John Mazzara asked:


For many seniors, home equity is roughly 30-40 percent of their net worth. They are house poor often times and don’t have the available funds to make repairs. If you and your spouse are both at least 62 years of age and have significant equity in your home, a reverse mortgage can turn that equity into tax-free cash without forcing you to move or make a monthly payment. YOU DON’T NEED A JOB AND YOU DON’T NEED CREDIT! Age and equity are the only qualifying factors.

A reverse mortgage can be a worthwhile financial tool if used correctly. At the same time, you could make some serious mistakes with your financial future. For example, you don’t want to take your equity and run down to the casino.

A reverse mortgage gets its name because of the way it works. Instead of the borrower making payments to the lender, the lender releases equity to the borrower in a number of forms:

A lump sum cash payment;

A monthly cash payment;

A line of credit

Some combination of the above. When the owner dies or moves away, the house can be sold, the loan paid off and any leftover equity value can go to the living owner or the designated heirs. Heirs don’t have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance within six months with the option of two 90-day extensions that must be applied for. Unfortunately, heirs often discourage people from getting a reverse mortgage because they are afraid of losing their inheritance.

There are three basic types of reverse mortgages:

Single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations;

Home Equity Conversion Mortgages (HECMs) are federally insured reversed mortgages backed by the U. S. Department of Housing and Urban Development (HUD);

Proprietary reverse mortgages are private loans that cover home values usually over $600,000. Some loans are conventional loans, some are proprietary loans held by certain lenders and some are insured by FHA. The size of a reverse mortgage is determined by the borrower’s age, the interest rate and the home’s value. The older a borrower, the more they can borrow, but the amounts are capped by the maximum FHA loan limit for each city and county. The amounts vary from $200,160 in rural areas to $362,790 in many major metropolitan areas. In Alaska, Guam, Hawaii and the U.S. Virgin Islands, the FHA mortgage limits can be adjusted up to 150 percent of the ceiling based on the area. If the FHA modernization Act is passed, it is possible that the FHA loan limit will be raised. This would be great, since it seems that FHA is the mortgage loan that generally gives more equity to the senior.

Reverse mortgages have traditionally been chosen by older Americans who can’t cover everyday living expenses or who otherwise need cash for such things as long-term care premiums, home health care services, home improvements or to pay off their current mortgage or credit cards greater than their income can support. More recently, though, they’ve become popular with individuals who see them as a better alternative to home equity lines. Some use the proceeds to supplement monthly income, buy a car, fund travel and second homes. Evaluate with the help of a financial adviser if reverse mortgage funds can be used to restructure estate taxes.

You will have to consult with a financial planner before you’re granted this loan – that’s one of the requirements. This step can be completed within the first few days of the process. The basic loan closing now takes place in about 30-40 days from the date of application. Generally the only out-of-pocket cost is an appraisal fee ranging from $300- $500. There is required counseling to make sure that you are making the right decision for you.

Here are other things to consider-some of these are risks:

Cost: Reverse mortgages are generally more expensive than traditional mortgages in terms of origination fees, closing costs and other charges. The basic FHA-backed HECM loan finances these fees into the initial loan balance, and they can run between $12,000 and $18,000. The loans are based on anticipated home value appreciation of four percent a year, so if the housing market is healthy, those costs are generally recovered in a short period of time. But if the housing market sours, it will definitely take longer to recoup those fees.

You’ll need to make sure you’re not endangering your federal retirement benefits: The basic FHA HECM is designed as tax-free income to the senior receiving their Social Security income. However, if your total liquid assets exceed allowable limits under federal guidelines, you might endanger your benefits. This is another critical reason to work with a financial planner on this decision.

Rates: Reverse mortgages have rates that are typically higher than those charged on conventional mortgages. Interest is charged on the outstanding balance and added to the amount you owe each month. Again, check the total annual loan cost.

Your mortgage can be called due and payable: The homeowner or estate always retains title to the home, but if you fail to pay your property taxes, adequately maintain your home, pay your insurance premiums, or change your primary residence, the lender can declare the mortgage due or reduce the amount of monthly cash advances to pay those overdue amounts.

Did you know that you can actually use a reverse mortage to buy a house? How do you do it? Let’s take an example: maybe you sell you are a senior that sells their home and nets 300K. Next they can go buy a new home for about 500K, by putting down 300K, and financing the other 200K with a reverse mortgage. Maybe a senior would like to move from their older house of many years to a new condo or loft. This would be a great way to do it.

Talk to your kids as their ignorance of this product may cause them to give you bad advice. If your house is your major asset, getting involved in a reverse mortgage may not leave much to the next generation – if it appreciates, there may be some difference that the kids can have. That’s why that in addition to discussing a reverse mortgage with a financial adviser, seniors need to talk with their family.



MOHAMMAD

Sam Mannino asked:


Seller-Held Private Mortgages & Notes

By

Sam Mannino

During my 40 year career as a mortgage banker, I have been asked countless times to purchase or sell seller-held or purchase money mortgages, taken back by sellers of real estate.  Unfortunately, not all of the sellers have been happy with the results.  I often have to tell them that their seller-held mortgage can’t be sold just yet, or it if can, the amount they will receive for the debt is a small fraction of what they are owed.  Sometimes, I have to inform them that the obligation due them is virtually worthless.

Most of their disappointment could have been alleviated by the person who originally drafted the mortgage.  All too often, these legal documents are drafted by realtors or attorneys who may have not considered the final disposition of these obligations, or are unfamiliar with how a seller-held mortgage is treated in the secondary market.  A little extra care by knowledgeable counsel can make all the difference to a seller-held mortgage.

First, understand that a seller-held mortgage will, in all likelihood, be sold sometime during its lifetime. Rarely, even when the parties are family members, does the holder of a seller-held mortgage wish to hold the note the entire term.  More commonly, they want to cash out at some time in the future, which can be accomplished in a number of ways.  The mortgagor might sell the property, and the note can be paid off.  In addition, the mortgage might be subject to a call provision after a set period of time.  However, it is far more likely that the holder of the seller-held mortgage might experience a change of heart, and simply want out of the deal.  In that case, he must try to sell the mortgage.

Purchasers of seller-held mortgages, and yes, there are some, most commonly look for two points:  1) obligations that have been seasoned for a year or more, and 2) a good payment history.  Holders of these seller-held mortgagers need to be informed that good record keeping can pay off in the long run.  They need to know that mortgage buyers will want to run their own credit checks on the borrower and make inquiries as to employment.  (Keep this in mind when you are drafting the original obligation.)  Finally, they will wish to retain a higher yield than most seller-held mortgages carry.  The reason for this is that most seller-held mortgages carry a higher risk than institutionally generated mortgages.  Makers of seller-held mortgages commonly carry higher debt rations, have poor credit, or make little or no down payment.  If a seller-held mortgage carries a market interest rate, the purchaser of that note can only achieve a higher yield by discounting the purchase price below principal.

Holders of seller-held mortgages can do themselves a world of good simply by thinking like a bank at the inception of the debt.  They may wish to allow their borrowers a higher debt ration than a bank, but they should never allow more than 40 percent of a borrowers’ gross monthly income to be applied to first and second mortgage payments, taxes and insurance.  Anything more and the borrower simply can’t afford the property.  When it comes to checking the borrowers’ credit, it is imperative that you thoroughly search for any previous foreclosures.  In addition, avoid any borrowers with really bad credit within the past two years.  Finally, require some down payment.  Remember, if you do have to foreclose, that the down payment represents a real safety net.  Vacant and/or abandoned real estate does not appreciate.

Drafters of seller-held mortgages must be sure to include two key clauses. First, they must make sure the obligation can be assigned by the holder of the mortgage and note, without further permission from the borrower.  It never ceases to amaze me at how often this important language is overlooked or omitted altogether.  Second, if the note is to be marketable at all, the holder and assigns, must be able to make further inquiries regarding both the borrowers’ credit and employment in the future.  Two year old credit reports are worthless, and unfortunately, so are the mortgages which have relied upon them.

A final word of advice, experienced attorneys often receive referrals from local realtors to assist in the drafting of these seller-held mortgages.  But, more often, the interest of the realtor making the referral is not the same as the holder of the seller-held mortgage.  The realtor simply wants to close the sale.  We must keep in mind that the document that is drafted will be in place many years after the closing.  It is then that the work of a competent attorney will reveal itself. A little planning and preparation along with the advise of competent legal representation are the keys to a successful transaction… Remember, people don’t plan to fail, they just fail to plan.

Sam Mannino is the managing director of Investors First Capital and was elected as director emeritus of the Pennsylvania Financial Services Association.  He has served on many committees and advisory boards for the financial services industry.  He is a registered lobbyist for the financial services industry and a business–against-government reform group, Stop-Them.org.  He is life-long resident of State College, Pennsylvania.



JAMES

Ferdie Frederic asked:


As of Monday July 14th, 2008, the government has passed new laws which cause a decent amount of change within the mortgage industry and how these companies give out loans to homeowners. Even though they were passed on Monday, these rules wont take effect until October 2009 to give time for companies to transition to the new set of standards.

The concept being birthed in 2007, was in response to the treatment homeowners were facing from mortgage companies and to the foreclosure crisis that took place. It has been stated that the basis for these new rules are to protect future home buyers from mortgage companies.

The Foreclosure Crisis

Within the late 2006, the housing industry felt a large blow when a mass amount of foreclosures occurred due to rates on mortgages and also because of the fact that many of the new loans were made to individuals with either bad credit or too low of an income.

Experts believe that the basis for so many of these home loans being in place was the fact that many homeowners thought they could reap benefits when refinancing later on. Even though, their ideology failed because with the interest rates reset higher, refinancing was hard to come by which led to approximately a million foreclosures.

Mortgage lenders, banks and other financial institutions felt the impact dramatically reporting 100′s of billion dollars in losses. Not only was the housing industry devastated, but the US economy in a whole was also rocked by the housing crisis. These issues led to the US Federal Reserve cutting down interest rates and to the creation of the economic stimulus package which was passed by the government in 2008 to help offset debt and to spur on economic growth and instill belief in the US economy.

The Economic Stimulus Package

The Economic Stimulus Package of 2008 was passed in order to restore good faith within the economy. Its main purpose was to provide assistance to low and middle income citizens. From the economic stimulus package, all recipients were set to receive at least $300 and an extra $300 per dependent under the age of 17. The maximum pay that a person would receive would be no more that $600. Any individuals with an annual income over $75,000 would not receive any monetary funds except for those who had qualifying children.

In addition to citizens, the law also applied to businesses offered them certain tax incentives. Those include tax deductions on eqiupment meant to improve ones business and an increase in how much a business can deduct in business expenses.

In an article by James Temple from SF Gate he lists several key changes in mortgage practices that was just passed on Monday.

General Mortgage Rules:

- Prohibit creditors and mortgage brokers from coercing appraisers into misstating a home’s value.

- Require additional information about rates, monthly payments and other loan features in all advertising.

- Ban seven deceptive or misleading advertising practices, including calling a rate or payment “fixed” when it can change.

Lending Rules For Higher Priced Subprime Loans:

- Force lenders to consider a borrower’s ability to repay loans from income and assets other than the home’s value.

- Require lenders to document a borrower’s income and assets.

- Ban penalties for borrowers who pay off loans early, if the payment can change in the first four years. In certain cases, a prepayment penalty period can’t exceed two years.

- Mandate that creditors ensure certain borrowers set aside money to pay for property taxes and insurance, by establishing escrow accounts.

In reference to the new mortgage rules, many claim that these rules will assist many homeowners and aspiring homeowners from companies that prey on them to make a profit despite the views on their practices are questionable. Yet with this belief intact, many individuals still hold firm in their opinion that these rules are just a tip of the iceberg and much more needs to be done within the housing industry and in relation to some of the illegal practices carried on by some of the lending companies.



MICHEL

John Turner asked:


Bad credit is no longer a hurdle in getting a home loan. A few years ago a poor credit score or a bankruptcy or foreclosure would have meant you encountered difficulties obtaining a mortgage loan. In case you were able to get such a loan, you would have to agree to a very high rate of interest and to pay a large deposit.

Mortgage loans are now more easily available for people with bad credit. Note they are sometimes called ‘poor credit mortage’ loans.

Recommended Steps

1. If you have bad credit and you need a mortgage loan, you should first obtain free copies of your credit reports from all the three major credit agencies:

Equifax, Experian and TransUnion.

2. Check these reports. Make sure there are no mistakes in them. Find out whether the accounts regarding the bankruptcy and foreclosure are showing collection or charge-off. If you find any errors, aim to get them rectified.

If your report shows any foreclosure or bankruptcy, all the information regarding these should be listed under one item.

Note that your credit score will be affected each time your credit report is requested – so you should only apply to one mortgage agency who might approach many lenders with your application.

3. The deposit you have to pay as part of your bad credit mortage will depend upon your credit score. If you have been able to increase your rating to about 580 to 600 in a period of about two years since your bankruptcy, you might obtain 100% financing. Additionally, you might also be able to get a good interest rate in the region of 7% to 7.5%.



JOAQUIN

Frank Collins asked:


Loan modification is a word mentioned very often in recent times, also called a mortgage modification, most people have become accustomed with this word during the current economic crisis. As demand has risen to modify ones mortgage rate and terms, assistance with the mortgage modification process has increased from real estate industry professionals and lawyers who specialize in real estate law. In some circumstances, companies charge large high fees upfront simply to begin the process, prior to negotiating any type of loan workout or modification approval which in some states is illegal and unethical. However one leading website is offering a truthful service that provides a money back guarantee and back-up services in case the lender doesn’t see your financial situation as dire. These are the type of honest services a homeowner in these financial times needs that website is applyloanmodification.com

A mortgage modification , or debt restructure as it is sometimes called, is a high demand choice, the objective is to provide a more affordable plan to the homeowners by decreasing their mortgage payments to an acceptable number for the lender and the borrower. The home mortgage modification functions in a way that the terms of the original mortgage loan are modified. This can include reducing the interest rate and/or increasing the loan term and in some instances reducing or forgiving the principal balance.

However, with the mortgage modification process although it is pretty much easy to follow, some issues have arose with how it is handled, with most people feeling that some companies providing these services are not tailoring the plan to their specific needs while charging huge fees before any type of approval, and even worse no guarantee of approval, this leaves the homeowner in a difficult position.

Not all loan modification companies function this way. Companies on the website mentioned below will have a money back guarantee and will diligently help you through the emotional process of getting your home loan modified or initiating a short sale to avoid a foreclosure that lasts ten years on your credit report. This means, unlike many, it is in their interests to get the modification approved, otherwise they receive no payment.

While many homeowners struggling to meet their mortage payment obligations, and the government itself, suggesting leniency, the mortgage lenders have a moral duty to help the consumer. So, with your effort and cooperation a positive outcome is very likely.



JESSIE