Sean is the vicar of a
Protestant parish in western Newfoundland, and Patrick is the priest at the
Roman Catholic Church across the road. One day they are seen together, erecting
a sign which says:
"THE END IS NEAR. TURN
YOURSELF AROUND NOW BEFORE IT IS TOO LATE."
As a car speeds past them, the
driver leans out his window and yells, "Leave people alone, you religious
nutters. We don't need your lectures."
From around the next curve they
hear screeching tires and a big splash. Shaking his head, Father Patrick says
"Dat's da terd one dis mornin'."
"Yaa," Sean agrees,
then adds, "Do ya tink maybe da sign should just say, "BRIDGE
CLOSED?"
As the storm hits the east
coast and tests everyone's disaster recovery systems, there are sure some zany
things going on out there, personnel-wise. I guess when you combine a year just
ending with a population of people who are weary of the business, or having
their entire net worth threatened by regulators, we can expect to see turnover
and retirements at plenty of lenders & investors, and even MBS trading
desks like Barclays. (Regarding one business channel one industry vet wrote to
me saying, "Correspondent is the spigot they turn on and off when the bath
tub needs water. As predicted the hedge fund money that poured into the
industry will leave as fast as it got here. With dozens of aggregators,
however, bidding for loans it's still a seller's market.") It is certainly
a good time for solid businesses to be picking up talent!
The FHA's insurance fund is out
of the headlines, having moved above the mandated 2% level. (Yes, for the first
time since 2008!) Everyone agrees that the increase is primarily due to the
reverse mortgage program. Yes, actuary folks say we have about 10,000 people a
day turning 62 (or turning 65 and retiring) here in the U.S. - that magic age
for reverse mortgages. Who says it isn't a growth business? Those "in the
know" point to appreciation in the housing market, changes to upfront mortgage
insurance premium pricing, and new borrower assessment rules. But the value of
the reverse mortgage portfolio is very much subject to interest rate
fluctuations and home value forecasts.
No one is getting any
younger. Retirees have long loved to move to places like Florida, Nevada, and
Texas due in part to the lack of state income tax, as well as a homestead
program for real estate tax in Florida. In Florida the homestead program pretty
much caps any real estate tax at the rate of inflation (or even less) so if you
buy a home in FL as your primary residence, you can live there a long time on a
fixed income without worrying about the cost going up. Of course, that is how
it works until the insurance companies start to adjust your premiums for
possible hurricane damage. As STRATMOR's Garth Graham put it, "The other
reason retirees love FL is early bird special at the various restaurants, but
that is for a column about trends in restaurant sales not mortgage sales.
And of course, the weather is pretty nice, but that is for the weather
channel."
In Florida and parts of other
states there is also a big influx of foreign investment, especially in the once
again growing condo market on the coasts. In many cases, these are speculative
buyers getting the early hard to finance units, and hoping to cash in on the
potential appreciation as the project has more presales. Values in South
Florida are back to pre-bust levels, so those investors that bought when the
market was at the bottom did well with this approach.
I spoke to Harlan Accola
with Fairway Independent Mortgage Corporation. He pointed out that in
the vast universe of consumer borrowing, reverse mortgages get little respect.
They cause the same kind of eyebrow lift as pawn tickets, car title loans, and
rent-to-own TV sets. Harlan mentioned a study done by Wade D. Pfau, a
researcher and professor of retirement income at the American College of
Financial Services, recently completed a study that examined the probable
results of seven different ways of using a reverse mortgage. Included in those
seven ways was the option of not taking a reverse mortgage at all. Among the
options he studied were to use home equity first, use home equity last and use
a monthly tenure payment. He also used three more complicated payment
mechanisms. Finally, he also explored the legacy value of each way of using a
reverse mortgage, i.e., how much money was likely to be left for heirs.
According to his
study the lowest overall success rate, by far, was the "ignore
home equity" route - no reverse mortgage at all. It had only a 40 percent
30-year survival rate. The others ranged from just under 70 to 90 percent. This
strongly suggests that a reverse mortgage should be a tool middle- and
upper-middle-income families consider. The overall best route was the monthly
home tenure payment. This is a reverse mortgage that is based on your life
expectancy. It makes a constant payment based on the owner's age and the value
of the home. It showed a probability of success over 80 percent. It also
generally showed the highest median real legacy value. It was a big winner for
periods over 30 years.
Fairway's Accola had plenty
of other studies. "The lack of focus on home equity in retirement income
planning is nothing short of a complete failure to properly plan and utilize
all available retirement assets. This needs to change immediately because
strategic uses of home equity, especially reverse mortgages, could save many
people from financial failure in retirement and help
stem the overall retirement income crisis facing Americans."
What about kids who worry
about their parents taking out a reverse mortgage? John Yedinak puts out the
Reverse Mortgage Daily. A recent article was titled, "Reverse
Mortgage Heirs Are 'Dead Wrong' About Their Inheritance."
"Through the judicious and responsible use of a reverse mortgage, a
borrower can actually provide heirs with a substantial bequest in the form of a
securities portfolio, the money from which they may be eligible to receive
tax-free, according to a presentation at last month's NRMLA conference in San
Francisco by Barry H. Sacks, J.D., Ph.D., a practicing tax attorney. A reverse
mortgage accrues interest over a long period of time, but the interest is not
deductible until it is actually paid. The tax law that dictates how much of the
accrued interest is deductible, and under what conditions. If the estate
management is done well, Sacks said there is a deduction available to reverse
mortgage heirs that would otherwise be lost under the conventional approach to
estate planning, where the estate sells the home and distributes the proceeds
among heirs and beneficiaries."
What about mortgage company
owners that are afraid of showing up one morning and being confronted with the
Gray Panthers picketing the office? The guidelines are pretty much set out by
HUD. In fact the U.S. Department of Housing and Urban Development conducted a webinar last
quarter which provided further clarification and important reminders pertaining
to the HECM Financial Assessment and Property Charge Set Asides.
The HUD requirements
mentioned here must be satisfied for all HECM loans submitted. The lender must
document 24 months of property charge payment history for all properties owned
by the borrower, including the previous principal residence if the borrower has
changed the principal residence in the past 24 months. Only debts attached to
the subject property can be paid off at closing with HECM proceeds. (Non-real
estate debts (revolving, installment, etc.) not attached to the subject property
cannot be paid off at closing with HECM proceeds.) Unused HECM proceeds that
are not used for paying off mandatory obligations can be considered as
dissipated asset and can be used in the calculation of the residual income. In
cases of a residual income shortfall or negative residual income, a HECM can be
approved only if one of the following conditions is sufficient to completely
mitigate the residual income shortfall: the borrower must have satisfactory
property charge payments and debt payment history AND meet one of the following
requirements to completely mitigate the residual income shortfall: fully funded
Life Expectancy Set Aside (LESA)*, or partially funded LESA, or Compensating
Factors, or a combination of LESA and Compensating Factors. HUD states
that if the residual income shortfall cannot be completely mitigated by one of
the above, then the HECM cannot be approved because it cannot be considered as
a sustainable solution to the borrower's financial circumstance. (*LESA is the
amount withheld from the proceeds of the HECM for the projected payment of
property charges during the life of the borrower.)
And don't forget that the
FHA has given HECM (home equity conversion mortgage) borrowers more time by
extending the deadline for lenders or servicers to submit due and payable
notices when HECM borrowers or spouses are delinquent on property taxes or
insurance payments. In
Mortgagee Letter 2016-01 FHA Principal Deputy Assistant Secretary
Ed Golding announced that the deadline has been extended for lenders and
servicers until April 17 to file the due and payment notices in accordance with
changes made by the FHA last April. The extra time was added to give servicers
more time to pursue loss mitigation options such as an HECM Loss Mitigation
Repayment Plan for their delinquent tax and insurance payments, according to
FHA.
FHA stated in the original
policy announcement last April that "Mortgagees must
inform mortgagors in writing that they have thirty (30) days to respond to a
Due and Payable Notice. All Due and Payable Notices sent to mortgagors must
reference available loss mitigation options, if any, and inform the mortgagor
of his/her ability to sell his/her property or execute a Deed-in-Lieu of
foreclosure."
Lenders aren't ignoring
trend in reverse mortgage lending. "How to Use the Reverse Mortgage to
Purchase a Home"is being offered by Plaza Mortgage on Tuesday,
February 16 at 11 a.m. Pacific. "Mark Reeve, Plaza's
Reverse Mortgage National Director, will explain everything you need to know to
help your customers use a Plaza Reverse Mortgage to purchase a home."
Certainly many lenders
offer the product. For example Sun West's HECM and underwriting
Guidelines are now updated to include clarifications and additional information
provided by the HUD webinar with examples of residual income analysis.
Guidelines for the Correspondent channel can be accessed here. Guidelines
for Wholesale and Hybrid Correspondent channels can be accessed here.
SunWest's Standard 203(k)
Rehabilitation Mortgages require the HUD Consultant to be selected from an approved
list that has also been reviewed by Sun West prior to ordering any
Consultant services or making any agreements with the Consultant or the
borrower.
Sun West has created a
summary of changes and a list of frequently asked questions related to the new
underwriting guidelines of the new HUD Single Family Housing Policy Handbook
4000.1. Both the summary and the FAQ provide a quick overview of the upcoming
changes but are not all-inclusive. Click
the link to view this summary.
Turning to capital markets,
tongues were still wagging yesterday about Barclays "trimming" its
operations in securitized products. The company announced it will stop
trading residential loans and GNMA commercial mortgage backed securities.
Collateralized mortgage obligations and asset-backed security derivatives will
no longer be offered.
We had a "down
day" in the fixed-income markets Monday - the Treasury losses resulted the
first session of 2016 that all benchmarks closed in the red! Traders thought
the back-up was due to a "risk-on" tone with oil/equities rallying -
there certainly wasn't enough pure news to shift the market. And sometimes
markets just head the other way! Rates here in the U.S are not being moved by
our economic news. They are being moved by China and its mysterious economy
& accounting, equities, and oil.
For news today, besides
illiquidity due to thinly staffed MBS trading desks to avoid the storm, we'll
have December's Existing Home Sales and Leading Indicators, both slated for
10AM EST. We closed the 10-year at 2.02% and this morning we're up at 2.07%
with agency MBS prices worse .125-.250.
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