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Reverse Mortgage News

Over at the Reverse Mortgage Guide, Peter Miller points out a part of the Housing Rescue Bill that has been largely overlooked: a limit increase and fee reduction on reverse mortgages. Miller points out the changes:

Reverse mortgage borrowers will benefit from a higher loan cap ($625,000)and also by a reduction in allowable lender fees from roughly 2 percent to 1.5 percent. HUD insurance charges remain unchanged.

With so many issues being addressed in this legislation, it certainly is easy for important changes to be overlooked by the general public. Hopefully, this bill hasn’t tackled too many issues…

Thanks to Peter for pointing this out!

House Passes Housing Rescue

The House passed the Housing Rescue Bill, which will affect many aspects of the housing market. So just how exactly does it affect FHA loans? In CNNMoney.com’s account of the bill, the effects on FHA are described as follows:

Increase the Federal Housing Administration’s role. The FHA could insure up to $300 billion in new 30-year fixed rate mortgages for at-risk borrowers in owner-occupied homes if lenders agree to write down loan balances to 90% of the homes’ current appraised value.

Lenders would also agree to pay upfront fees to the FHA equal to 3% of a home’s appraised value. Borrowers must agree to pay an annual premium to the FHA equal to 1.5% of their new loan balance. They must also agree to share with the government any profit they realize from selling or refinancing.

The cost of the new FHA program - which would begin on Oct. 1 and be in place for just a few years - would be funded by fees from Fannie and Freddie.

While the bill authorizes the FHA to insure up to $300 billion in loans, the CBO estimates that the agency is only likely to insure up to $68 billion and help keep roughly 325,000 people in their homes. Those estimates were based on the CBO’s assessment of who is likely to qualify under the program and who is likely to default and lose their home anyway despite being in the program.

Steve Preston, secretary of the Department of Housing and Urban Development, which oversees FHA, called the bill “a mixed bag.” He said in a statement that the measure “ties our hands” by making it impossible for FHA to charge higher rates to riskier borrowers. The bill calls for a 12-month moratorium on so-called risk-based pricing for FHA loans.

“Now, FHA will be required to increase prices on all customers or eliminate its refinancing program for subprime borrowers at a time when they need it the most,” Preston said.

As you can see, the folks over at HUD aren’t exactly thrilled with the bill. This should certainly raise eyebrows.If the people who know FHA best aren’t behind the bill, its ability to truly serve Americans is doubtful.

Another CNNMoney.com article, “How the Housing Bill Can Rescue You,” specifically outlines who can be helped by FHA and what they will need to do to be serviced. Here is a snippet of the eligibility requirements:

Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 31% of their gross monthly income on mortgage debt to be eligible for the program.

They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments.

This program will only be in effect for the next couple years, and hopefully it will do more help to Americans than harm to FHA. There certainly is the potential…

No More Presidential Opposition to Housing Bill

It was reported today that President Bush has reversed his pledge to veto the Housing Bill. According to the New York Times, Secretary of the Treasury Henry Paulson is to credit for Bush’s change of heart:

But Mr. Bush set aside those objections on the advice of the Treasury secretary, Henry M. Paulson Jr., who told him that the overall package was necessary to help stabilize the housing and credit markets, according to the White House press secretary, Dana Perino, who announced the switch Wednesday morning. Ms. Perino said the gravity of the crisis, coupled with Congress’ plans to recess next week, was the reason for the reversal.

There is still a possibility that the bill will be held up in the Senate, but a huge obstacle has just been overcome.

FHA in Boston

The Boston Herald has a great article about FHA Loans and their increasing popularity. I found the following statistic particularly staggering (and quite encouraging at the same time):

All told, the FHA expects to back nearly $224 billion of mortgages this year - almost quadruple the roughly $60 billion the agency insured in 2007.

Wow!

Hope Everywhere

As I noted the other day, HOPE NOW, the network created to help prevent foreclosures nationwide, has been increasing its visibility by airing a TV commercial. So imagine my pleasant surprise when I saw this:

Great to see that instead of just existing, HOPE NOW is reaching out to create awareness and service homeowners.

Senate Passes Housing Aid Bill

The Senate passed the housing aid bill 63-5 today, signaling a commitment to help homeowners. The bill will allow the FHA to back an additional $300 billion worth of loans. (Whether or not this is a good thing is another post.) The House would still like to see changes to the bill and the president has threatened a veto, so whether or not this will be signed into law remains questionable.

Avoid Reverse Mortgage Scams

While I was perusing Google for the latest FHA information, an article that mentioned reverse mortgage scams caught my eye. Although this particular article had very limited information, I did a little digging and found an excellent article for avoiding reverse mortgage scams by Tim Paul at Ezine Articles. The 5 scams he details are:

Downplaying pre-loan counseling

Forgery

Charging for free information

Posing as a government or not-for-profit representative

Bundling things with reverse mortgage financing

He gives a thorough description of each scam, including media reports of specific instances, and offers precautions for each situation. The article is a few years old, but it is just as relevant as if it had been written today.

HOPE NOW Increasing Visibility

Recently HOPE NOW has taken a number of steps to increase the program’s effectiveness. Along with an improved website and upgrades to the program, HOPE NOW is running an advertisement on television. The commercial features a young girl packing up a doll house when her mother enters the doorway, surrounded by boxes, telling her its time to go. The voice over tells viewers that the effects of foreclosures go beyond just the homeowner and gives the HOPE NOW phone number (1.888.995.HOPE). It’s good to see that more is being done to get the word out to homeowners in distress.

FHA Q & A: Facing Foreclosure

I was recently contacted by a couple asking for advice on their housing situation. Due to the recent market conditions, their house has greatly depreciated in value and their payments have become too much to handle. They are currently trying to work with their lender, but are still concerned about losing their home. What should they do?

I have a few major pieces of advice. First, contact a housing counselor immediately. Through the HOPE NOW program, housing counselors can help you figure out your options and, hopefully, avoid foreclosure. Plus, the counselors are available free of charge, so you’d be crazy not to take advantage of it. Distressed borrowers can call HOPE NOW directly at 1-888-995-HOPE (4673) to get started on the process.

Additionally, you need to stay on top of your lender. Lenders like Countrywide are already notorious for their poor customer service and are also working with many other borrowers in your exact situation. Don’t count on them to take care of things without a little pressure. Also, don’t be afraid to negotiate. When you lose your home, they lose money; so they should be willing to make concessions to keep you in your home.

Lastly, don’t count on pending legislation or litigation to save you. Although states like Illinois are pressing for restitution from Countrywide, no one should wait on a decision like that (which could take years) to be helped out with current mortgage problems.

Basically, take things into your own hands and be persistent.

Miller Addresses WSJ Articles

FHA expert Peter G. Miller offers his analysis of the WSJ’s recent features about FHA Loans. Specifically he addresses a critical aspect that the Wall Street Journal has omitted from its series:

This is great stuff but it never quite gets to an important point: There was no FHA mortgage meltdown.

Fewer FHA loans, yes — after all, how could the staid, old-fashioned FHA program compete with mortgages which required nothing down and little meaningful financial disclosure.

But an FHA meltdown? Didn’t happen.

By sticking to its standards, the FHA has been an oasis of financial sanity.

Miller’s FHA insights tend to be spot on and this is no exception. Maybe the WSJ will take note and add an article on this topic to their growing archive.