Steven Hyman

Reverse Mortgages Can Provide Seniors with Financial Alternatives

The tightening lending requirements by the banks have made it very hard for some people to get a mortgage. For others, it's outright impossible. Today the banks are overreacting to the liberal practices they had in the past by requiring almost all loans to be fully documented with tax returns, bank statements and higher credit scores. The only thing they haven't asked for yet, is a copy of your latest physical exam with the meds you're on to make sure you're healthy enough to make payments. But who knows, that may be required next week.

This overreaction has really made it tough for many groups of people who have done everything right and are sitting on a pile of equity. With stock portfolios down and loans for lines of credit hard to find, getting a hold of cash is much harder.

The tough lending standards have really impacted senior citizens. Even though many older couples may own their homes, have 401Ks, and have social security income, they still might not qualify for a loan in today's environment. Recently, I've seen a few well established clients turned down for small loans. A year ago this would have been a no-brainer.

Reverse mortgages
Well there is good news for these people with special type of financing that's offered through U.S. Dept of Housing and Urban Development (HUD). It goes by the long name of Home Equity Conversion Mortgage Purchase Program (HECM) but most people know of it as Reverse Mortgages.

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you.

I won't go into the lengthy details, but here are some key benefits:

1. To qualify, you must be 62 years of age or older and this must be your primary residence.

But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. Once the property is no longer your primary residence, the loan must be repaid. This can be done by either refinancing the property or selling it.

Here's an example of how this could work for you. Let's say you own your home free and clear, have a small mortgage balance or wish to downsize to a smaller home worth $500,000. With a reverse mortgage, you could borrow up to $232,000 with the balance being your equity. To qualify for this loan, you do not need to show any tax returns or proof of income. No credit score is required either. Your monthly payment for this $232,000 mortgage is $0 — as long as this remains the primary residence for you or your spouse. Let me repeat that, your monthly payment for the life of the loan remains at $0. Once your property is either refinanced or sold, all remaining equity after repaying loan and accrued interest is passed on to you or your heirs. Loan proceeds are not considered income and will not affect your social security or Medicare benefits. One more benefit, all the proceeds are tax-free and federally insured by HUD.

2. With a reverse mortgage, you can borrow the money in a lump sum or small increments through a line of credit as you see fit.

The loan can be used to pay medical expenses, make home improvements, pay for in-home care, supplement your income and much more.

With access to cash limited today and stock prices down, this may be worth exploring. It's always good to have a cash cushion because you never know when unexpected expenses come up.

When it comes to important decisions like this it's wise to talk with your family, your financial adviser and attorney to make sure this is going to work best for your particular situation and your long term goals. One thing you should avoid is anyone trying to sell you an annual annuity because it's not needed and is a large additional expense. It's also a good idea to speak with a few lenders to make sure you are getting the best deal.

Steven Hyman is the Broker & Owner of Century 21 Sunset Properties. He can be reached at 650.726.6346 or at www.century21sunset.com.

Dean Moss

Lenders Saying No to TARP Bailout Funds

As the economy began to take a nose dive toward the end of last year, the Bush Administration's grand plan was to siphon off chunks of money to major U.S. banks, which they believed would unfreeze the credit markets and naturally allow the banks to lend more money to consumers, small businesses and home buyers. And then viola…the country's housing market and the U.S. economy would be resuscitated! Yes?

The dream scenario has been just that – a dream! Many banks are not lending out the money as originally envisioned. According to several news reports, some companies that received the bailout money have used the funds to acquire new companies or fund executive compensation and bonuses. And now, many banks are refusing to take the government's dinero – wincing at the potential government requirements that will likely accompany any bailout program funds.

Thanks but no thanks
According to the Wall Street Journal, new proposals from the U.S. House would bar TARP recipients from using any of the money to acquire other banks, and would allow a government representative to sit in on meetings of the board.

Many banks are raising concerns about the effectiveness of the bailout program. Others apply for the funds, but subsequently reject them – a move thought to calm their investor's fears that their institutions are having solvency issues. To date, the U.S. Treasury Department has doled out $194.2 billion in TARP money to 317 banks and other institutions in 43 states, plus Puerto Rico. More applications are pending.

Officials in the Treasury predict about one-fourth of the estimated 8,000 banks across the U.S. will apply for bailout funds, reported the Journal. And yet, funds are still virtually frozen for many residential and small business borrowers, and the U.S. housing market has yet to recover.

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Dean Moss

Jumbo Home Loans Weighing Down on Banks and Investors

It wasn't all that long ago when the biggest banks in the country – J.P. Morgan Chase, Bank of America and Wells Fargo among them – originated hundreds of millions of dollars in jumbo loans.

These hefty jumbo loans exceed the Fannie Mae and Freddie Mac conforming loan limit, currently $417,000 in the Chicago Metro Area, and as high as $625,000 in some high-priced metro areas such as San Francisco and New York City.

The Wall Street Journal recently reported that during the first nine months of last year, these large banks accounted for nearly half of all jumbo mortgage loans written in the United States. They range in value from an average of $750,000 to an excess of several million dollars in some cases. According to mortgage-data research firm LPS Applied Analytics, last December roughly 6.9 percent of all prime jumbo loans were at least 90 days in arrears - up from a comparative-paltry 2.6 percent at the end of 2007, the Journal reported.

By way of comparison, only 2.1 percent of non-jumbo prime loans were 90 days or more delinquent as of the end of December – still up sharply from the 0.8 percent non-jumbo delinquency in December 2007.

Hefty load to handle
The struggling U.S. Economy, ripe with slow-to-sell homes and high levels of unemployment across all salary and age brackets, is fueling increased default rates among homeowners. Jumbo loans add increased pressure to a lender's bottom line due to their larger loan values.

With the housing market down, fewer lenders today are offering jumbo loans. While Chase still offers these types of loans, they and other lenders still carrying jumbo loan products charge far-higher interest rates and fees than for lower-level conforming mortgages. According to financial publisher HSH Associates, average rates on 30-year fixed jumbo loans were 6.87 percent last week, compared to an average of 5.34 percent for lower-value conforming home mortgages.

Credit Suisse estimates nearly 25 percent of prime jumbo mortgage loans currently exceed the value of the homes they are backing. Given the lender's expectation of additional price declines of 15 percent over the next two years, that 'under water' percentage could increase to almost 42 percent.

Visit DEAN & DEAN'S TEAM CHICAGO at BlogChicagoHomes.com.

Dean Moss

J.P. Morgan Chase Considers Expanding Home Loan Modifications

Now, in an even bigger way, one of the largest mortgage lenders in the U.S. has gotten even more aggressive on attempting to halt the rising tide of foreclosed homes on their books. According to the Wall Street Journal, lender J.P. Morgan Chase – one of the largest banks by retail presence in Chicago and in many other markets nationwide – is expanding its loan modification program for distressed homeowners. It now plans to modify loans for buyers whose loans have been sold to other investors, and are no longer owned by the lender itself.

It's important to note that the banks are not writing off losses here, but instead, they are attempting to reduce applicable interest rates – sometimes, drastically – and lengthening the term of many delinquent mortgages. The end result is lower monthly mortgage payments and the increased likelihood that many homeowners will end up staying in their homes, as opposed to losing them to foreclosure.

Renewed efforts by Chase Bank come amidst efforts by the U.S. Senate to allow bankruptcy judges to set new repayment terms for delinquent mortgagors. Big bank Citigroup Inc. supports the new plan, while others are balking.When Bank of America proposed a plan to modify the loans of many holders of Countrywide Home Loan mortgages, after buying the company last year, their investors protested over the $8.4 Billion loan modification program.

J.P. Morgan Chase services two types of mortgage loans – those they keep in their own portfolio, and those they sold to investors. These sold, or 'securitized' mortgages, make up about 75 percent of the lender's $1.5 Trillion in mortgages it services. As expected, some Chase stockholders are not in agreement with the new modification program, fearing reduced financial returns. The opponents of the modifications are arguing that they should not pay for the poor decisions in loan underwriting by someone else.

But the bank is moving forward with its loan modification plans. It has delayed foreclosure filings on more than $22 Billion of mortgages it owns already, and has begun to examine mortgage modification on these loans, according to the Wall Street Journal. More than 80,000 homeowners are impacted here.

Visit DEAN & DEAN'S TEAM CHICAGO at BlogChicagoHomes.com.

Dean Moss

Financing a Home in a Down Economy

This might seem a bit difficult to understand, but according to the National Association of Realtors '2008 Profile of Home Buyers and Sellers' — based on data compiled through responses from 10,000 home buyers and sellers through last June — there was still a sizable percentage of home buyers purchasing with NO MONEY DOWN!

While the NAR survey indicates that the median down payment paid out by people buying a home through the middle of 2008 was 9 percent of the purchase price, and fewer people found loans requiring zero down payment, among all types of buyers, 23 percent were still able to purchase with no down payment before June 30 of this year. For first-time homebuyers, high-leverage financing seems to be even more available. Of the first-time buyers segment, an astounding 34 percent of those surveys purchased with no-money down — a drop from 45 percent in 2007.

Zero-Down Financing Programs that still exist
I know what you're thinking. Does zero-down financing still exist? Here in Chicago there are still a few! But the closest thing to a zero-down these days is a FHA-backed loan requiring a minimum 2.5 percent down payment. For some loans, the buyer and seller can negotiate sizable seller credits at closing, reducing the effective net down payment to zero — the seller credit can also cover closing costs in some cases.

One thorny issue involving seller credits toward closing costs on high-leverage loans involves the requirement of an appraisal for a minimum of the total sales price — INCLUDING ANY NEGOTIATED CREDITS. Here in the Chicago market these days, it is often difficult to get a house to appraise for its actual sale price — even before any seller credits! If the house doesn't properly appraise, the buyer has to come up with any appraised shortfall — which many zero-down-payment borrowers simply do not have. In cases like this, the deal may die.

It is true that the number of buyers with no-money down loans are a shrinking percentage of the home loan, but the current number of zero-down buyers exceeding 1/3 of the buyer universe remains astounding.

Keep in mind that if the NAR survey were to have included those who purchased after July of this year, the zero-downers may have fallen in proportion, as ever-tightening credit brought on by several major Wall Street firms may have halted some of these 100-percent-finance loans.

Visit DEAN & DEAN'S TEAM CHICAGO at BlogChicagoHomes.com.