less-than-optimal inflation — raise serious concerns. They say the Fed should wait, until later this year or even 2016.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

read more: http://www.latimes.com/business/la-fi-mortgage-rates-20150917-story.html

Monday, September 7, 2015

Introducing the Kosher HECM Reverse Mortgage

The kosher stamp on a food means that it has been certified as fit for human consumption. We have long needed a comparable certification process applicable to financial instruments sold to consumers, with the need most pronounced for the more complex instruments. HECM reverse mortgages are at the top of that list. They are extremely complex, and markedly different from the standard mortgages that many seniors learned about when they took one earlier in their lives to purchase homes.

This article summarizes the dysfunctional features of the existing non-kosher market, and describes the major features of the kosher version.

Existing Market Failure

The mainstream HECM market is the most dysfunctional of all the major financial service markets. Lenders don't display their prices anywhere, and borrowers don't price shop. Most originators always charge the maximum origination fee allowed by law, regardless of how much they are making on the transaction. Markups are 2.5 to 3 times larger than in the standard mortgage market, though the work load is much the same. The details are set out in my Wharton working paper HECM Reverse Mortgages: Is Market Failure Fixable?

The Kosher HECM is designed to maximize the benefits a senior receives from a reverse mortgage, and avoid the hazards inherent in a very complicated transaction. The following are its major features as compared to the non-kosher alternatives.

Features of the Kosher HECM

Optimizing the Selection of HECM Options With the Kosher Calculator: A major positive feature of HECMs is the wide range of options available to seniors for withdrawing funds. They can draw cash up front, get a monthly payment for a specified period, take a credit line, or combinations of two or three of these. In addition, they can alter these combinations in the future. But this introduces enormous complexity, and a danger that the borrower may make poor choices.

To reduce this risk, we created a free Kosher HECM calculator that allows a senior to see exactly what the options are in the sense of, e.g., "If I take less of this, how much more can I draw of that?" The calculator determines option amounts using the lowest of the competitive prices posted by participating lenders. It also shows the combination of interest rate and origination fee that generates the lowest cost over the borrower's time horizon. In addition, the calculator shows the changes in the senior's future finances that would result from any combination of draw options taken now.

The Non-Kosher Alternative: No existing calculator shows users the tradeoffs between different draw options, or the consequences for their future finances. Part of my game plan is an offer to license and maintain the Kosher HECM calculator at no charge for HUD, the Consumer Financial Protection Bureau, and perhaps others.

Optimizing the Selection of HECM Options With Disinterested Option Experts: Because not all seniors can navigate the Kosher HECM calculator on their own, we have created a group of "option experts" to offer seniors free and disinterested help in assessing Kosher HECM options when they are in an exploration stage. In addition to my staff, the option experts are a select group of reverse mortgage brokers and loan officers who are proficient in the use of the calculator, who will advise on how best to integrate an HECM into a longer-range retirement plan, and who provide their services pro bono.

Seniors are assigned to an expert who is not licensed to originate loans in the senior's state. This eliminates any financial inducement to steer a senior in one or another direction. The experts have no financial interest in whether or not the senior ends up with a HECM.

The Non-Kosher Alternative: Draw option decisions are often made haphazardly, usually to meet pressing financial needs. There are no financial tools that balance one type of draw against others or project results over future years.

see more: http://www.huffingtonpost.com/jack-m-guttentag/introducing-the-kosher-he_b_8096962.html

Tuesday, September 1, 2015

Freddie Mac Issues Outlook for 2015 and 2016

Freddie Mac has now released its monthly Insight & Outlook for August of 2015. While the group is saying that there is no single statistic pegging when a housing market is overvalued or likely to fall, the real goodies are highlighted in some of the basic statistics and forecasts. Included is an infographic on Freddie Mac’s economic and housing market projections for the rest of 2015 and for 2016.


Refinance activity is driving much of the mortgage market right now. They noted:

Due to stronger-than-expected refinance activity and home sales, estimate of 2015 mortgage originations have been increased to $1.45 trillion and 2016 originations to $1.3 trillion.
Increased projection of 2015 home sales to 5.73 million units, which would be the best year since 2007.
Revised 2015 refinance share up to 46% of all single-family mortgage originations.

Here were some of the second quarter refinance highlights for 2015:

Cash-out refinances increased from 27% of refinances in the first quarter of this year to 34 percent in the second quarter. A year ago, the cash-out share was 22 percent. During the housing boom, the cash-out share peaked at 89 percent in the third quarter of 2006.
An increasing share of refinancing borrowers chose to shorten their loan terms. Of borrowers who paid off a 30-year fixed-rate loan in the second quarter, 40 percent chose a 15-or 20-year loan, compared to 39 percent in the first quarter.
Freddie Mac compared actual losses on low down payment loans to losses on 20% down payment loans over the 10-year period 2003-2013. This includes the housing crisis, as follows:

30-year fixed rate loans with 3% down payments were 17% riskier than 20% down payment loans over that period. They did note that it was “only” that much riskier.
7/1 ARMs were 155% riskier than 30-year fixed rate mortgages over the same period.
5/1 ARMs were 5-times as risky than 30-year fixed rate mortgages over the same period.
On affordability, Freddie Mac said that there is a surprising amount of disagreement among the various measures of overvaluation. The same metro area may be tagged as overvalued by one metric and undervalued by another measure.
An image of a table has been provided from Freddie Mac, along with 2015 and 2015 outlooks in economic readings and on housing statistics:



Read more: http://247wallst.com/housing/2015/08/31/freddie-mac-issues-outlook-for-2015-and-2016/

Wednesday, August 26, 2015

ABOUT TIME: Cost to originate mortgages finally gets cheaper

After barely surviving the subprime crisis and housing collapse, and then enduring the agony of burdensome regulatory changes and the advent of a new mortgage watchdog, mortgage originators finally, FINALLY, have some good news to spread.

Well, it only took about 8 years but...  the Mortgage Bankers Association just said that total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – decreased to $6,984 per loan in the second quarter of 2015, from $7,195 in the first quarter of 2015.

This is after years of mortgage production cost slowing inching their way up into the stratosphere. Here's a laundry list of that sad, cruel progression.

What's more, independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $1,522 on each loan they originated in the second quarter of 2015, up from a reported gain of $1,447 per loan in the first quarter of 2015,reported today in its Quarterly Mortgage Bankers Performance Report.

“Average company production volume was up in the second quarter, as purchase volume grew and mortgage pipelines from the first quarter’s refinance boomlet closed,” said Marina Walsh, MBA’s Vice President of Industry Analysis. “The production volume increase resulted in a nominal decrease in per-loan production expenses, which offset a decrease in secondary marketing income.

“However, by historical standards, production expenses remained elevated given that the average company production volume was at the highest level since inception of the study in 2008,” she said.

Other key findings of MBA’s Quarterly Mortgage Bankers Performance Report include:

see more at: http://www.housingwire.com/articles/34862-about-time-cost-to-originate-mortgages-finally-gets-cheaper

Thursday, August 20, 2015

Factors to consider on interest-only mortgages

Don't call it a comeback.

Interest-only mortgages got a bad reputation in the aftermath of the housing bust, but they've managed to stick around as an option for homebuyers who can meet stricter lending guidelines enacted by the government in recent years.

The loans can lower monthly mortgage payments by letting borrowers put off paying the principal on their loan for several years. When the interest-only period ends, the borrower's monthly payment spikes as they begin to pay a combination of principal and interest until the loan is paid off.

That monthly payment shock, often accompanied by a higher interest rate on adjustable-rate interest-only loans, is what got many borrowers in trouble a decade ago.



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One reason is that many of those borrowers qualified for their loans on the basis of their ability to repay the lower, interest-only payment. When their monthly payment reset higher, many couldn't keep up.

That's no longer the case. Now lenders are required to determine whether borrowers qualify for any interest-only loans, or other adjustable-rate mortgages, based on whether they can afford to make the eventual bigger monthly payments that await them once the initial interest-only period ends.

As a result, such interest-only loans now make up only about 0.2 percent of all adjustable-rate mortgages, or ARMs, which account for about 4 percent of all home loans for purchase and refinancing, according to data from CoreLogic.

Use of interest-only mortgages peaked 10 years ago at the height of the housing bubble at around 10 percent of all ARMs.

"The big difference here is interest-only loans are back to being the niche product that they traditionally had been," said Greg McBride, chief financial analyst at Bankrate.com. "The go-go days of the housing boom were the exception."

Still, rising home prices can make interest-only loans a tempting option for borrowers who are interested in a lower mortgage payment and can qualify for such a loan under today's stricter guidelines.

At least one lender is looking to expand access to interest-only loans to a broader range of homebuyers, not just the affluent buyers who typically take advantage of such loans.

Last month, United Wholesale Mortgage began making interest-only home loans through its network of mortgage brokers. The loan program covers mortgages as low as $250,000. That's just above the U.S. median home price of $236,400, but well below the recent median price in Southern California of $426,000.

Even with today's stricter guidelines aimed at ensuring borrowers can handle interest-only loans, they carry potential financial risks. Here are some things to consider when weighing whether such a loan is right for you:

read more: http://www.sltrib.com/home/2856006-155/factors-to-consider-on-interest-only-mortgages

Friday, August 14, 2015

There Are Actually 3 Types of Reverse Mortgages

If you are considering taking out a reverse mortgage home loan, there are three different types to consider. We'll give you the details so you can better decide which one is right for you.


Home Equity Conversion Mortgage (HECM)

The most popular of the three reverse mortgage types is the Home Equity Conversion Mortgage (HECM). This is considered the most commonly issued loan of this type, according to the HUD. One reason: it often comes with lower rates and lesser fees than those that would be offered by private lenders. In addition, the FHA backs these loans, making them a more lucrative option for the banks that issue them.

Qualifications include:
You have to be at least 62 years old.
You have equity on your home.
Your home must meet certain building requirements.
You must have undergone reverse mortgage counseling.
There are no income or credit requirements.
Since these loans are FHA backed, they do have some conditions that must be met. These include:
There are loan limits, and the loan can't exceed 100% of the home's value.
A Mortgage Insurance Premium (MIP) is required for all HECM reverse equity loans.
Reverse Annuity and Home Equity Conversion Mortgages
The other option that you have is with reverse annuity and home equity conversion mortgages. A reverse annuity mortgage comprises an agreement between the lender and the homeowner, where the homeowner borrows against existing equity in the home. The money borrowed has to be repaid only when the home is refinanced or is sold. While reverse annuity mortgages do have three different classes, the most common is the Home Equity Conversion Mortgages (HECM) because it's backed by the FHA.

Private Company Reverse Mortgage

It is possible to get a non-FHA backed loan of this type, commonly referred to as a private company reverse mortgage. But these types of mortgages are typically based upon income and credit score as well as existing home equity, since they are privately backed, and can often come with higher interest rates and more fees because they are offered by private lenders.

If you are considering a reverse mortgage loan, make sure you take the time to research all of your options. You will likely arrive at the conclusion that an HECM loan is the best suited for your needs, namely due to how lucrative they are in comparison to your other borrowing options.

see more: http://www.huffingtonpost.com/michael-lazar/there-are-actually-3-types-of-reverse-mortgages_b_7976494.html

Monday, August 10, 2015

Sunshine State Spotlight: Rise In Reverse Mortgages Set Example For The Rest Of The Country


With the economy recovering from the Great Recession and home values rising in Florida, Donna Linton says all of this is paving the way for more people in her home state to turn to reverse mortgages, including those who want to use them to take their dream vacations.

Linton, a loan originator with Sterling Mortgage Services in Stuart, about 100 miles north of Miami, says a rebound in the local housing market has helped with people turning back to reverse mortgages in the Sunshine State.

"It's picking up, definitely getting better," Linton says. "When home appraisals were down, it was difficult. People interested in getting reverse mortgages don't want to hear that their homes aren't worth what they think they are. Now, that is turning around, and the appraisals are even higher than the estimates I am putting down."

With that untapped potential in their homes being revealed, those seeking a reverse mortgage in her region appear to be younger these days than in the past, with many in their late 60s and early 70s, Linton says. She's not seeing as many older clients in their 80s.

"It's people that just need a little more income or maybe want to have some more money to do more things they don't quite have enough money to do without it, like take a vacation - people like cruises," Linton says. "It's a little more money to enjoy their retirement with."

Linton says her focus is to get more financial advisors and real estate agents interested in getting their clients to consider reverse mortgages. That's an untapped market that's going to help the industry grow, she says.

There are many people who don't want to dip into their stock portfolios or investments or want to maximize their Social Security benefits by waiting until they're age 70 to take them, thus increasing their benefits by 32 percent a month. But they might need extra money to get them there - and a reverse mortgage can bridge that gap.

"A line of credit can be a lucrative thing," Linton says. "It's a very good tool for financial advisors to use if they will take the time to study it. They will understand it will not be a detriment to their client but help them. If they have to sell stocks in a down market, why would they want to do that. If they want to take it from an investment, there might be a penalty. With a reverse mortgage, the money is in a line of credit, and they can draw on that instead. It's a better idea."

The other opportunity is getting realtors interested in the concept, Linton says. There's a lot of opportunity, especially in markets like Florida, for people to use a HECM For Purchase, like this couple did to buy their dream home.

"They look at me like I have four heads, mostly because they are uninformed or don't understand now it works," Linton says.

Many people are coming down to Florida after selling their homes in the Midwest or Northeast and have cash to put down, Linton says. Some are choosing to buy a small condo without realizing they can use a reverse mortgage to buy something a lot bigger than they thought they could otherwise. All they have to do is put 50 percent down, and a reverse mortgage will cover the rest without anymore mortgage payments, she says.

"You can have a lot more home than you thought you could. It just makes a lot of sense, but people don't understand how it works," Linton says. "I'm working on changing that."

Federal regulatory changes about the use of reverse mortgages has helped reduce the skepticism and negativity that some people and advisors have had for their use, Linton says. For example, doing a financial assessment on the borrower will help, because about 10 percent of reverse mortgages were going into foreclosure because people couldn't afford to pay their taxes and insurance, Linton says. They were living on Social Security, taking out loans and using up the money.

"They couldn't afford those payments and unfortunately when you have people 70 and 80 years old that you're going to have to foreclose on, that's not a good situation," Linton says. "But now it will be much better that we will know for sure that these people are able to afford to keep up their payments and go forward with their reverse mortgages. It will be a much better situation for them."

see more: http://www.huffingtonpost.com/buck-wargo/sunshine-state-spotlight-_b_7942566.html

Thursday, August 6, 2015

Should You Consider a Reverse Mortgage?

As financial devices, reverse mortgages (RMs) are like 3-D printers. They can do some interesting and useful things, but they are complex and can be expensive.

Reverse mortgages were originally designed for those who came up a little short when they reached retirement age. Today, however, they are being used for purposes other than just retirement income.

Should you consider a reverse mortgage? Read on to learn about what they are, how you can use them, what they cost, and their drawbacks.

What They Are
Unlike traditional mortgages, which require a monthly payment to pay off principal and interest, RMs tap the equity in your primary residence to provide you a monthly payment or lump sum. You can take out an RM on a home you've been living in for a long while, or one you're buying. It's a loan that uses your home as collateral. You defer paying off the loan until you move out, sell, or die.

As products that didn't exist before 1990, RMs are relative newcomers to the home-finance world. Their volume has grown from less than 200 loans some 25 years ago to more than 51,000 last year. The biggest year was 2009, when more than 114,000 RMs were originated, according to the U.S. Department of Housing and Urban Development (HUD), which insures the loans through its Federal Housing Administration. Although the current market for RMs is relatively small--only about 3% of those who qualify have them--they are expected to grow in popularity as baby boomers age.

The first RMs, also known as Home Equity Conversion Mortgages, were variable-rate products that adjusted monthly. HUD capped their volume until 1998, when the government allowed 150,000 RMs to be issued annually. Their popularity boomed immediately before and after the housing boom (2006-11), as more homeowners tapped their equity for a variety of purposes.

The housing bust, which resulted from the popping of a credit bubble in 2007, forced some RM holders into difficult financial situations, which were compounded by job losses and a recession. Some 10% of reverse-mortgage holders faced defaults when they were unable to pay property tax or insurance bills.

see more: http://news.morningstar.com/articlenet/article.aspx?id=709015

Wednesday, August 5, 2015

J.P. Morgan Loosens Terms for Jumbo Mortgages

 J.P. Morgan Chase & Co. is loosening its underwriting criteria for big mortgages, as lenders ramp up competition to grab a bigger share of the high-end housing market.

The nation’s largest bank by assets plans to announce Wednesday that it is lowering the minimum credit score and down payment it requires for mortgages as big as $3 million.

The New York firm’s moves follow similar steps at Bank of America Corp. , Wells Fargo & Co. and other banks on requirements for “jumbo” mortgages—those that exceed $417,000 in most parts of the country or $625,500 in pricier markets. At the same time, some big banks are backing away from smaller loans where they see higher regulatory costs and litigation risks.

Since the financial crisis, a recovery in the mortgage market has faced several challenges, but the jumbo market—popular with well-heeled borrowers—has bounced back along with sales of higher-priced homes. In the second quarter, overall jumbo originations rose to an eight-year high of $93 billion, up 58% from a year ago, according to a preliminary estimate from industry newsletter Inside Mortgage Finance.

By dollar volume, jumbo mortgages given out by lenders last year accounted for about 20% of all first-lien mortgages, used mostly to purchase or refinance a home, according to Inside Mortgage Finance. That is up from 5.5% in 2009. The last time jumbo mortgages accounted for a larger share was in 2005.
“There’s no question that the jumbo market has probably recovered more than any sector of the mortgage market since the housing crisis,” said Guy Cecala, publisher of Inside Mortgage Finance.

Lenders have more flexibility to change criteria for jumbo mortgages, as they generally hold them on their own books. Many smaller home loans are sold by lenders to mortgage-finance giants Fannie Mae and Freddie Mac, and must conform with their criteria.

source: http://www.wsj.com/articles/j-p-morgan-loosens-terms-for-jumbo-mortgages-1438709863