Our friends in Washington are taking the “kitchen sink” approach to the Great American Mortgage Crisis: Throw everything at the problem, including the kitchen sink, and see if it somehow improves.
Last week, Federal Reserve Chairman Ben Bernanke asked lenders to cut the principal on troubled mortgages to make payments cheaper for borrowers. Fed officials signaled they will probably cut interest rates again next week. Fannie Mae, Freddie Mac and the Federal Housing Administration eased the lending limits on their loans. And legislators kicked around the idea of reviving a New Deal program to help people buy their homes out of foreclosure.
Unfortunately, some of the ideas that are getting the most attention will do little to fix the crisis. In fact, a cut in interest rates could make things worse. The best idea – re-creating a New Deal housing program – has not yet made it to the drawing board.
“Everything that's being done is on the periphery, but nothing done so far will really stabilize the market,” said David McDonald, president of the San Diego chapter of the California Association of Mortgage Brokers.
Here's a look at the proposed changes, from the worst to the best:
Interest rate cut. In the past two weeks, several Fed officials, including Bernanke, Vice Chairman Donald Kohn and Sandra Pianalto, head of the Fed branch in Cleveland, dropped hints that they will cut the federal funds rate when they meet March 18. That has raised hopes that mortgage rates will soften, easing the pain for borrowers with adjustable rates.
But to make the cut, the Fed will pump more money into the economy, which devalues the dollar and boosts inflation. That can drive down the long-term bond market, raising the rate on 30-year mortgages.
“The last two times the Fed dramatically reduced the fed funds rate, (long-term) mortgage rates went in opposite directions. It's been terrible,” said Mark Goldman, mortgage consultant with Windsor Capital Mortgage Corp.
Cutting the principal. Bernanke said last week that before foreclosing on a home, banks should try to make the mortgage more affordable by lowering the principal to reflect its current market value.
That's a nice ivory-tower idea, but would it work in real life?
Bernanke is asking lenders to rewrite their loans even though most loans are out of their hands. Instead, they have been packaged and resold to investors around the globe.
“The lenders are under contractual obligations to their investors,” said Norm Miller, real estate economist at the University of San Diego. “Any proposal that changes the terms of the contracts would just not fly unless it clearly maximizes the net present value or minimizes losses.”
Consider the implications. More than 10 percent of homeowners have mortgages that exceed their home's value. Some analysts say that number could top 30 percent this year. Does Bernanke expect lenders to rewrite all those loans? If so, what will happen a year from now if property values decline further?
“When you goof around with a contract, you get away from the stability that investors count upon,” said T.J. Knowles, a mortgage broker at CalBrokers in San Diego. “Who in the world would invest in mortgages if they know the bank might rewrite the terms? And then banks will get more restrictive in their lending because they won't know which investors will buy them.”
Cutting government loan limits. Last week, government-sponsored lenders lifted the caps on “conforming” loans to let more people take advantage of their relatively low rates. The upper limits on loans from Fannie Mae, Freddie Mac and the FHA were once $417,000. Now those limits are being boosted nationwide. In San Diego's case, the new cap amounts to $697,500.
But when Fannie Mae and Freddie Mac lifted the cap, they raised their fees and tightened lending restrictions, meaning fewer borrowers will qualify.
“This does absolutely nothing for anybody who isn't a perfect borrower. And for a perfect borrower, it does not do much,” Knowles said. “Fannie Mae and Freddie Mac have always required full documentation and very high credit scores for loans. Now that they've lifted the cap, those restrictions are going to get tighter because there's more risk.”
Raising the limit on FHA loans could help the market more, since the FHA has fewer restrictions and aims at downscale borrowers. But even then, “it's not as if there's going to be an earthquake of activity,” Goldman said.
Back to the future. So far, the best ideas are proposals to revive two programs created by Franklin Roosevelt in the heart of the Great Depression.
Congress is working to bolster the FHA, which Roosevelt created in 1934 to stabilize the weak housing market. In the past few years, the FHA has insured as few as 3 percent of U.S. loans, undercut by lenders who were offering no-documentation, no-equity, adjustable-rate mortgages. Now that those lenders have gone belly up, the FHA could help stabilize the market.
Rep. Barney Frank, D-Mass., is pushing to help the FHA refinance 1 million troubled homeowners, as long as lenders agree to reduce their principal. Although cuts in principal could be problematic, Frank's bill is only one indication of the renewed interest in the FHA.
In the meantime, Sen. Christopher Dodd, D-Conn., is pushing to re-create the Home Owners' Loan Corp., or HOLC, a New Deal agency that helped defaulted borrowers buy their homes out of foreclosure with low-interest, long-term loans. Dodd proposes putting $20 billion into a similar program that would be embedded within an existing government agency, such as the FHA.
If the past is any indicator, this money would not be wasted. Ninety percent of the HOLC's loans were repaid, making it one of those rare government agencies that turns a profit. The concept has drawn support from both the conservative American Enterprise Institute and the liberal Center for American Progress.
“It's not like I'm creating something altogether new,” Dodd told reporters last week. “In fact, it goes back a long time.”
But sometimes, judging from the current crop of proposals, old ideas are the best.
http://www.signonsandiego.com/
Sunday, March 9, 2008
Darling to introduce 25-year fixed mortgages
Home owners will be able to take out mortgages at interest rates fixed for as long as 25 years under Budget plans to restore stability to a housing market plunged into crisis by the recent global credit crunch.
Alistiar Darling, the Chancellor of the Exchequer, is due to unveil his first Budget
The most reliable customers will also get access to "gold standard" loans at much cheaper rates than poorer, high-risk borrowers.
In a tacit admission that Labour has overseen a high-risk boom in house prices, Alistair Darling, the Chancellor, will encourage mortgage lenders and consumers to use long-term loans to make the UK market less volatile.
From this week, mortgage lenders will be able to use new rules to offer more long-term fixed-rate mortgage deals, with interest rates set to be fixed for as long as 25 years.
Ministers are concerned that the "boom-and-bust" nature of British house prices risks wider economic stability and makes many households vulnerable to even relatively small fluctuations in interest rates.
Long-term mortgages are commonplace in many European economies, but relatively rare in the UK.
Only a handful of lenders currently offer fixed-term loan rates longer than five years, and those deals available are typically more expensive than short-term offers.
Mr Darling's long-term mortgage plans are based on giving mortgage lenders greater freedom to raise money using covered bonds - a loan secured against a pool of assets that "covers" the loan if the issuer collapses.
But Treasury officials accept that any plan for lenders to make more use of such financing will face obstacles in the current banking climate.
Since last summer, many banks have suffered huge losses as they had bought bonds and other debt instruments that were ultimately secured on "sub-prime" mortgage customers whose low incomes and limited assets made them more likely to default on their repayments.
That has left many banks extremely wary of investing in mortgage-backed securities, where banks package their debt and sell it on to investors.
As a result, wholesale money markets are almost entirely frozen, making it very hard for mortgage firms to raise the funds to lend out in long-term mortgages.
Mr Darling's answer is a new system of "kite-marking" that will effectively give every mortgage deal a quality rating.
That would allow mortgage firms to raise money on wholesale markets by offering bonds secured against the home and repayments of their most reliable customers.
In a speech last month, Mr Darling promised a new "gold standard" for covered bonds and mortgage-backed securities. He said the move would help "not just the housing market but wider economic growth in these uncertain times".
However, there are concerns that grading mortgages according to customers' reliability could create a two-tier system for would-be house buyers.
The richest and most secure customers would be able to access cheap loans raised on international markets, which would not be available to poorer customers.
The Council of Mortgage Lenders has warned that a quality-mark system risks "driving a wedge" between different groups of mortgage customers.
The European Securitisation Forum has also expressed concerns, suggesting that a grading system might make it prohibitively expensive for riskier customers to borrow.
Bankers are also sceptical about the plans, because the Treasury itself would not be involved in grading loans to avoid any appearance that the Government was backing particular investments.
Long-term interest rates are typically around six per cent. The best deal available for a long-term rate is 5.5 per cent, compared with a market-best rate of 5.2 per cent for a two-year fixed-rate mortgage.
Many fixed-rate mortgages are rising in cost, as lenders fail to pass on cuts in base rates to customers. The Bank of England has cut rates twice since December, to 5.25 per cent.
Data published by the Bank of England last week showed that, in January, the average mortgage fixed rate, paid by new and existing customers, rose from 5.36 per cent to 5.39 per cent.
# Transport
Motorists who want to buy cars with the largest engines will bear the brunt of Mr Darling's efforts to present a "green Budget " on Wednesday.
"Gas-guzzlers", including large 4x4s and estate cars, will face a new "showroom tax" that could add as much as £2,000 to the sale price.
The Chancellor is also expected to penalise existing vehicles with the highest emissions for the second year running with a further increase in top-level Vehicle Excise Duty (VED). And tax discs will be colour-coded to indicate how much carbon dioxide a vehicle emits.
Mr Darling has come under intense pressure over a planned 2p increase in fuel duty after record global oil prices sent UK pump prices soaring. Economists say higher prices mean Mr Darling can afford to at least delay the duty increase.
# Tax
Wealthy "non-domiciled" UK residents will get new concessions in the Budget as Mr Darling refines his package of new tax rules.
The Chancellor will stick to plans to levy a £30,000 annual charge on long-standing "non-doms" - people with foreign links who live in Britain but pay no UK tax on overseas income - but he is expected to allay fears that Americans, in particular, would be taxed twice on their money by announcing a deal with US authorities.
The Treasury's plans for a tax crackdown on non-doms had triggered a backlash, with warnings that many of the wealthiest people in the UK would chose to leave the country.
The Chancellor is set to press ahead with plans to increase the rate of corporation tax paid by small companies from 20 per cent to 22 per cent.
# Energy firms
Mr Darling is putting intense pressure on energy companies to give financial help to customers who are struggling with rising fuel bills.
Soaring wholesale prices for oil and gas have helped many suppliers record high profits, but there is more strain on many households.
Officials say there are more than 4.5 million people in "fuel poverty," and up to £200 million could be distributed by cutting the fuel bills of selected customers, with those over 70 given particular priority.
The Treasury is locked in talks with the industry over the plan, and the outcome is likely to be announced in the Budget.
Mr Darling is understood to want the scheme be voluntary, but is prepared to impose a windfall tax on energy companies if an agreement cannot be reached.
# Alcohol
Tax on beer, wines and spirits will all increase in the Budget as the Government responds to growing concerns about Britain's binge-drinking culture.
Duty on most alcoholic drinks has risen more slowly than inflation in recent years, as ministers avoided tax rises that might have angered voters.
But a chorus of warnings from doctors and police chiefs about rising numbers of problem drinkers has helped persuade Mr Darling that public opinion will now accept some price rises.
He is expected to announce an immediate above-inflation duty rise on Wednesday.
In the long term, the Chancellor is said to be considering an alcohol "accelerator" much like that applied to fuel duty, which would mean that taxation on drinks would automatically rise in real terms every year.
http://www.telegraph.co.uk/
Alistiar Darling, the Chancellor of the Exchequer, is due to unveil his first Budget
The most reliable customers will also get access to "gold standard" loans at much cheaper rates than poorer, high-risk borrowers.
In a tacit admission that Labour has overseen a high-risk boom in house prices, Alistair Darling, the Chancellor, will encourage mortgage lenders and consumers to use long-term loans to make the UK market less volatile.
From this week, mortgage lenders will be able to use new rules to offer more long-term fixed-rate mortgage deals, with interest rates set to be fixed for as long as 25 years.
Ministers are concerned that the "boom-and-bust" nature of British house prices risks wider economic stability and makes many households vulnerable to even relatively small fluctuations in interest rates.
Long-term mortgages are commonplace in many European economies, but relatively rare in the UK.
Only a handful of lenders currently offer fixed-term loan rates longer than five years, and those deals available are typically more expensive than short-term offers.
Mr Darling's long-term mortgage plans are based on giving mortgage lenders greater freedom to raise money using covered bonds - a loan secured against a pool of assets that "covers" the loan if the issuer collapses.
But Treasury officials accept that any plan for lenders to make more use of such financing will face obstacles in the current banking climate.
Since last summer, many banks have suffered huge losses as they had bought bonds and other debt instruments that were ultimately secured on "sub-prime" mortgage customers whose low incomes and limited assets made them more likely to default on their repayments.
That has left many banks extremely wary of investing in mortgage-backed securities, where banks package their debt and sell it on to investors.
As a result, wholesale money markets are almost entirely frozen, making it very hard for mortgage firms to raise the funds to lend out in long-term mortgages.
Mr Darling's answer is a new system of "kite-marking" that will effectively give every mortgage deal a quality rating.
That would allow mortgage firms to raise money on wholesale markets by offering bonds secured against the home and repayments of their most reliable customers.
In a speech last month, Mr Darling promised a new "gold standard" for covered bonds and mortgage-backed securities. He said the move would help "not just the housing market but wider economic growth in these uncertain times".
However, there are concerns that grading mortgages according to customers' reliability could create a two-tier system for would-be house buyers.
The richest and most secure customers would be able to access cheap loans raised on international markets, which would not be available to poorer customers.
The Council of Mortgage Lenders has warned that a quality-mark system risks "driving a wedge" between different groups of mortgage customers.
The European Securitisation Forum has also expressed concerns, suggesting that a grading system might make it prohibitively expensive for riskier customers to borrow.
Bankers are also sceptical about the plans, because the Treasury itself would not be involved in grading loans to avoid any appearance that the Government was backing particular investments.
Long-term interest rates are typically around six per cent. The best deal available for a long-term rate is 5.5 per cent, compared with a market-best rate of 5.2 per cent for a two-year fixed-rate mortgage.
Many fixed-rate mortgages are rising in cost, as lenders fail to pass on cuts in base rates to customers. The Bank of England has cut rates twice since December, to 5.25 per cent.
Data published by the Bank of England last week showed that, in January, the average mortgage fixed rate, paid by new and existing customers, rose from 5.36 per cent to 5.39 per cent.
# Transport
Motorists who want to buy cars with the largest engines will bear the brunt of Mr Darling's efforts to present a "green Budget " on Wednesday.
"Gas-guzzlers", including large 4x4s and estate cars, will face a new "showroom tax" that could add as much as £2,000 to the sale price.
The Chancellor is also expected to penalise existing vehicles with the highest emissions for the second year running with a further increase in top-level Vehicle Excise Duty (VED). And tax discs will be colour-coded to indicate how much carbon dioxide a vehicle emits.
Mr Darling has come under intense pressure over a planned 2p increase in fuel duty after record global oil prices sent UK pump prices soaring. Economists say higher prices mean Mr Darling can afford to at least delay the duty increase.
# Tax
Wealthy "non-domiciled" UK residents will get new concessions in the Budget as Mr Darling refines his package of new tax rules.
The Chancellor will stick to plans to levy a £30,000 annual charge on long-standing "non-doms" - people with foreign links who live in Britain but pay no UK tax on overseas income - but he is expected to allay fears that Americans, in particular, would be taxed twice on their money by announcing a deal with US authorities.
The Treasury's plans for a tax crackdown on non-doms had triggered a backlash, with warnings that many of the wealthiest people in the UK would chose to leave the country.
The Chancellor is set to press ahead with plans to increase the rate of corporation tax paid by small companies from 20 per cent to 22 per cent.
# Energy firms
Mr Darling is putting intense pressure on energy companies to give financial help to customers who are struggling with rising fuel bills.
Soaring wholesale prices for oil and gas have helped many suppliers record high profits, but there is more strain on many households.
Officials say there are more than 4.5 million people in "fuel poverty," and up to £200 million could be distributed by cutting the fuel bills of selected customers, with those over 70 given particular priority.
The Treasury is locked in talks with the industry over the plan, and the outcome is likely to be announced in the Budget.
Mr Darling is understood to want the scheme be voluntary, but is prepared to impose a windfall tax on energy companies if an agreement cannot be reached.
# Alcohol
Tax on beer, wines and spirits will all increase in the Budget as the Government responds to growing concerns about Britain's binge-drinking culture.
Duty on most alcoholic drinks has risen more slowly than inflation in recent years, as ministers avoided tax rises that might have angered voters.
But a chorus of warnings from doctors and police chiefs about rising numbers of problem drinkers has helped persuade Mr Darling that public opinion will now accept some price rises.
He is expected to announce an immediate above-inflation duty rise on Wednesday.
In the long term, the Chancellor is said to be considering an alcohol "accelerator" much like that applied to fuel duty, which would mean that taxation on drinks would automatically rise in real terms every year.
http://www.telegraph.co.uk/
Wednesday, February 20, 2008
The Real Estate Wonk
So much attention has been paid lately to the travails of short-term homeowners that longer-term homeowners probably feel a bit left out. "What do I care?" you grumble. "Why don't you cover something that affects me, dagnabbit?"
All right. How about getting that private mortgage insurance premium off your monthly mortgage bill?
Private mortgage insurance, for those of you short-termers and renters following along, is something homebuyers need if their down payment on a non-government loan is less than 20 percent of the property value. Lenders insist on it to protect them if you go into foreclosure.
It's in an effort to avoid this bill that many buyers opted for two mortgages during the housing boom. Now, an increasing number of new borrowers are finding their way back to PMI -- by choice or default.
The Mortgage Insurance Companies of America, an industry trade group, said the number of new PMI policies increased nearly 40 percent last year.
Not sure whether you're paying for private mortgage insurance? Check your monthly mortgage bill, or look at the "HUD1" form with the paperwork you signed to close the loan. (Or call your lender.)
If you have it, there are three ways you can qualify to cancel: Make enough payments, raise the value of your property with home improvements or (rarer and rarer nowadays) live in an area that's seeing strong gains in sales prices. One or more of those options can get your loan balance down to 80 percent of the value of the home when you got the loan.
There's a checklist about next steps at Mortgage Insurance Companies of America's website, with a more detailed Q&A HERE. Here's what the association says:
--Contact your loan servicer. You should be able to find the contact information on your monthly mortgage bill. Be prepared to provide your Social Security and loan numbers.
--Tell the servicer you'd like to cancel your private mortgage insurance and ask about its requirements to do so. That could mean gathering additional information and paying for an appraisal. (Let the servicer arrange for the appraisal, the insurer association says, so you don't end up on the hook for two bills.)
--After you've jumped through the necessary hoops, send in a written request to cancel.
Katie Monfre, a spokeswoman for Mortgage Guaranty Insurance Corp., says your private mortgage insurance will generally get canceled automatically once your payments equal 22 percent of the original home value. (Federal law requires it for most loans taken out by borrowers after July 29, 1999.)
But now you know how to move things along sooner if you think you qualify -- or get the ball rolling if you suspect it's long overdue.
Click HERE for a calculator that helps you figure out when you might be able to cancel.
http://weblogs.baltimoresun.com/
All right. How about getting that private mortgage insurance premium off your monthly mortgage bill?
Private mortgage insurance, for those of you short-termers and renters following along, is something homebuyers need if their down payment on a non-government loan is less than 20 percent of the property value. Lenders insist on it to protect them if you go into foreclosure.
It's in an effort to avoid this bill that many buyers opted for two mortgages during the housing boom. Now, an increasing number of new borrowers are finding their way back to PMI -- by choice or default.
The Mortgage Insurance Companies of America, an industry trade group, said the number of new PMI policies increased nearly 40 percent last year.
Not sure whether you're paying for private mortgage insurance? Check your monthly mortgage bill, or look at the "HUD1" form with the paperwork you signed to close the loan. (Or call your lender.)
If you have it, there are three ways you can qualify to cancel: Make enough payments, raise the value of your property with home improvements or (rarer and rarer nowadays) live in an area that's seeing strong gains in sales prices. One or more of those options can get your loan balance down to 80 percent of the value of the home when you got the loan.
There's a checklist about next steps at Mortgage Insurance Companies of America's website, with a more detailed Q&A HERE. Here's what the association says:
--Contact your loan servicer. You should be able to find the contact information on your monthly mortgage bill. Be prepared to provide your Social Security and loan numbers.
--Tell the servicer you'd like to cancel your private mortgage insurance and ask about its requirements to do so. That could mean gathering additional information and paying for an appraisal. (Let the servicer arrange for the appraisal, the insurer association says, so you don't end up on the hook for two bills.)
--After you've jumped through the necessary hoops, send in a written request to cancel.
Katie Monfre, a spokeswoman for Mortgage Guaranty Insurance Corp., says your private mortgage insurance will generally get canceled automatically once your payments equal 22 percent of the original home value. (Federal law requires it for most loans taken out by borrowers after July 29, 1999.)
But now you know how to move things along sooner if you think you qualify -- or get the ball rolling if you suspect it's long overdue.
Click HERE for a calculator that helps you figure out when you might be able to cancel.
http://weblogs.baltimoresun.com/
Consider a reverse mortgage
NEW YORK (CNNMoney.com) -- Mortgage payments sucking you dry? Boomers short on retirement savings may have another option: reverse mortgages. Can these complicated products fill the gap?
Know the process
Reverse mortgages are exactly that. Instead of paying the bank, the bank pays you. It's a type of loan where your equity is converted into cash.
These mortgages are designed for people 62 and older. And you can get this cash in a few ways: Either you can get it all in a lump sum, a monthly payment or a line of credit that you can tap into when you need it.
The loan doesn't need to be repaid if you continue to live in the home. But if you move, the debt must be repaid - with interest. If you die, your heirs can elect to sell the house to repay the loan.
While the payment doesn't usually affect social security or Medicare, it may affect Medicaid according to Peter Bell of the National Reverse Mortgage Association.
You will also be responsible for property taxes and any repairs on the home.
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.
Consider your Candidacy
The older you are, the more likely you are to benefit from a reverse mortgage according to AARP.
First, you'll probably have built up more equity in your home. And lenders calculate the payout based on your age and your expected lifespan. Reverse mortgages are most beneficial if you own your home or have a small amount left to pay on the original mortgage that can be paid off at closing with the proceeds from the reverse loan, according to HUD.
Reverse mortgages are also best for people who want to remain in their home for the long-term. If you're looking to move in two or three years, a reverse mortgage may not be right for you.
Weigh the Downsides
Fees on home equity conversion mortgages can be high. For a $300,000 loan, a person who is 74 years old can expect to pay $15,000 in upfront fees according to AARP. There is an origination fee, appraisal fee, title fee, escrow fee, recording fee, a monthly servicing fee and an ongoing mortgage insurance premium.
Bell says the total of these fees are about 5% of the home's value. They can be included in your loan balance, if there is enough equity available.
Remember - a reverse mortgage is a loan with rising debt and falling equity. So, if you get a lot of cash over the years, there will be little, if any, left over for your heirs according to AARP.
Do your homework
Reverse mortgages, while only one percent of the mortgage market, are on the rise. There were less than 7,000 reverse mortgages in 2000. Last year, over 107,000 reverse mortgages were sold according to AARP.
There are a lot of nuances you should consider before buying a reverse mortgage. In fact, you are required to get counseling before buying this product.
You can contact the Housing Counseling Clearinghouse at 800-569-4287 to find a lender in your area. Your bank should give you a list of counselors in your area that can help you. Be wary of lenders that try to get you to buy more products, like long term care insurance or annuities.
http://money.cnn.com/2008/02/20/pf/saving/toptips/
Know the process
Reverse mortgages are exactly that. Instead of paying the bank, the bank pays you. It's a type of loan where your equity is converted into cash.
These mortgages are designed for people 62 and older. And you can get this cash in a few ways: Either you can get it all in a lump sum, a monthly payment or a line of credit that you can tap into when you need it.
The loan doesn't need to be repaid if you continue to live in the home. But if you move, the debt must be repaid - with interest. If you die, your heirs can elect to sell the house to repay the loan.
While the payment doesn't usually affect social security or Medicare, it may affect Medicaid according to Peter Bell of the National Reverse Mortgage Association.
You will also be responsible for property taxes and any repairs on the home.
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.
Consider your Candidacy
The older you are, the more likely you are to benefit from a reverse mortgage according to AARP.
First, you'll probably have built up more equity in your home. And lenders calculate the payout based on your age and your expected lifespan. Reverse mortgages are most beneficial if you own your home or have a small amount left to pay on the original mortgage that can be paid off at closing with the proceeds from the reverse loan, according to HUD.
Reverse mortgages are also best for people who want to remain in their home for the long-term. If you're looking to move in two or three years, a reverse mortgage may not be right for you.
Weigh the Downsides
Fees on home equity conversion mortgages can be high. For a $300,000 loan, a person who is 74 years old can expect to pay $15,000 in upfront fees according to AARP. There is an origination fee, appraisal fee, title fee, escrow fee, recording fee, a monthly servicing fee and an ongoing mortgage insurance premium.
Bell says the total of these fees are about 5% of the home's value. They can be included in your loan balance, if there is enough equity available.
Remember - a reverse mortgage is a loan with rising debt and falling equity. So, if you get a lot of cash over the years, there will be little, if any, left over for your heirs according to AARP.
Do your homework
Reverse mortgages, while only one percent of the mortgage market, are on the rise. There were less than 7,000 reverse mortgages in 2000. Last year, over 107,000 reverse mortgages were sold according to AARP.
There are a lot of nuances you should consider before buying a reverse mortgage. In fact, you are required to get counseling before buying this product.
You can contact the Housing Counseling Clearinghouse at 800-569-4287 to find a lender in your area. Your bank should give you a list of counselors in your area that can help you. Be wary of lenders that try to get you to buy more products, like long term care insurance or annuities.
http://money.cnn.com/2008/02/20/pf/saving/toptips/
Thursday, February 7, 2008
NAB buys $1b of RHG mortgages
NATIONAL Australia Bank (NAB) said it had acquired about $1 billion of mortgages originated by RHG at net asset value.
RHG owns the closed mortgage book of the former RAMS Home Loans Group.
RAMS sold its brand and distribution business and all the business it wrote from November 15 to Westpac Banking Corporation last year for $140 million.
"Further to the RHG Ltd announcement today and as advised to the market on November 21, National Australia Bank today confirmed it had acquired approximately $1 billion of mortgages originated by RHG Ltd at net asset value,'' NAB said.
At 10.46am AEDT, RHG shares were 4 cents, or 17.39 per cent, higher at 27 cents. NAB was 74 cents stronger at $33.55.
RHG announced earlier today it had successfully refinanced $5.5 billion in short-term debt.
RHG said one of two US extendable commercial paper (XCP) facilities had now been fully repaid.
The remaining XCP facility is intended to be repaid in full during New York business hours today, RHG said.
The two XCP facilities needed to be refunded by a February 11 deadline.
To fund them, RHG said it used, or expects to use, funds from warehouse facilities with an aggregate commitment of $3.5 billion; a $750 million issue of residential mortgage-backed securities and the $1 billion reaped from the sale of mortgages to NAB.
Following the repayment of both XCP programs, RHG will have two warehouse facilities worth $1.9 billion and $725 million due to mature in May.
Another $970 million will mature in June and another $1.5 billion will mature in October.
Two more facilities worth $2 billion and $1.5 billion will mature in December.
Westpac last year promised to provide RHG with $1.5 billion in funding if it could form a syndicate of lenders.
NAB said the residential mortgages it bought were prime, seasoned Australian mortgages, which were all mortgage insured.
http://www.news.com.au/business/story/0,23636,23179734-462,00.html
RHG owns the closed mortgage book of the former RAMS Home Loans Group.
RAMS sold its brand and distribution business and all the business it wrote from November 15 to Westpac Banking Corporation last year for $140 million.
"Further to the RHG Ltd announcement today and as advised to the market on November 21, National Australia Bank today confirmed it had acquired approximately $1 billion of mortgages originated by RHG Ltd at net asset value,'' NAB said.
At 10.46am AEDT, RHG shares were 4 cents, or 17.39 per cent, higher at 27 cents. NAB was 74 cents stronger at $33.55.
RHG announced earlier today it had successfully refinanced $5.5 billion in short-term debt.
RHG said one of two US extendable commercial paper (XCP) facilities had now been fully repaid.
The remaining XCP facility is intended to be repaid in full during New York business hours today, RHG said.
The two XCP facilities needed to be refunded by a February 11 deadline.
To fund them, RHG said it used, or expects to use, funds from warehouse facilities with an aggregate commitment of $3.5 billion; a $750 million issue of residential mortgage-backed securities and the $1 billion reaped from the sale of mortgages to NAB.
Following the repayment of both XCP programs, RHG will have two warehouse facilities worth $1.9 billion and $725 million due to mature in May.
Another $970 million will mature in June and another $1.5 billion will mature in October.
Two more facilities worth $2 billion and $1.5 billion will mature in December.
Westpac last year promised to provide RHG with $1.5 billion in funding if it could form a syndicate of lenders.
NAB said the residential mortgages it bought were prime, seasoned Australian mortgages, which were all mortgage insured.
http://www.news.com.au/business/story/0,23636,23179734-462,00.html
OFHEO Questions Mortgage Proposal
A federal regulator yesterday suggested that a measure that would allow Fannie Mae and Freddie Mac to take on jumbo mortgages could divert loan money from less expensive housing.
Funding one $600,000 mortgage takes as much capital as funding three $200,000 loans, James B. Lockhart III, head of an agency that oversees the federally chartered mortgage companies, told the Senate Banking Committee.
The economic stimulus package passed by Congress last night would temporarily permit District-based Fannie Mae and McLean-based Freddie Mac to buy or guarantee mortgages 25 percent higher than an area's median home price -- to a maximum of $729,750, up from the current limit of $417,000.
The increase would allow the companies to fund bigger mortgages in areas with high housing costs, such as the Washington area, where the median price is $450,000, according to the National Association of Realtors. Advocates have argued it could provide relief to housing markets.
Lockhart, director of the Office of Federal Housing Enterprise Oversight, testified that the change would push the companies deeper into some of the riskiest real estate markets, including parts of California.
Chartered by the government to bring affordability and stability to the housing system, Fannie Mae and Freddie Mac package mortgages into securities for sale to investors, promising to pay the loans if the borrowers default. They also buy mortgages themselves.
Fannie Mae and Freddie Mac have long sought the freedom to fund larger mortgages, and some lawmakers have argued that a uniform limit of $417,000 doesn't make sense given the variation in housing prices across the country.
Until recently, it appeared that any increase in the limit would be coupled with long-stalled legislation giving regulators more power over Fannie Mae and Freddie Mac, such as a bill approved by the House last year.
The downturn in the housing sector and growing concern about the economy could hand them a major legislative victory -- the opportunity to expand their business without new regulatory constraints.
The change "will be a significant and profitable new business" for the companies, said Sen. Charles E. Schumer (D-N.Y.), a member of the Banking Committee.
Freddie Mac chief executive Richard F. Syron countered that setting up new systems to handle the larger loans will cost his company a lot of money and will be "kind of a bear to do."
Lawmakers from both parties have been saying the companies need stricter regulation at least since 2003 and 2004, when multibillion-dollar accounting scandals revealed that Fannie Mae and Freddie Mac had dysfunctional internal controls.
http://www.washingtonpost.com
Funding one $600,000 mortgage takes as much capital as funding three $200,000 loans, James B. Lockhart III, head of an agency that oversees the federally chartered mortgage companies, told the Senate Banking Committee.
The economic stimulus package passed by Congress last night would temporarily permit District-based Fannie Mae and McLean-based Freddie Mac to buy or guarantee mortgages 25 percent higher than an area's median home price -- to a maximum of $729,750, up from the current limit of $417,000.
The increase would allow the companies to fund bigger mortgages in areas with high housing costs, such as the Washington area, where the median price is $450,000, according to the National Association of Realtors. Advocates have argued it could provide relief to housing markets.
Lockhart, director of the Office of Federal Housing Enterprise Oversight, testified that the change would push the companies deeper into some of the riskiest real estate markets, including parts of California.
Chartered by the government to bring affordability and stability to the housing system, Fannie Mae and Freddie Mac package mortgages into securities for sale to investors, promising to pay the loans if the borrowers default. They also buy mortgages themselves.
Fannie Mae and Freddie Mac have long sought the freedom to fund larger mortgages, and some lawmakers have argued that a uniform limit of $417,000 doesn't make sense given the variation in housing prices across the country.
Until recently, it appeared that any increase in the limit would be coupled with long-stalled legislation giving regulators more power over Fannie Mae and Freddie Mac, such as a bill approved by the House last year.
The downturn in the housing sector and growing concern about the economy could hand them a major legislative victory -- the opportunity to expand their business without new regulatory constraints.
The change "will be a significant and profitable new business" for the companies, said Sen. Charles E. Schumer (D-N.Y.), a member of the Banking Committee.
Freddie Mac chief executive Richard F. Syron countered that setting up new systems to handle the larger loans will cost his company a lot of money and will be "kind of a bear to do."
Lawmakers from both parties have been saying the companies need stricter regulation at least since 2003 and 2004, when multibillion-dollar accounting scandals revealed that Fannie Mae and Freddie Mac had dysfunctional internal controls.
http://www.washingtonpost.com
Saturday, January 5, 2008
Building societies rank high for cheap mortgages
ALTHOUGH a bank, HSBC, was the cheapest mortgage lender in 2007 for existing borrowers, building societies took two of the top five places and five of the top ten.
In its annual survey, Defaqto, an independent financial data collection and research company, found that for standard variable rate (SVR) mortgages or their equivalent for existing borrowers, HSBC retained its top spot as the cheapest mortgage, closely followed by two building societies, Skipton and Nationwide.
Scottish banks did not fare well – Bank of Scotland was named as most expensive, followed by the Royal Bank of Scotland and the Clydesdale Bank.
The research was based on the amount of gross interest payable on a £50,000 interest-only mortgage provided by top lenders in 2006, as defined by the Council of Mortgage Lenders (CML). In order to provide a level playing field for comparisons, specialist providers were not included, and neither were any privilege or loyalty rates.
Borrowers with HSBC paid £3,361.99 in 2007 for their mortgage, which was £532.39 cheaper than the most expensive
deal.
David Black, principal banking consultant at Defaqto, said: "In 2007 there were three increases in the Bank base rate and one decrease so it is not surprising that the average cost of servicing a standard variable rate mortgage for the largest lenders rose last year by 14 per cent over the cost in 2006.
"While it is acknowledged that standard variable rate mortgages are only one type of mortgage, their importance may be increasing due to the knock-on effects of the credit crunch, making it more difficult to obtain attractive alternative deals."
Given the availability of competitive mortgage deals is expected to reduce further, people would be advised to shop around as soon as possible.
Bob Pannell, CML head of research, said: "Borrowers should make a New Year resolution to review their finances and plan ahead if they are coming off fixed rate deals later this year."
http://business.scotsman.com/personal-finance/Building-societies-rank-high-for.3643340.jp
In its annual survey, Defaqto, an independent financial data collection and research company, found that for standard variable rate (SVR) mortgages or their equivalent for existing borrowers, HSBC retained its top spot as the cheapest mortgage, closely followed by two building societies, Skipton and Nationwide.
Scottish banks did not fare well – Bank of Scotland was named as most expensive, followed by the Royal Bank of Scotland and the Clydesdale Bank.
The research was based on the amount of gross interest payable on a £50,000 interest-only mortgage provided by top lenders in 2006, as defined by the Council of Mortgage Lenders (CML). In order to provide a level playing field for comparisons, specialist providers were not included, and neither were any privilege or loyalty rates.
Borrowers with HSBC paid £3,361.99 in 2007 for their mortgage, which was £532.39 cheaper than the most expensive
deal.
David Black, principal banking consultant at Defaqto, said: "In 2007 there were three increases in the Bank base rate and one decrease so it is not surprising that the average cost of servicing a standard variable rate mortgage for the largest lenders rose last year by 14 per cent over the cost in 2006.
"While it is acknowledged that standard variable rate mortgages are only one type of mortgage, their importance may be increasing due to the knock-on effects of the credit crunch, making it more difficult to obtain attractive alternative deals."
Given the availability of competitive mortgage deals is expected to reduce further, people would be advised to shop around as soon as possible.
Bob Pannell, CML head of research, said: "Borrowers should make a New Year resolution to review their finances and plan ahead if they are coming off fixed rate deals later this year."
http://business.scotsman.com/personal-finance/Building-societies-rank-high-for.3643340.jp
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