Reverse Mortgage Spike Has Some Concerned

Daily Real Estate News | Friday, June 29, 2012 

 

Reverse mortgages are gaining steam again, as more home owners 62 and older look to borrow against their home’s equity.

But the Consumer Financial Protection Bureau warns in a new report that reverse mortgages aren’t being used as they were originally intended by lawmakers. The watchdog group also says that these complex mortgages are confusing seniors who don’t fully understand the risks involved, and ultimately that misunderstanding could cost them their homes if they’re not careful.

“People are quite confused about reverse mortgages,” says Hubert Humphrey III, who heads the CFPB’s Office of Older Americans. “People need to better understand reverse mortgages. What is the best way to use them? What are the risks and what are the costs associated with it?”

One of the main points of confusion, the report finds, is that many home owners don’t even view reverse mortgages as a loan but as a way to get money out of their homes. However, reverse mortgages have monthly interest charges, fees, and other costs. These payments are added to the loan balance, which “over time the home equity decreases while the loan balance increases,” MSNBC.com reports.

The report says that these loans have changed quite a bit in the last few years. Reverse mortgages used to be mostly adjustable-rate loans, in which seniors could get money out of their homes by choosing monthly payments to cover everyday expenses or a line of credit for major expenses, or even a combination of the two. The report says that 70 percent of these loans now are fixed-rate and have a lump-sum payment.

“You take out that loan and get all of the money instantly,” Humphrey says. “And yet you have all of your life left to live and you may not have the resources you need when you really need it.”

A growing number of home owners who take out reverse mortgages are at risk of foreclosure because they are failing to pay taxes and insurance, the report shows.

The CFPB is considering recommending new federal regulations to reverse mortgages. You can find more information about reverse mortgages at its ASK CFPB database, fact sheet, or consumer guide.

Source: “Reverse Mortgages Confuse Elderly, Report Finds,” MSNBC.com (June 28, 2012)

Banks Profit From Helping Home Owners Refinance

Daily Real Estate News | Monday, June 18, 2012 

 

By helping home owners refinance their mortgages into low interest rates, banks are finding unexpected profits.

Banks stand to earn as much as $12 billion in revenue this year by refinancing mortgages under the government program known as Home Affordable Refinance Program (HARP), Nomura Holdings Inc. estimates.

The government revised its HARP program last year to encourage more banks to refinance mortgages of underwater home owners, helping these home owners take advantage of record low interest rates and cut their monthly mortgage payments. But critics say the change in the HARP rules make it easier for borrowers to refinance their mortgages with their existing lender, who may not always offer the best rates.

"There's essentially a monopoly on refinancing," said Shaun Donovan, secretary of Housing and Urban Development. "Whoever holds their current loan, whoever is the servicer, they can charge them—and we're seeing this—very high fees."

The Wall Street Journal reports that some banks are charging HARP borrowers up to 0.53 percentage points more than the market rate on refinanced loans. Meanwhile, the Federal Housing Finance Agency says they charge around 0.1 percentage points, on average, for Fannie Mae borrowers.

Bank giants, such as Wells Fargo and Bank of America, told The Wall Street Journal that they offer competitively priced refinancing options to their customers.

The Obama administration, however, is pushing lawmakers to make it easier for borrowers to refinance with different lenders.

Source: “Homeowner Aid Boosts Big Banks,” The Wall Street Journal (June 17, 2012)

HARP Refinances Surge in First Quarter; More Underwater Borrowers Helped

Washington, D.C. – The quarterly number of loans refinanced through the Home Affordable
Refinance Program (HARP) has nearly doubled since HARP 2.0 was rolled out in January,
according to the Federal Housing Finance Agency’s (FHFA) March 2012 Refinance Report.
HARP refinances topped 180,000 in the first quarter of this year compared to approximately
93,000 in the fourth quarter of 2011. The increased HARP volume is attributed to
enhancements to the program announced last fall. The enhancements include the removal of
the loan-to-value (LTV) ceiling for borrowers who refinance into fixed-rate loans and the
elimination -- or lowering -- of fees for certain borrowers. Only loans that are owned or
guaranteed by Fannie Mae and Freddie Mac are eligible to participate in HARP.

Also in the report:

Refinance volume surged in the first quarter of 2012 in response to historically low
mortgage interest rates.

One in seven refinanced loans during the quarter was through HARP.

The number of loans refinanced through HARP in the first quarter of 2012 nearly
doubled compared to the number of loans refinanced through HARP in the fourth
quarter of 2011, driven by a sharp increase in the number of loans refinanced above 105
percent LTV.

In March alone, there were nearly 80,000 HARP refinances, a quarter of them on loans
with LTVs greater than 105 percent.

More than 4,400 loans with LTVs greater than 125 percent were refinanced since the
beginning of the year; over half these loans were refinanced in the states of California,
Florida and Arizona.

With this report, FHFA returns to separate reporting of refinance and other foreclosure
prevention data in an effort to make the refinance information available more quickly. Other
foreclosure prevention actions will continue to be reported in the monthly and quarterly
foreclosure prevention reports. The refinance report will be released on a monthly basis.

Link to Refinance Report

Lenders Try to Catch Borrowers' ‘White Lies’

Daily Real Estate News | Friday, June 01, 2012 

With lending standards extra stringent, some borrowers applying for a mortgage may be tempted to bend the truth slightly so that they can qualify for a mortgage. But lenders have a word of caution to those would-be borrowers: They’re watching you even more carefully nowadays.

“Little white lies,” as a Chicago Tribune article notes, can get mortgage applicants into big trouble, even if just inflating income by a tad, saying you’re going to make a home your primary residence when you plan to rent it out, or slightly exaggerating your job description.

There are "more fraud checks than ever, and it's on every loan, not just a sample," David Kittle, who chaired the Mortgage Bankers Association in 2009, told the Chicago Tribune.

A swell of mortgage fraud during the housing crisis has prompted lenders to become extra vigilant. The FBI estimates mortgage fraud costs about $3 billion a year.

As such, lenders are making more effort to uncover fraud before issuing a loan, instead of finding out after the fact. In 40 percent of the suspicious activity reports in 2011 submitted to the Financial Crimes Enforcement Network, lenders said they rejected the applicant for a new mortgage, refinancing, or short sale because they suspected fraud.

Lenders are doing more background checks to verify the information that applicants’ provide. Besides making phone calls to verify information, they’re using databases with a wealth of information to doublecheck information. For example, some sites they’re using can be used to verify salary data for the type of work the applicant does, reveal any judgments or liens against other properties the person may own, or even reveal hidden relationships between the buyer and seller. The IRS also is providing electronic copies of borrowers’ tax returns to lenders to help verify income.

"There are tons of databases available to validate the information you give us. ... You can't lie about income anymore," Becky Walzak, a quality assurance consultant in Deerfield Beach, Fla., told the Chicago Tribune. "There are too many ways we can find out whether or not you are telling the truth."

Source: “Lenders Sniffing out Dishonest Applicants,” Chicago Tribune (May 17, 2012)