Will this "Affect" your business? Lenders to Get Stricter With Reverse Mortgages

As of April 27, the federal government will be imposing tougher credit standards that are expected to make applying for a reverse mortgage a lot more difficult.

Reverse mortgages, which are only available to those 62 and older, are a way for home owners to get equity out in their homes and convert it to cash. The borrower does not face any repayment requirements until they sell the house, move out, or die. The borrower, however, is required to stay current on property taxes, insurance fees, and keep the home in a reasonable condition.

But the ease of getting these loans, which usually was just based on age and equity, is about to change. In the aftermath of the recession, many borrowers defaulted on their reverse mortgages, failing to pay the required property taxes and hazard insurance premiums. Also, due to fallen real estate values at the time, some home owners faced foreclosure, which amounted to huge losses for the Federal Housing Administration, one of the main insurers of reverse mortgages nationwide.

That has prompted the changes that will take effect as of April 27. Lenders will now scrutinize borrowers' income and financial assets, and applicants will be required to demonstrate upfront that they have both the willingness and capacity to meet the loan obligations. Lenders will pull borrowers' credit reports, and applicants will have to show they've paid their real estate taxes, homeowner association fees, and other property charges for at least 24 months. Lenders may also now require some applications to create a "life expectancy set-aside," where they have an account with part of their loan proceeds.

Reza Jahangiri, chief executive of American Advisors Groups, the nation's highest volume reverse mortgage lender, says the company expects a decline in reverse mortgages due to the changes. The company is expecting an 8 percent to 10 percent decline.

Maggie O'Connell, who originates FHA-insured reverse mortgages for the Federal Savings Bank from offices in Reno and Danville, Calif., says in the long-term the tougher rules for reverse mortgages is probably a good thing for the market because it will prevent financially weak borrowers from taking out loans they can’t handle and that eventually winds up in default.

Source: "Applying for Reverse Mortgages Will Get Tougher," The Los Angeles (April 12, 2015)

 

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Rent vs. Buy: How to Overcome Buyer Concerns

New research shows that home ownership tends to be a smarter decision than renting for many Americans, particularly now when rental costs are skyrocketing.

The monthly payment on a median priced home is more affordable than the monthly fair market rent on a three-bedroom property in 76 percent of the U.S. counties, according to RealtyTrac’s Residential Rental Property Analysis, which encompassed 461 counties nationwide with populations of at least 100,000.

Home ownership may not be for everyone. But for many, it makes sense.

Lawrence Yun, NAR's chief economist, says that families with home ownership tend to have a much higher net worth overall than renters. Home owners have the benefit from equity and long-term price appreciation.

At NAR's Economists' Outlook blog, the following chart is shown in responding to buyers concerns over "I can’t afford to buy!"

After all, the "home owner with a 30-year mortgage payment has a paid-off home after 30 years; the renter has a nice stack of 360 rental receipts," analysts note at NAR’s Economists' Outlook blog. Housing analysts also note the lifestyle and social benefits to home ownership, with studies showing that home ownership tends to lead to better education achievement by children and an increase in community involvement.

Source: "Using NAR Research to Address Prospective Buyer Concerns 'Why not rent? I Can’t Afford to Buy!'" National Association of REALTORS® Economists' Outlook blog (April 10, 2015)

 

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Fed: Interest Rate Hikes Likely in June

The Federal Reserve is signaling that it will likely take action on increasing interest rates in two months, despite recent data that shows a weakened economy. This would be the first rate increase since 2006.

Two central bank officials said Wednesday that disappointing job growth, manufacturing activity, and retail sales over the winter had pushed rate hike expectations to later in the year. For more than six years, the Fed has held rates near zero. But June is being viewed as the likely month for the Fed to start its rising of rates.

"I could imagine circumstances where a June rate hike could still be in play," says William Dudley, New York Fed president, and a voting member on the Fed's policy committee. "If the economy's strong, the unemployment rate is dropping, wages are rising, and the outlook is good, you could conceivably get to that point. The bar is probably a little bit higher" for a June hike given recent data.

The minutes from the Fed's mid-March policy meeting, which were released Wednesday, also indicated that June would be a likely start time for Fed officials to start hiking rates. The Fed also indicated that once they did start raising rates, they would do so gradually.

But even a slight rate hike could have ripple effects throughout the economy. The most obvious impact to the housing market would be a rise to mortgage rates. Rates have been near historical lows for years. An average 30-year fixed-rate mortgage averaged 3.70 percent last week, according to Freddie Mac. "The Fed cut rates to historic lows in 2008 in part to reboot the housing market, which collapsed when the housing bubble popped," CNNMoney reports. "When the Fed likely raises rates this year, it will push mortgage rates and auto loans up. That said, it’s uncertain if that will cause home or car buying to slow down."

Source: "Fed Officials Say June Rate Hike Still in Play, Hinges on Data," Reuters (April 9, 2015) and "What an Interest Rate Increase Means for Real People," CNNMoney (March 19, 2015)

 

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