The Mortgage Man

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Archive for October, 2008

Friday October 24, 2008

Mortgage bonds move below 200 day average.

It is really amazing how much the global money markets are intertwined.  Overnight, Japan’s stock market plummeted after lower than expected earnings were reported for Samsung and Sony.  That ripple effect moved over to Britain’s markets where the economy shrank for the first time since 1992, signaling a confirmed recession.  The combination of the foreign markets having a really bad day led the Dow Futures to halt trading before the open this morning.  Halting trading on Dow Futures is extremely rare, and a sure sign of volitility.

In normal market conditions, a selloff in stocks would mean money was moving into bonds, and would typically signal a good day for mortgage rates.  Today, however, because of the continued liquidity issues with the market, the rush seems to be towards cash for safety.  Mortgage bonds moved below the 200 day moving average which is generally a sign of long term trends.  If you have an active mortgage file that has not yet been locked, it would be prudent to do so today ahead of uncertain volitility and worsening rates.

Some good news came out today.  Existing homes sales soared to a 13 month high signaling a boost in the real estate market.  And, Oil was trading as low at $64 per barrel.  This is due in large part to the strenghening dollar as compared to other global currencies.  But, when you are at the pump getting gas for $1 less than 3 months ago, few people care why, they are just glad to see it.

Reverse Mortgage Alternatives

Even if you do not qualify for a reverse mortgage, there are other options.

A Reverse Mortgage can be a useful tool in helping seniors to maintain their independence and stay in their homes as long as possible after retirement.  But, a reverse mortgage is not without limitations.  People with a high value home may be shocked at how little they can qualify for in a reverse mortgage because of the loan limits with FHA.

To fill this void in the market, a relatively new product called equity sharing has been designed to help those that don’t qualify for a reverse mortgage.  Even if you do qualify for a reverse mortgage, equity sharing can be an alternative that is not a mortgage and does not accrue interest.

With equity sharing, the property owner (age 65 to 85) agrees to share the future appreciation of the property with the financial institution in exchange for cash today.  The home owner is allowed to keep 100% of the equity based on current appraised value.  Then, going forward, the home owner will split the appreciation 50/50 with the financial institution.  As compared to a reverse mortgage, equity sharing does not have an interest rate accruing, it is not recorded as a mortgage on the property, and it can be used on properties other than the owner’s primary residence.

Example 1:

A home owner in California has a primary residence that is worth $1.2 million with a current mortgage balance of $500,000.  Because the maximum allowable reverse mortgage is $417,000, this home owner would not qualify.  But, with equity sharing, he could get up to $180,000 in cash (15% of the current appraised value) without a loan or a monthly payment, and without the need to payoff the current mortgage balance (assuming the current mortgage is not a reverse mortgage or a negative amortization loan).

Example 2:

A home owner in Tennessee has a beach house in Florida.  He wants to get a reverse mortgage on the beach house, but doesn’t qualify because it is not his primary residence.  The house is worth $750,000 with a current mortgage balance of $300,000.  He would qualify for $112,500 in exchange for a 50% stake in future appreciation.  Ten years from now the home owner sells the house for $1.2 million.  The difference in equity is $450,000 since agreement was made.  The equity partner takes $225,000 (half of the appreciation) plus an 8% surcharge to cover transfer costs and Realtor fees, leaving the owner with net proceeds of $879,000, plus the $112,500 already received at the time of the agreement.

While it does create opportunities, equity sharing is not without its disadvantages.  Depending on how rapidly you think the home will appreciate, the costs could significantly outweigh the costs of a reverse mortgage or other interest bearing alternative.  That being said, it is one of the more realistic alternatives to reverse mortgages available today.

If you would like to find out more about a reverse mortgage or an equity sharing program, send me an e-mail at steve@steverussellonline.com with your name, phone number, date of birth, state where the porperty is located, and the value and mortgage balance on the property.  Or, call me toll free at 888-257-8383 for a free consultation.

Pensacola Mortgage

Tuesday October 21, 2008

World’s largest bond fund increases stake in mortgage backed securities.

Mortgage bonds moved higher yesterday on the news that Pimco, the world’s largest bond fund, has increased it’s stake in mortgage backed securities to an all time high.  This led investors to believe that the risk is worth the price in mortgage bonds, and prices soared.

As a home buyer, this means that rates got a lot more aggressive yesterday, and if you are actively seeking a home, it might be a good time to lock your rate.  The drastic increase in rates last week have been almost completely erased, and on a technical level, mortgage bonds have moved back above the 25, 50, 100 and 200 day moving averages.  Pushing through those levels of resistance is a positive sign long term for mortgage rates.

For the latest rates, check www.SteveRussellOnline.com.

Mortgage Rates Attempt A Recovery

Mortgage Bonds have been slaughtered lately, but may be correcting.

If you checked rates last week, and then looked again this week, you may have noticed that they are about .5% worse.  Mortgage rates are based on the trades that happen with mortgage bonds and mortgage backed securities.  When traders and investors are buying them, the price goes up, and mortgage rates come down.  When the market is scared of them, the demand decreases which drives up the yield curve for mortgage bonds and therefore causes interest rates to rise to a point where investors are comfortable buying the paper.

If you were looking at a mortgage bond trading chart last week, it looked similar to rolling a marble off the kitchen table…not good.  This week, bonds have been recognized as over-sold, and have recovered almost 50% of the losses.  For answers to your mortgage and real estate questions, check back here often.

If you are currently interested in taking advantage of this incredible real estate market, call me at 888-257-8383, or apply online at www.SteveRussellOnline.com.

Worst Week Followed By Best Day Ever

After the stock market’s worst week in history, it closed yesterday with the highest gain in history.

What a roller coaster ride for investors.  After a record for the largest 1 week decline ever last week, investors came back with a vengence yesterday to close the DOW up 936 points.  That makes yesterday the largest single day point gain in history, and the 5th largest perecntage gain ever.  Activity like this begs the question of whether we have found the bottom in the equity markets or not.

No one will know where the bottom is until we have already passed it, but the level of volatility and panic in the sell offs last week suggest that we are either there now, or at least we are close.  Since this blog focuses primarily on real estate and mortgages, how will this affect housing?

There is no direct connection between the stock market in general and the real estate market.  But, they are all slices of the same economic pie.  The typical bear market lasts 13 months with a resulting decline of 30% to 40% in the stock market.  Right now we are in the middle of the 12th month of market decline from its highs in October 2007, and the total point decline is around 41%.  Based on this information alone (and there are many more factors at play), it would signal that we are at the bottom, or at least close to it.

The bigger problem in the real estate market is inventory vs. willing buyers.  Because foreclosures are still coming on the market in record numbers, we will have to remove some inventory before sellers can really make up any ground.  But, for buyers, this is the best buying opportunity that has existed in decades.  Locally (in North Florida), home prices are back to 2003 levels, and the deals available to buyers are jaw dropping now.  Nationaly, the numbers vary by area, but there are tremendous buying opportunities across the country.

Lending standards have tightened, but there is still mortgage financing available (contrary to the inpression that you might get from the news).  For more information on the financing options available to you, go to www.SteveRussellOnline.com, or call me at 888-257-8383.

Reverse Mortgage Increased Lending Limits

HUD increases lending limits nationwide for reverse mortgages.

If you have been shopping for a reverse mortgage only to find that you don’t have enough equity or that your balance on your existing mortgage is too high, there is relief on the way.  As of a press release from the Department of Housing and Urban Development (HUD) dated October 3rd 2008, the lending limit has been increased nationally to $417,000.  Previously, the limits were based on the county lending limits as established by FHA for the HECM (Home Equity Conversion Mortgage), FHA’s proprietary reverse mortgage program, and the most popular on the market.

With this important change in guidelines, the number of people who qualify for reverse mortgages has increased substantially.  This is especially important as the number of seniors relying on social security for retirement continues to rise, while over 50% of seniors age 65 or older own their homes free and clear.

If you are not familiar with reverse mortgages, check out What You Should Know About a Reverse Mortgage.

What Is A Reverse Mortgage?

If you are unfamiliar, here is a quick breakdown of a Reverse Mortgage.

The following information is also available on HUD’s website.

Reverse Mortgages have been around for years, but have become more popular recently as a way to fund retirement and supplement social security and increase overall quality of life.  The FHA HECM reverse mortgage was one of the original reverse mortgages available and is a federally insured private loan to provide a safe retirement planning alternative.  There are many uses for a reverse mortgage including income in the form of monthly payments, passive income by eliminating mortgage payments, cash out for home improvement or purchasing a boat or RV, etc.

  • What is a Reverse Mortgage? A reverse mortgage is a special type of mortgage that allows a homeowner to “reverse” the flow of money on their home and receive cash or income (or both) based on the equity that has built up over time.  But, unlike a traditional home equity loan or second mortgage, no repayment of the mortgage is required until the home owner(s) no longer use the property as their primary residence.  HUD’s reverse mortgage provides these benefits, and is federally insured as well.
  • Can I qualify for a Reverse Mortgage? In order to qualify for a Reverse Mortgage, HUD requires the following:
  1. You must be a homeowner
  2. You must be at least 62 years of age (the minimum age for all residents in the home)
  3. You must own your home outright, or have a low mortgage balance that can be paid in full at closing
  4. You must reside in the home as your primary residence
  5. You are also required to undergo HUD approved consumer counseling to gain a full understanding of the process
  • Can I qualify if I did not buy my current home with an FHA loan? Yes, it is not required that your existing loan, or your original purchase loan be an FHA mortgage.  Your new Reverse Mortgage will be an FHA insured loan.
  • What types of homes are eligible? Your home must be a single family dwelling or a two to four unit dwelling and you own and occupy as your primary residence.  Townhouses, detached homes, units in condominium projects, and some manufactured homes are eligible.  It is also possible for individual condominium units to qualify under the Spot Loan Approval program.
  • What is the difference between a Reverse Mortgage and a bank home equity loan? With a traditional mortgage or home equity line of credit, the borrower must qualify based on their current income and expense ratio and ability to repay the monthly payments.  A Reverse Mortgage has no monthly payments, it pays you.  Therefore, there are no qualifying criteria for income.  The amount you can borrower is determined by your age, current interest rates, and the appraised value of your home or the local FHA lending limits, whichever is lower.  Generally, the older you are, and the more valuable your home is, the more you have available to borrow.  You have no monthly payments because there are none due as long as you live in the property as your primary residence.  Like all homeowners, you are still required to pay your property taxes, home owners insurance and normal owner obligations such as utilities and maintenance.  But, with an FHA insured Reverse Mortgage, you can not be foreclosed on or forced to vacate the property for “missing payments” because there are none.
  • Can the lender take away my home if I outlive the home? No!  You are not required to repay the loan as long as you reside in the home and you continue to pay your taxes and insurance.  You can never owe more than your home’s value.
  • Will I still have an estate that I can leave to my heirs? When you sell your home or no longer live in it as your primary residence, you or your estate will repay the cash received through the Reverse Mortgage plus interest and fees to the lender.  The remaining equity in your home, if any, belongs to you or your heirs.  None of your other assets will be affected by the Reverse Mortgage, and the actual debt will never be passed along to your heirs or the estate.
  • How much money can I get from my house? The amount of money available is based on your age, value of your home and current interest rates.  Generally, the more valuable the home, the older you are, and the lower current interest rates are, the more you have available.
  • Should I use an estate planning service to find a Reverse Mortgage? You should not pay a referral fee to someone to help you find a lender.  You can reach Primary Residential Mortgage directly at 888-257-8383 for more information on obtaining a Reverse Mortgage.
  • How do I receive my payments? You have 5 options:
  1. Tenure – Equal monthly payments as long as at least one borrower continues to live in the property as a primary residence.
  2. Term – Equal monthly payments for a specified length of time.
  3. Line of Credit – Unscheduled payments or installments at times and in the amounts of the borrower’s choosing until the line of credit is exhausted.
  4. Modified Tenure – Combination of equal monthly payments and installments for as long as borrower occupies the property.
  5. Modified Term – Combination of equal monthly payments and installments for a specified length of time.

Hopefully this has answered many of your questions, but we know that you have more.  Contact me at any time to discuss your reverse mortgage in greater detail.  Steve Russell 888-257-8383.