NewRetirement Retirement News Digest : Mortgages

Reasons to Refinance Your Reverse Mortgage

jberman — Thu, 22 Oct 2009 09:31:00 GMT

San Francisco Examiner, October 21st, 2009

A government-issued reverse mortgage, or Home Equity Conversion Mortgage (HECM), is a great way to provide a more solid financial future for yourself. Sometimes, though, even better deals can be made possible if you refinance it when economic times become better than they were when you originally closed it. Here are some reasons why you may want to refinance your HECM with a newer HECM.

Lending Limits Increase

One thing that can make refinancing a reverse home mortgage a good deal is if the lending limits in your area have increased. If you have had your reverse mortage for a couple of years or longer, then it is quite possible that the current lending limits could enable you to receive a lot more money than you had before.

About a year ago, the lending limit was raised from $417,000 to $625,500. This meant that whatever your home's value was, you could not have received more than $417,000 for it. Now that it is raised - but only through January 1, 2010, you may be entitled to much larger amounts if your home has a greater value.

Local areas have limits, too, and this figure could have been changed. You would have to check to see if this has happened, but it is quite possible when the economy improves. When it does get raised, it means that you become eligible for increased amounts in a new HECM.

Interest Rates Get Better

Interest rates are always a concern with any kind of loan - even with a reverse mortgage loan. The higher your interest is, the more that your balance will be eaten away - reducing it even faster. When the interest rates on a reverse mortgage decrease, it enables you to have a cash flow even longer, or possibly even a larger one. A decrease in interest rates may even enable you to pass some (or more) of it on to your heirs.

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Five ways to make your nest egg last a lifetime

jberman — Tue, 22 Sep 2009 07:15:00 GMT

Marketwatch, September 17th, 2009

Back in the good old days, before the crisis of 2008-09, many experts suggested that all you needed to do was withdraw 4% per year, adjusted for inflation, from your nest egg. That strategy, experts said, was a near guarantee that your nest egg would last a lifetime.

Well, go tell that to the guy selling apples and pencils on the street corner.

Yes, conventional wisdom has proven to be more conventional than wise. And now everyone is trying to figure out the best way to turn a nest egg into an income stream that will last throughout retirement. And that includes AARP, which this week released two tip sheets that "challenge conventional thinking and offer general guidance about how to make the best decision for you and your circumstances."

One of the tip sheets, "Making Your Nest Egg Last a Lifetime," which was written by Anthony Webb of the Center for Retirement Research at Boston College, suggests the following:

1. Delay claiming Social Security

Retirees and would-be retirees need to consider matching their fixed and, best-case, inflation-adjusted sources of income against their fixed expenses. And one way to create the best inflation-adjusted source of income at the moment is to delay taking Social Security for as long as possible, certainly at least until your full retirement age if not longer, said Janet McCubbin, director of financial security at AARP's Public Policy Institute.

At the moment, many people claim Social Security -- even though it means a reduced benefit -- at age 62, using the faulty logic that they may not live past the so-called break-even point. The break-even point is the date at which the sum of your reduced early benefits no longer exceeds what you would have drawn with the heftier, delayed benefits. (There are plenty of Wed-based calculators to help you figure your break-even age.)

Loans That Looked Easy Pose Threats to Recovery

jberman — Fri, 28 Aug 2009 04:07:00 GMT

The New York Times, August 26th, 2009

When Harvey Clavon took out an exotic mortgage to refinance his home in Santa Clarita, Calif., three years ago, he thought he knew what he was doing.

Mr. Clavon, 63, was planning to sell the home in a few years and retire to Palm Springs. So he got a loan called an option adjustable rate mortgage, or option ARM, which allowed him to pay less than the interest for the first five years.

On his annual salary of $100,000 as a television camera operator, he could afford the $2,200 initial mortgage payments. And he planned to sell the home before the mortgage reset.

Now Mr. Clavon is part of what many economists say is a looming threat to a housing recovery: more than a half-million option ARMs scheduled to reset in the next four years, at rates many homeowners cannot afford. His mortgage payments have risen to $2,700 a month because of a clause he did not notice on his contract, and are scheduled to rise above $4,000 in two years.

Since February, default and foreclosure rates on option ARMs have passed those of subprime mortgages, according to the research firm First American CoreLogic, in part because so many subprime mortgages have already failed.

Because Mr. Clavon made only minimum payments on his mortgage, his balance has risen to $680,000 from $618,000, on a house worth closer to $400,000.

“I don’t know what I’m going to do, ” he said. “I got duped into the loan, and I consider myself an educated man.”

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Should You Carry a Mortgage into Retirement?

jberman — Wed, 22 Jul 2009 01:36:00 GMT

Center for Retirement Research at Boston College, July 21st, 2009

Although it remains the goal of many households to repay their mortgage by retirement, an increasing proportion now enters retirement with a mortgage. At the same time, households are increasingly likely to hold substantial amounts of financial assets, as a result of the growth of 401(k) and similar plans. Among households aged 60 to 69 in 2007, 41 percent had a mortgage. Of these, 51 percent had sufficient assets to repay their mortgage. These households could, if they wanted, be mortgage-free simply by selling some of their investments and mailing a check to the lender.

This Issue in Brief considers whether households should use retirement or non-retirement wealth to pay down their mortgage. It first shows that it is unlikely that many retired households will be able to earn a return on risk-free investments such as bank certificates of deposit, Treasury bills, and Treasury bonds that will exceed the cost of their mortgage. Liquidity considerations aside, households holding such assets will generally be better off using them to pay down their mortgage. It then considers and (for most households) rejects the argument that households should retain their mortgage because they can earn a higher expected return in stocks and other risky assets. It concludes with practical advice for most households.

Subprime Brokers Back as Dubious Loan Fixers

jberman — Tue, 21 Jul 2009 08:47:00 GMT

The New York Times, July 19th, 2009

From the ninth floor of a downtown office building on Wilshire Boulevard, Jack Soussana delivered staggering numbers of mortgages to homeowners during the real estate boom, amassing a fortune.

By Mr. Soussana’s own account, his customers fared less happily. He specialized in the exotic mortgages that have proved most prone to sliding into foreclosure, leaving many now scrambling to save their homes.

Yet the dangers assailing Mr. Soussana’s clients have yielded fresh business for him: Late last year, he and his team — ensconced in the same office where they used to broker mortgages — began working for a loan modification company. For fees reaching $3,495, with most of the money collected upfront, they promised to negotiate with lenders to lower payments on the now-delinquent mortgages they and their counterparts had sprinkled liberally across Southern California.

“We just changed the script and changed the product we were selling,” said Mr. Soussana, who ran the Los Angeles sales office of Federal Loan Modification Law Center. The new script: You got a raw deal, and “Now, we’re able to help you out because we understand your lender.”

Mr. Soussana’s partners at FedMod, as the company is known, were also products of the formerly lucrative world of high-risk lending. The managing partner, Nabile Anz, known as Bill, previously co-owned Mortgage Link, a California subprime lender, now defunct, that once sold $30 million worth of loans a month.

Jeffrey Broughton, one of FedMod’s initial partners, served as director of business development at Pacific First Mortgage, a lender that extended so-called Alt-A mortgages for borrowers with tarnished credit for Countrywide Financial, which lost billions of dollars on bad mortgages before being rescued in an acquisition.

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Mortgage crisis robbing seniors of golden years

jberman — Sat, 06 Jun 2009 04:24:00 GMT

USA Today, June 5th, 2009

Howard Weiss is 77 and scared.

This year, the semiretired distributor from Phoenix ran into financial problems and stopped making his mortgage payments. He was told his home was scheduled for a foreclosure auction in May.

So Weiss scraped together more than $2,000 to stave off the foreclosure. He's still trying to figure out if he can get a mortgage modification so he can afford his home.

"This is the biggest mess I've had in my life," Weiss says. "I could break down and cry. I was about to lose everything. I've been through (the Korean War), through a lot of crises. Now I've turned everything over to the Lord. ... I'm so stressed this is going to kill me."

The worst economic crisis since the Great Depression has slashed home values and triggered an unprecedented surge in foreclosures across the nation. It's also taking an especially harsh toll on an often overlooked demographic: seniors who are retired or nearly so.

Conventional wisdom holds that most seniors have paid off their mortgages or have significant equity in their homes, but in reality hundreds of thousands are suffering in the housing crisis.

This population is being hit on all fronts. More than 600,000 seniors are delinquent or in foreclosure, according to AARP. A separate report by AARP found that 25.5 million seniors ages 50 and older have a mortgage. Unlike younger people, many are on fixed incomes and lack the money or job opportunities to catch up on payments when they fall behind.

Some seniors have been victimized by predatory lenders or made bad financial decisions, taking on adjustable-rate mortgages that reset to payment levels they couldn't afford. For others, their mortgage problems grew out of other financial pressures, such as staggering medical bills or helping adult children through financial difficulties.

Senate Refuses to Let Judges Fix Mortgages in Bankruptcy

tsaleen — Sun, 03 May 2009 23:00:00 GMT

The New York Times - April 30, 2009

The Senate handed a victory to the banking industry on Thursday, defeating a Democratic proposal that would have given homeowners in financial trouble greater flexibility to renegotiate the terms of their mortgages.

The House of Representatives, meanwhile, overwhelmingly approved a bill backed by the Obama administration that would limit the ability of credit card companies to charge high fees and penalties. The bill, approved 357 to 70, still faces obstacles in the Senate, where — as the action on Thursday illustrated — the industry has more clout, particularly among Republicans and moderate Democrats. In recent days the White House, partly in response to polls showing the significant public outrage over high fees charged by credit card companies, has begun to work for its passage.

The mortgage provision garnered only 45 votes in the Senate, falling well short of the 60 votes necessary to break a threatened filibuster to a measure sponsored by Senator Richard Durbin, Democrat of Illinois, that would give bankruptcy judges greater flexibility to modify mortgages. In recent weeks, major banks and bank trade associations worked closely with Senate Republicans to stop the measure. Twelve Democrats joined all the Republicans in voting against it.

The defeat clears the way for a final vote as early as Friday for the legislation, which has several features that the banking industry has sought. One provision would have the effect of reducing a proposed special premium the banks would owe the Federal Deposit Insurance Corporation later that year by more than 50 percent — a $7.7 billion saving. A second provision would make permanent the temporary increase in deposits guaranteed by the F.D.I.C., to $250,000, from $100,000.

Once the Senate completes its action on the legislation, it will have to be reconciled with a similar measure already adopted in the House before it can become law.

The House bill contains the bankruptcy provision. But the Senate’s defeat of the so-called bankruptcy cramdown measure all but makes certain it will disappear from the final bill.

It also demonstrates that, even though Democrats are close to gaining 60 votes in the Senate with the recent decision by Senator Arlen Specter to leave the Republican Party, the increasing number of Democrats does not prevent the Republicans — with the support of a handful of moderate or conservative Democrats — from blocking legislation. Mr. Specter voted against the provision.

Bank lobbyists had maintained that the legislation, if adopted, would have resulted in higher rates for all mortgage holders. A letter signed by 12 industry organizations this week to senators warned that the legislation would “have the unintended consequence of further destabilizing the markets.”

“Though interest rates today are at all-time lows, this legislation would result in higher costs for future borrowers,” the letter said.

But supporters of the legislation disputed that argument. President Obama sought the cramdown provision during the election, although the White House has done virtually nothing to move it through Congress.

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Older Borrowers, Out in the Cold

tsaleen — Sun, 26 Apr 2009 17:50:00 GMT

The Wall Street Journal - April 14, 2009

YUBA CITY, Calif. -- In 2006, Carol Couts, a 66-year-old widow in Yuba City, Calif., was living in her home, payment-free, when a mortgage broker persuaded her to refinance her no-cost mortgage for one that exceeded her monthly income by more than $400.

She can't afford the payments, and unless her lender modifies the loan to make it affordable, she'll lose her home of 25 years. She's given away most of her furniture and her cat, and packed her belongings in cardboard boxes. "We've got nowhere to go," she says, referring to herself and her dachshund, Ollie.

As the government presses lenders to modify mortgages, a large subset of distressed borrowers is being left out: older homeowners on low fixed incomes. Many of them are now facing foreclosure, say legal-aid advocates and AARP attorneys, because they were sold loans they could never afford, often fraudulently.

Many of these homeowners had lived for decades in their home and had built up substantial equity, but had low incomes. This made them tempting targets for brokers who persuaded them to refinance their mortgages, telling them they could lower their monthly payments. Instead, many of these loans were loaded with fees and exploding interest rates and quickly became unaffordable.

These borrowers' incomes are often so low -- many are living solely on Social Security -- that few qualify for mortgage-relief programs. Even if lenders agree to reduce the interest rate and stretch out the repayment period, strategies at the heart of the Obama administration's antiforeclosure guidelines, "they won't get payments low enough," says Tara Twomey, an attorney with the National Consumer Law Center.

Hundreds of thousands of people in once-hot markets such as California's Central Valley fall into this camp, say housing counselors. Often the only way to keep these people in their homes is if lenders rescind the fraudulent loans or reduce the principal, steps most are unwilling to take.

The U.S. House of Representatives has endorsed legislation that would allow bankruptcy judges to modify or rescind loans even if lenders are unwilling. But lenders oppose the measure and the legislation has stalled in the Senate.

Meanwhile, people like Mrs. Couts are facing foreclosure. After her husband died in 2005, she took out a reverse mortgage, a deal available only to people 62 or older with substantial equity.

With a reverse mortgage, a bank makes payments to a homeowner, and the homeowner keeps control of the house and doesn't have to pay back the money as long as he lives there. The loan is repaid, with interest, when the borrower sells the house, moves out or dies.

The arrangement enabled Mrs. Couts to stop making mortgage payments so she could afford to remain in her home on her $913 a month in Social Security.

In 2007, she received numerous phone calls from a mortgage broker named Daniel Lewis. According to Mrs. Couts, he told her he was contacting seniors to warn them that banks were canceling reverse mortgages because they were unprofitable. She would have to refinance her home, he told her, or lose it. (This wasn't true; reverse mortgages generally aren't repayable until death.)

Mrs. Couts signed a document that said she could cancel within three days, and also signed documents that she thought were for a 30-year conventional loan with low monthly payments. The next day she saw that the application listed her income as $5,075 a month. She called Mr. Lewis to point out the error and to cancel the loan, but says he told her it was too late to change anything.

The broker had used a "no doc" application, which doesn't require proof of income. Many brokers used these stated-income applications when borrowers' incomes were too low to qualify them for loans. All of the other boxes for listing income and assets in Mrs. Couts's application, which was obtained by The Wall Street Journal, were blank.

Mrs. Couts's first statement showed she had an adjustable-rate mortgage with an initial interest-only monthly payment of $1,333. She soon defaulted, and Wachovia Corp. -- which had acquired World Savings & Loan, the firm Mr. Lewis worked with -- started foreclosure proceedings.

Wachovia -- now a unit of Wells Fargo & Co. -- has offered to change Mrs. Couts's loan to one with interest-only payments that begin at 66% of her monthly income, rising to more than 100% in a few years.

Citing customer privacy, a Wachovia spokesman declined to say whether the bank took fraud into account when it proposed the modification plan to Mrs. Couts. In a statement, Wachovia said that Wells Fargo has developed mortgage assistance plans to help Wachovia customers with Pick-a-Payment loans (the type Mrs. Couts has) and that the solutions "differ based on the customers' circumstances and what will be required to help them reach a sustainable mortgage payment."

Mr. Lewis couldn't be reached for comment.

During the mortgage boom, brokers commonly cold-called older homeowners. "I was inundated," says Floy Mae Bryant, 84, a retired telephone operator in Visalia, Calif., who had owned her home since the early 1990s. Loan records show Mrs. Bryant refinanced six times in less than three years using multiple brokers.

Serial refinancing was common among older borrowers, legal-aid lawyers say. Brokers pitched loans with low teaser rates, explaining the homeowner could simply refinance when rates reset. Yet borrowers like Mrs. Bryant didn't understand that each refinancing added thousands of dollars in fees to their debt.

Mrs. Bryant's last refinancing was in September 2005, just a month after her previous one. A mortgage broker placed her in a Countrywide Financial Corp. "option ARM," an adjustable-rate mortgage with a monthly payment of $1,545, barely affordable on her $2,310 Social Security and pension income. To make her mortgage payments, she drew on a $39,000 home-equity line of credit that the same broker encouraged her to set up.

One son helped her financially, but he died of cancer in November 2007; five months later, Mrs. Bryant's 65-year-old developmentally disabled son, who lived with her, also died of cancer. Mrs. Bryant missed her March 2008 payment, and Fannie Mae, which had bought the loan from Countrywide, sold her home in foreclosure in April. She moved to a rented trailer 20 miles away, returning two or three times a week to her vacant former home to water the roses.

Legal-aid attorneys challenged the foreclosure on the grounds that the underlying loan was fraudulently made. Fannie Mae is now in the process of setting aside the foreclosure and modifying the loan. "We intend to work with the borrower to reach a resolution that will allow her to remain in the home," says a spokeswoman.

Most defrauded homeowners get no help. Few people know they've been defrauded, and law enforcement generally investigates only when the fraud is perpetrated against lenders, not borrowers. While some legal-aid offices and AARP attorneys have sued lenders, they can take few cases -- and when they do, the cases can drag on until the homeowners die.

A recent case involved John and Vernice Green, an elderly couple in Sacramento, Calif. In late 2006 they signed up for what they thought was a reverse mortgage on their home of 32 years.

But the next month, they found they actually had an adjustable-rate loan more costly than the one they had before. The interest rate went to 11.4% from 6.25%, which increased their monthly payment to $2,106 from $794. Frantic, they tried to reach the broker, Melissa Villegas. According to legal-aid advocates who helped the Greens, she didn't return their calls and the Greens never heard from her again.

The couple soon defaulted. They eventually called Sacramento County Adult Protective Services, which in April 2007 sent a social worker, Heidi Richardson, to their home. Ms. Richardson says Mrs. Green was cognitively impaired, and could read only with a magnifying glass, and that Mr. Green was trying to take care of the home, despite having had both feet amputated. Ms. Richardson found him watering the lawn from his wheelchair.

She referred the case to the California Senior Legal Hotline, a nonprofit law office that has been swamped with foreclosure cases. Ralph Livingstone, 71, a volunteer attorney there, obtained the loan documents, which showed that the Greens had authorized the IRS to release their income-tax returns to the lender, and authorized the lender to obtain their employment and bank records.

Meantime, the application contained various fabrications. It noted that the Greens each had 16 years of education; in fact, Mrs. Green had only been through eighth grade, and Mr. Green had left in fifth grade in Mississippi during the Great Depression to help support his family.

The application also falsely said Mrs. Green was employed as an administrative assistant at Friendship Church in Sacramento. That helped inflate the couple's monthly income to $6,965, versus their actual income of about $3,000, from Social Security and Mr. Green's Teamsters pension.

The documents showed that the transaction costs totaled $20,127, of which $11,757 was for commissions and fees for the broker and lender.

Ms. Villegas's lawyer declined to comment. In an interview, the minister of Friendship Church, Rev. Donald Wright -- who, the Greens told advocates, had originally steered Ms. Villegas to them -- declined to say whether his church employed Mrs. Green. But he said "Melissa was a friend," and described Mrs. Green as financially sophisticated.

"The people who know the truth are me, Melissa and God," said Mr. Wright. "Under no circumstances would I do some illegal crooked stuff."

Mr. Livingstone investigated the loan transaction, hoping that if he could show it was fraudulent, the lender would be more willing to change the terms. To stall the foreclosure, he helped the Greens file a Chapter 13 bankruptcy, and continued to attempt to get the servicer to modify their loan.

"There are thousands of people being washed away in a flood, and we reach into the river and pull out one here and there, and keep them from drowning," says Mr. Livingstone.

Amid the continued stress, Mr. Green was hospitalized. He died Feb. 5, 2008, age 83.

In June, Ms. Villegas, 29, was arrested and charged with participating in a scheme to defraud lenders. The criminal complaint alleges that Ms. Villegas made false statements to investigators and that loan applications she arranged gave false occupations and inflated incomes. Ms. Villegas denied wrongdoing, and the case is pending.

Late last June, the servicer agreed to reduce the principal on the Greens' loan and convert it to a fixed rate with 7% interest. Mr. Livingstone called to tell the 80-year-old Mrs. Green the news. He learned she was in the hospital with kidney failure. She died a few days later, on the Fourth of July.

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Generation Mortgage Closes Its First HECM For Home Purchase

tsaleen — Wed, 25 Mar 2009 00:28:00 GMT

PR Newswire - March 24, 2009

California Couple Leverages Government Stimulus Program to Purchase a New Home

ATLANTA, March 24 /PRNewswire/ -- Generation Mortgage Company(TM) closed its first Home Equity Conversion Mortgage (HECM) to aid seniors in the purchase of a new home.

This past January, as part of the Housing and Economic Recovery Act of 2008, approved reverse mortgage lenders began offering HECM for Purchase loans, reverse mortgage proceeds combined with a cash down payment that enable senior homeowners to purchase a new principal residence. In February, HUD raised the HECM loan limit from $417,000 to $625,500 nationwide.

The new loan, also insured by the Federal Housing Administration (FHA), differs from a traditional reverse mortgage which is offered to homeowners, aged 62 or older with significant home equity, in order to convert that equity into cash without leaving their homes. Both loans are designed to remove the burden of monthly mortgage payments for as long as the homeowner remains in the home, but in the case of the HECM for Purchase, seniors who would like to purchase a new home and wouldn't normally qualify for a mortgage because of credit issues or fixed income now are able to do so.

"John and Dorothy are very excited about owning their new home," says Phil Goss, Reverse Mortgage Professional, Generation Mortgage. "They are repeat clients - we worked together to get them a reverse mortgage on their previous home, which they sold in 2008. We kept in touch and when I updated them on the implementation of the HECM purchase option, they immediately began looking for a new home. They closed in early March and are busy making the final arrangements so they can move in within the required 60 days."

"Our clients' story exemplifies our commitment to maintaining customer relationships," said Jeff Lewis, chairman, Generation Mortgage Company. "The HECM for Purchase loan is a new and complex product, but our reverse mortgage professionals are among the most dedicated and experienced in the business. That is why seniors like Phil Goss' clients with the goal of financial freedom, comfort and dignity inherent in owning a home, turn to Generation Mortgage to help them achieve it."

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Top 3 Emerging Mortgage Scams To Watch Out For

tsaleen — Mon, 23 Mar 2009 07:18:00 GMT

The Consumerist - March 19, 2009

In its recent annual report to the Mortgage Banker's Association, the Mortgage Asset Research Institute described three emerging mortgage fraud schemes that are either new or increasing in popularity.

Foreclosure Prevention Schemes – These generally involve fraudsters posing as professional, knowledgeable foreclosure specialists. Homeowners facing the threat of foreclosure and nearing eviction are contacted by these "foreclosure specialists" who promise to work out their loan problems or buy their home and offer the homeowners tenancy. Unfortunately for the homeowner, the fraudster has no intention of following through with these promises and instead will manipulate the homeowner into deeding the property to them. Once the fraudster obtains the signed documents, a false lien release is generally filed or leveraged to secure funds from a fabricated sale or refinance on the property. In many cases, the homeowner is under the belief that they will rent the property for a period of time until they are in a better position to regain ownership rights. The fraudster continues to accept payments made by the homeowner while selling the property, absconding with the funds, and eventually evicting the homeowners. Perpetrators of this type of fraud often move from town to town, sizing up their opportunities, quickly scamming as many homeowners as possible, inflicting costly damages, and then moving on to the next location.

Elderly and Immigrant Identity Fraud — While not new, elderly and immigrant fraud is regaining popularity. In this predatory practice elderly and non English-speaking consumers are taken advantage of by fraudsters who steal their identities and use them in strawbuying or other property transactions. This is currently happening in some reverse mortgage situations. Similarly, some immigrants who rent properties are discovering that their identities have been used on fabricated loan transactions. A simple inquiry about a loan product that leverages investment or rental properties can be enough to obtain information for use on fabricated loan transactions.

Builder Bail-Out Fraud – This involves securing funds for condominium conversion or planned community development properties that, unbeknownst to the investor, will not be completed. The scams entail multiple purchases from would-be investors or false identities on fabricated loan transactions. Investors are lured by photos or inspections of a few converted units used as models with promises of further rehabilitation of remaining units. Once the contracts are in place, the fraud continues as the perpetrator secures funding for the contracts; however, no additional work is done and the investors and lenders are left with incomplete and, in some cases, uninhabitable
dilapidated buildings.
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Baby Boomers ‘Under Water’

tsaleen — Sun, 15 Mar 2009 07:06:00 GMT

The New York Times - March 13, 2009

A recent report suggests that the housing-market slump is hitting baby boomers particularly hard: many middle-aged homeowners had been so seduced by the rising prices of years past that they failed to save for retirement and may now owe more than their homes are worth.

The Center for Economic and Policy Research in Washington, which released the report last month, estimated that 30 percent of homeowners aged 45 to 54 were in this predicament, known as being “under water.” (About 15 percent of older baby boomers, 55 to 64, fell into that category as well.)

So, if these people were forced to sell their homes now, they would have to bring cash to the closing.

The center’s report also found that baby boomers in the 45-to-54 group saw their overall net worth plummet by about 45 percent over the last five years, to a median level of $94,200 from $172,400.

While the drop partly reflected the meltdown of Wall Street, Dean Baker, the co-director of the Center for Economic and Policy Research, said that conservative estimates showed that home equity accounted for about $20,000 of the net income figure.

Another factor that has led to a decline in personal wealth is what the report calls “the near zero level of savings nationally” from 2004 to 2009.

“As a result of the bubble-inflated values of their homes, tens of millions of families opted not to save during what would typically be their peak saving years,” the report said.

The center used 2004 consumer finance data from the Federal Reserve Board that measured a typical consumer’s wealth in several categories, including stocks and home equity. Researchers then reduced those values in accordance with the drop in the Standard & Poor’s 500-stock index and the median sale price of a house as tracked by the National Association of Realtors. The November S.&P./Case-Shiller 20-city price index was also factored into the projections.

Mr. Baker said he suspected that fewer baby boomer homeowners were under water in the New York metropolitan region than in other parts of the country, particularly areas where prices have fallen sharply, like Florida, Arizona and Rust Belt states like Michigan and Ohio. But he said that because of the financial industry’s persistent woes, owners in the New York area could see more significant declines in home prices this year.

Indeed, many areas in the region are already suffering. According to a report this month by Integrated Asset Services, a Denver-based real estate consulting firm, prices in Fairfield County, Conn., have dropped 42 percent since their peak in 2006, while prices in Passaic County, N.J., have dropped 26 percent.

Those homeowners around age 60 whose mortgages are under water, and who might now be considering selling, should carefully weigh their options, said Richard E. Austin, a financial adviser with Lincoln Financial Advisors in Rye Brook, N.Y. Selling the house would cost them money, he noted, which could mean that they might need to liquidate other assets — even retirement savings plans like 401(k)’s.

But Mr. Austin said that if these homeowners expected real estate prices to decline for years, and if they wanted to retire someplace other than their current home, selling now could shield them from deeper losses in the future.

“I wouldn’t recommend that as the first option, because I’m more of an optimist,” Mr. Austin said, adding that a better option might be to rent out the house while waiting for home prices to rebound.

Even baby boomers who aren’t under water could have a more difficult time affording retirement. According to the center’s report, five years ago, the median baby boomer household, with people aged 45 to 54, had enough net assets to generate about $14,000 in annual interest once the homeowners reached age 65.

Now, that figure is just under $8,000.

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FHA implements temporary higher loan limits to help families keep their homes

tsaleen — Thu, 26 Feb 2009 03:52:00 GMT

HUD - February 25, 2009

More American families will be eligible this year to purchase or refinance their homes using affordable, FHA-insured mortgages, thanks to the economic stimulus package signed into law by President Obama last week. The American Recovery and Reinvestment Act of 2009 will allow HUD's Federal Housing Administration to temporarily increase its maximum loan limit, allowing FHA to insure larger mortgages at a more affordable price in high-cost areas of the country.

"This is one of many elements of the President's recovery plan that will help homeowners and homebuyers in these high cost areas secure lower cost mortgage financing," said HUD Secretary Shaun Donovan. "These loan limit increases will help FHA continue to provide safe, affordable mortgage products to families in all areas of the nation. Today's announcement is just one example of how the President's recovery and homeowner affordability plans work together to make homeownership more affordable for those looking to buy a house or refinance their current loans."

HUD will increase FHA loan limits up to $729,750 in high-cost metropolitan areas such as New York, Los Angeles, San Francisco and Washington, D.C. There are 73 counties in the U.S. that will now be eligible for the highest loan limit of $729,750. Previously, FHA's loan limits in these high-cost areas were capped at $625,500. The change in loan limits is applicable to all FHA-insured mortgage loans originated until December 31, 2009.

Increasing loan limits will help FHA continue to provide needed stability to housing markets across the country. As conventional sources of mortgage credit have contracted, FHA has been filling the void. From September to December 2008, FHA facilitated $97 billion of much-needed mortgage activity in the housing market, $35 billion of which was through FHA's refinancing products. By focusing on 30-year fixed rate mortgages, FHA helps homeowners avoid and escape the risks associated exotic subprime mortgage products, which have resulted in rising default and foreclosure rates.

Home Equity Conversion Mortgages

FHA's reverse mortgage product known as the Home Equity Conversion Mortgage (HECM) will have a new national mortgage limit of $625,500, up from the previous limit of high of $417,000. Reverse mortgages allow homeowners age 62 and older to borrow against the value of their homes without selling them or having to make any monthly repayments. Homeowners can select a lump-sum payment, monthly payments or tap into a line of credit. No repayment is required as long as a homeowner lives in a home with a reverse mortgage. The reverse mortgage is repaid, with interest, when a homeowner sells the home or dies.

FHA loan limits are based on the county in which the property is located. However, for properties located in metropolitan or micropolitan statistical areas, the limit is set for the county with the highest median home price within the metropolitan or micropolitan area.

The new temporary FHA loan limits are posted on the HUD website. Additional details on these new temporary loan limits, including FHA's mortgagee letter and attachments, are available.

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Housing secretary defends Obama foreclosure plan

tsaleen — Mon, 23 Feb 2009 03:11:00 GMT

CNN - February 22, 2009

The Obama administration's efforts to help struggling homeowners will aid "responsible" borrowers, not deadbeats or speculators, Housing Secretary Shaun Donovan said Sunday.

President Barack Obama announced the plan Wednesday, saying it will help up to 9 million people keep their homes in a housing market ravaged by foreclosures. But critics, including several leading Republicans and some commentators, said the $75 billion proposal will unfairly help some people at the expense of others.

White House spokesman Robert Gibbs acknowledged Friday that some people who made "bad decisions" might end up getting help under the proposal. But Donovan, Obama's secretary of housing and urban development, told CNN's "State of the Union" on Sunday that "there are no 'flippers,' investor-owners or scammers that are eligible for this program."

"We're going check everybody's income when they come into this program. We're going to make sure that people are paying their bills. And more than anything, we're targeting the folks who are playing by the rules," Donovan said.

The administration's proposal would make it easier for homeowners to afford their monthly payments either by refinancing the mortgages or having their loans modified. And it would vastly broaden the scope of the government rescue by focusing on homeowners who are still current in their payments but at risk of default. Read more about the plan

South Carolina Gov. Mark Sanford, a Republican who also has criticized the administration's stimulus package, called the mortgage plan "a horrible idea."

"About 95 percent of folks are playing by the rules and struggling, but still paying their mortgages. The idea that somebody down the street gets a different system, I think, is ultimately something that's going to undermine a whole lot of other folks with regard to paying their mortgage," Sanford told "Fox News Sunday."

In particular, he singled out a provision that would allow judges to modify or reduce the principal of loans for borrowers in bankruptcy -- an idea Sanford called "incredibly dangerous for the precedent it sets."

But Donovan told CBS's "Face the Nation" that judges already have that power for second homes or vacation homes.

"It's only for people who have one home and are living in it or are in trouble where you can't have a modification of that loan in bankruptcy," he said. But he said the administration would limit the plan to existing loans, not future ones, and considered it a "last resort."

"There seems to be growing consensus that this is an important part of the solution," he said.

About $50 billion of the money would come from the $700 billion financial industry bailout package, a senior administration official said Friday. Nationalized mortgage giants Fannie Mae and Freddie Mac will contribute more than $20 billion to the loan modification program, mainly to subsidize interest rates so troubled borrowers' monthly payments can be lowered to affordable levels.

But those companies are on shaky financial ground themselves and are expected to report billions in losses in the next week or two. To stabilize them, the foreclosure prevention program calls for doubling their lines of credit with the federal government to $200 billion each.

Donovan said 45 percent of home sales in December were "distressed," meaning either sellers were facing foreclosure or the homes were already seized by the bank, driving down home prices further in an already-battered market.

"We've got to make clear, here, that a foreclosure hurts every American," he told CNN.

In releasing his proposal Wednesday, Obama said it would help both responsible homeowners suffering from falling home prices and borrowers either at risk of or already in default. But it does virtually nothing for the unemployed, who often don't have enough income to make any reasonable monthly payment affordable. And since it relies more heavily on lowering interest rates than on reducing principal, it does little for borrowers concerned their homes will never recoup their value.

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Obama gambles $275bn on housing

tsaleen — Mon, 23 Feb 2009 02:48:00 GMT

The Sunday Business Post - February 22, 2009

Just one day after signing a $787 billion economic stimulus package into law last week, President Barack Obama turned his attention directly to the housing crisis - and committed another $275 billion of taxpayers’ money in an effort to solve the problem.

About 10 percent of mortgages in the US are either delinquent or have already entered the foreclosure process. If that trend were to continue, the consequences would be dismal, with six million families at risk of losing their homes in the next three years.

Obama announced his plans to reverse that scenario in Phoenix, Arizona - one of the cities worst hit by the property crisis. Housing values there have fallen by 43 per cent from their 2006 peak.‘‘We will help between seven and nine million families restructure or refinance their mortgages, so they can avoid foreclosure,” Obama said.

‘‘And we are not just helping homeowners at risk of falling over the edge. We are preventing their neighbours from being pulled over that edge too, as defaults and foreclosures contribute to sinking home values, failing local businesses and lost jobs.”

The president’s plan has two main components. It makes refinancing easier both for borrowers who are already delinquent and for those who are still up-to-date with their payments, but experiencing financial distress. It also provides extra funds to the giant mortgage companies Fannie Mae and Freddie Mac, in an effort to thaw the market more generally.

For those in danger of foreclosure, Obama is proposing that lenders should find a way to reduce monthly repayments to 38 per cent of the borrower’s gross income. If that were accomplished, the government would then come in to subsidise a further reduction, down to 31 per cent.

There are additional ‘carrots’ for lenders and borrowers. Lenders would get $1,000 for each loan modified, and would also have the potential to get another $1,000 in fees per mortgage every year for another three years under a so-called ‘pay for success’ arrangement.

As for borrowers, the government would pay down the principal amount they owe by $1,000 per year for five years, so long as they stick to the terms of the refinanced mortgage. Borrowers struggling with a mortgage that is worth more than their house as a result of falling prices also have some possibility of relief.

Fannie Mae and Freddie Mac, which are government-controlled and together stand behind about half the mortgages in the US, are currently prohibited from refinancing mortgages if the borrower has not built up at least 20 per cent equity.

Obama is loosening that restriction, to enable refinancing to be offered when the mortgage in question is worth up to 105 percent of the home’s current value.

Critics note that this automatically excludes Americans whose mortgages are not backed by Fannie and Freddie, and that even the new 105 percent clause will still disqualify millions of homeowners, because home values have fallen so precipitously.

Reaction to the plan has been mixed. There are the usual partisan divisions between Republicans and Democrats, and between economists who argue that the proposal amounts to either too little or too much government intervention.

But there also appears to be a groundswell of dissatisfaction that taxpayers who have behaved responsibly by taking out an affordable mortgage and repaying it on time will, in effect, be obliged to bail out those who behaved more recklessly.

A great deal now depends on whether Obama’s broader argument - that foreclosures hurt house prices throughout a neighbourhood, reducing home values for the diligent and delinquent alike - can carry the day.

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Rick Santelli's Shout Heard 'Round the World

tsaleen — Sun, 22 Feb 2009 21:30:00 GMT

CNBC - Feb 20, 2009

CNBC's Rick Santelli called for a "Chicago Tea Party" Thursday, leading the charge for calls to revolt against the Obama Administration's mortgage bailout plan (see video below).

The clip has gone viral on the Internet, bringing with it loads of opinions, both pro and con.

And CNBC.com's The Heat is back for the occasion, asking "Should America Join Santelli's Tea Party?"

Santelli was back in action Friday (watch the video), and even the White House mentioned him directly in response to questions about the bailout — not once, not twice, but NINE times ... and even invited Rick to the White House for coffee. Not tea, mind you.

Watch the original shout heard 'round the world in the following video clip. Then read what others are saying about it.

See full article with video here...

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