Five Tips Before Considering a Reverse Mortgage

Reverse mortgages are known for allowing senior homeowners aged 62 or older stay in their homes. However, this comes together with excessive fees and limitations. Before considering whether or not to get a reverse mortgage, the following are five tips recommended by experts.

First, delay the timing of the loan because by doing this, you can borrow more against your equity and save more in terms of interest. Another way that you can save on interest is when you begin receiving payments. Moreover, there is more accumulation of interest if the loan period is longer.

Second, be aware of the different types of reverse mortgages. In general, there are three categories: Home Equity Conversion Mortgages (HECMs), which are backed by the federal government; proprietary reverse mortgages, which are basically private loans; and single-purpose reverse mortgages, which come together with limitations in terms of what you can spend the money on.

Third, assess the fees and rates. Reverse mortgages charge a lot of fees, for instance, origination fees, costs for closing and servicing the loan, premium for insurance, and interest rates.

Fourth, avoid lump sum payout. Taking as much money at once results to a situation where homeowners have to handle the money properly, and at the same time still paying for property taxes, insurance, and other costs. If the homeowner fails to pay, the home can be lost to foreclosure. Moreover, the homeowner can end up paying fees that are 5 percent more than those who don’t take the money.

Fifth, look for alternatives. One option is to sell the home because you can draw all the equity you have built up, unlike in reverse mortgage, where you only receive a portion of the equity since you have to pay for fees and interest. Another option is to sell the home to relatives and then renting it back so that it stays within the family.

New Foreclosure Prevention Law Signed

Among a number of new state laws signed is a foreclosure prevention bill that would require banks to evaluate the advantages of modifying mortgages against the disadvantage they get by foreclosing on a home. It also states a provision that would require banks more clarity in proving home ownership prior to putting a house in foreclosure.

Gov. Deval L. Patrick signed it on August 3 and portions immediately took effect. However, some local officials and activists were not familiar with the new law yet. Patrick is still accepting any additional legislation that will provide homeowners more protection.

The bill is known as An Act Preventing Unlawful and Unnecessary Foreclosures. It requires creditors to verify whether the net present value of modifying a loan is greater than the possible value of foreclosure. If so, the loan must be modified.

In contrast, if the net present value of modifying the loan is less than the value of foreclosure, then creditors are not required to modify it.

In addition, the provision of the new law required lenders to do everything to certify that they own the loans before they put a house into foreclosure.

According to District 3 City Councilor George Russell, the new law is a good one because it can help majority of the families affected by foreclosures, which are actually tenants and not owners. Russell added that banks evict the family living in the house, sell it for a lesser amount of money or a short sale to a third party, and the banks take the loss.

City Manager Michael O’Brien is also in favor of the new foreclosure prevention law. According to O’Brien, what caught his interest were the provisions concerning the proof of ownership. In housing court, there have been a lot of lawyers showing up at hearings and each claiming their client is the owner of the property.

Moreover, O’Brien said that the new law will provide various incentives to the public to encourage home-ownership.

New Home Lending Rules Proposed by CFPB

The Consumer Financial Protection Bureau (CFPB) proposed a policy which states that mortgage servicing must provide clear monthly billing statement, must warn borrowers prior to interest rate hikes and assist them avoid foreclosure. Moreover, it requires companies to credit people’s payments without delay, correct errors immediately and keep better internal records.

According to Richard Cordray, director of CFPB, the main disappointment among companies in the industry reflects that all services must meet basic standards of good customer service. Cordray added that the proposal shows two basic, common-sense standards.

The key players in the nationwide crisis are the mortgage services since they are accountable for foreclosing on homes when people are no longer able to pay. They have encountered a lot of criticism for their practices such as charging of excessive fees, foreclosing without completion of the required paperwork, and not helping people stay in their homes through modifying their loan terms.

The proposal states that companies will be required to provide billing statements that give details about how much of a payment is going to pay down principal, how much goes to interest and how much goes to fees. Also, if interest rates are expected to change, they should provide the borrowers with an estimate of the new payment amount. Lastly, consumers will be allowed to consider refinancing if they dislike the new rates.

In addition, the proposed policy help ensure that borrowers are not coerced to pay excessive premiums on homeowners insurance that services oblige them to have. Moreover, companies would be required to inform the borrowers twice prior to charging them for insurance. If the borrowers can prove that they already had coverage, then companies would have to cancel the insurance.

Finally, companies would be required to associate a staff with delinquent borrowers so that they can be assisted in avoiding foreclosure.

The public can give a comment about the proposal until October 9 and the rules will be finalized by CFPB on January 2013.

Fannie Mae, Freddie Mac, and FHA is Profitable Again

These past few years, politicians, economists and Wall Street became concerned for Fannie Mae, Freddie Mac, and the Federal Housing Administration. They were anxious about the agencies’ respective ability to stay solvent. The three agencies have been getting high default rates for almost five years, which resulted to large quarterly losses.

Recently, those concerns have improved, as Fannie Mae reported $5.1 billion profits for the second quarter and Freddie Mae reported $3 billion profits for the second quarter as well.

Towards the end of the year 2008, the two agencies got $188 billion in taxpayer funds as a form of assistance. As of now, they have paid back a quarter of that, and if profitable quarters continue, they will be able to repay the loan in full.

One of the things that helped the agencies return to profitability is the improving housing market. Another reason can be better risk management of the two agencies.

In addition to Fannie Mae and Freddie Mac, FHA is also rebuilding their reserves and recapitalizing.

Ever since the first months of 2009, FHA has increased its mortgage insurance premiums on four separate instances. New FHA homeowners located in high-cost areas (e.g. Orange County, California and Loudoun County, Virginia) currently pay as high as 1.5 percent every year to the FHA’s capital reserves.

A few things that helped FHA to keep a positive capital ratio and move toward its target 2 percent reserve ratio include bigger premiums and fewer FHA defaults.  At present, the capital ratio of FHA is around 0.50 percent. Moreover, $1 billion of the $25 billion mortgage services settlement went to FHA’s bottom line.

One huge factor that contributed to Fannie Mae, Freddie Mac, and FHA’s return to profitability is the increase in U.S. homeowners staying current on their respective home loans. In other words, decrease in defaults indicates fewer losses and more profit.

The Perks of Credit Inquiries

Credit inquiries are part of the statement that determines your FICO score and car shoppers need to be aware of the benefits of inquiries to their scores.

If your credit is not very good or spotless then it is wise to know the impact of credit inquiries on your score. Buyers of cars try to inquire about their credit however what they do not know is that if they are not careful, this could do more harm in their FICO score than good.

FICO employees have been blogging about the effects of inquiries to FICO scores when customers inquire for credit.

According to recent news about car loan inquiries: asking for your credit status in a 30 day interval before the scoring will have no significant effect in improving your FICO score, furthermore all inquiries made within a 45 day period are only counted as one but they must be all for auto loan.

According to FICO you should have only short reasonable periods for shopping and it would also be smart to research about the different companies and their auto deals first. If you have bad credit then you should be responsible enough to get a copy of your credit report from the three reporting agencies and your bill for payment in one of your credit.

Here are some inquiries that have no effect in your credit scores:

a) Inquiries for consumer disclosure – this is when a costumer asks for their credit report copy.

b) Inquiries for promotional purposes – this is when lenders would ask for review in credit offers that were previously approved.

c) Inquiries for account review – this is when lenders would ask for review for the accounts that they currently are handling.

d) Inquiries for employment – this is when potential employers requests for employment.

e) Inquiries for insurance – these are requests from insurance companies regarding a client.