What Heirs Need to Know About Reverse Mortgages-Kiplinger #bac #mortgage


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What Heirs Need to Know About Reverse Mortgages

Death of the borrower triggers the loan payoff, but the estate and heirs will never owe more than what the home is worth.

If you have a reverse mortgage, let your heirs know. Soon after you die, your lender must be repaid. Heirs will need to quickly settle on
a course of action.

See Also: Tighter Rules on Reverse Mortgages

If one spouse has died but the surviving spouse is listed as a borrower on the reverse mortgage, he or she can continue to live in the home, and the terms of the loan do not change. At the death of the last borrower, though, adult children and other nonspouse heirs must pay off the loan. They can keep the property, sell the property or turn the keys over to the lender—and their decision is “usually driven by whether there’s equity left in the property,” says Joseph DeMarkey, a principal member of Reverse Mortgage Funding.

A reverse mortgage allows seniors age 62 or older to tap their home equity. Nearly all reverse mortgages are federally backed Home Equity Conversion Mortgages. The homeowner doesn’t make payments on the loan while living in the house, but the loan becomes due at the death of the last borrower.

Heirs get an initial six months to deal with the loan payoff. And it’s to their advantage to move as quickly as possible. Until the loan is settled, interest on the balance and monthly insurance premiums will continue to eat into any remaining equity.

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The good news for heirs is that reverse mortgages are “nonrecourse” loans. That means if the loan amount exceeds the home’s value, the lender cannot go after the rest of the estate or the heirs’ other assets for payment. “The estate can never owe more than the value of the property,” says Gregg Smith, president and chief operating officer of One Reverse Mortgage.

The difference is covered by federal mortgage insurance, which the borrower pays while holding a HECM. If there is leftover equity after the loan is paid off, that money goes to the estate.

When the last owner dies, the estate’s executor should contact the lender. (Lenders keep track of databases that note deaths and will send a notice to heirs if records indicate the last borrower has died.) Loan proceeds disbursed as monthly payments will stop. If the borrower took a line of credit, that line will be closed.

When It Makes Sense to Keep the House or Sell

Within 30 days of notification, the lender will send a federally approved appraiser to determine the home’s market value. The amount that’s due to the lender is the lesser of the reverse mortgage loan balance or 95% of the appraised market value of the home.

Say the appraiser determines the home is worth $200,000 and the loan balance is $100,000. To keep the house, the heirs need to pay the loan balance of $100,000. If the house is sold, the heirs get any equity above the $100,000 loan balance.

But say the home declined in value during the housing slump and the loan now exceeds the home’s appraised value—the home is appraised for $100,000, but the loan balance is $200,000. To keep the home, the heirs will need to pay $95,000—95% of the $100,000 market value. The heir doesn’t have to pay the full balance; the government insurance covers the remaining loan amount.

If the heirs decide to sell this house, the home must be listed at a minimum of the appraised value. (The 5% difference helps cover the costs of selling.) Because all sale proceeds go to pay off part of the loan and real estate fees, the estate receives no equity. The government insurance picks up the difference on the loan.

But if there is no potential equity, heirs may decide to simply hand the keys to the lender and avoid the hassle of trying to sell the home. Known as “deed in lieu of foreclosure,” the heirs sign the deed over to the lender. “If the property was underwater, the heirs may have no interest in selling it or keeping it,” says Diane Coats, senior operational oversight specialist for Generation Mortgage.

Heirs can request up to two 90-day extensions. To get that full year, they must show evidence that they are arranging the financing to keep the house, or they are actively trying to sell the house, such as providing a listing document or sales contract.

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Cash Call Mortgage Reviews: What You Need to Know #mortgage #calculatr


#cash call mortgage

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Cash Call Mortgage Reviews: What You Need to Know

Since the lead-up to the housing bubble in the mid-2000s, the mortgage industry has been dominated by direct-to-consumer mortgage originators offering lower rates and a streamlined underwriting process. As the housing market heated up, homebuyers were pressed into obtaining a quick lock on their rates and a fast turnaround on their applications, which was what these new mortgage companies advertised. For many homebuyers, the only thing that matters is getting the lowest possible rate. This is especially true in markets such as southern California, where the cost of home ownership is among the highest in the country. Chances are, if you live in or visit southern California and listen to the radio at night, you have heard the radio commercials touting a “no closing cost mortgage” by CashCall Mortgage, a division of CashCall Inc. Founded in 2003, CashCall Mortgage is among the top 30 mortgage originators in the country.

About CashCall Mortgage

CashCall Mortgage, an Orange, California-based company, operates as a centralized call center, taking loan applications directly from consumers or through the Internet. As a direct-to-consumer loan originator, the company offers a streamlined application and lending process, which reduces its costs. The savings are passed on to its customers in the form of lower interest rates. In 2015, CashCall Mortgage was acquired by Impac Mortgage Holdings Inc. (NYSE: IMH ), an Irvine, California-based mortgage originator founded in 1995. The acquisition ranks Impac Mortgage in the top 20 mortgage lenders in the country. CashCall Mortgage continues to operate as a separate division under its original name.

Mortgage Products Offered

CashCall Mortgage offers a full range of loan products, including 10-, 15-, and 30-year fixed-rate mortgages. For each of its fixed-rate loan products, the company offers a zero closing costs version on refinances. Rates on the zero closing cost loans are slightly higher than the standard version, but there are no upfront closing costs to be paid. That includes the cost of an appraisal, which is paid by CashCall Mortgage.

CashCall Mortgage also offers no closing cost jumbo loans over $417,000, and a Do Over Refinance for owner-occupied borrowers who funded a loan elsewhere in the last 18 months. For the Do Over Refinance, borrowers must provide a copy of their mortgage statement with the current fixed loan rate and mortgage term. CashCall will then offer a lower fixed rate with no closing costs, although it may come with a shorter mortgage term. The loan must fund within 30 days of the application.

Mortgage Rates

CashCall Mortgage offers several options for each of its fixed-rate loans, including a zero-cost Roll Down option, a flat $995 lender fee and two-point options.

As of May 7, 2016, the rates on the company’s 30-year fixed loan were 3.50% for a Roll Down, 3.50% for a flat lender fee, 3.375% for 0.50 points, and 3.25% for 1.25 points.

For 15-year fixed loans, the rates were 2.875% for a Roll Down, 2.875% for a flat fee, 2.750% for 0.25 points and 2.625% for 0.50 points.

For 10-year fixed loans, the rates were 2.875% for a Roll Down, 2.75% for a flat fee, 2.625% for 0.25 points and 2.50% for 1.0 points.

What Consumers Are Saying

CashCall Inc. has 204 complaints filed with the Better Business Bureau (BBB), but the vast majority of them involve the company’s consumer loan division, which has come under fire from a number of states for illegal advertising and lending practices. Reviews for its mortgage loans found on review sites such as Yelp are mixed, with about two-thirds giving five stars and one-third giving one star. Most of the reviews, both positive and negative, centered on the company’s underwriting process and customer service.

People who had a favorable experience touted the easy application process and quick turnaround, while those with an unfavorable experience complained that the process was convoluted and slow. It appears that the difference in experiences came down to the particular agent with whom they worked. The company either earned high praise for competence and customer service or criticism for poor service and indifference.


Top Ten Things to Know if You re Interested in a Reverse Mortgage #etrade #mortgage


#reverse mortgage wiki

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Frequently Asked Questions about HUD s Reverse Mortgages

The Home Equity Conversion Mortgage (HECM) is FHA s reverse mortgage program, which enables you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements and more. You can receive additional free information about reverse mortgages in general by contacting the National Council on Aging at (800) 510-0301. It is smart to know more about reverse mortgages, and decide if one is right for you!

1. What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

2. Can I qualify for FHA s HECM reverse mortgage?

To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan. You can find a HECM counselor online or by phoning (800) 569-4287.

3. Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?

Yes. You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.

4. What types of homes are eligible?

To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

5.What are the differences between a reverse mortgage and a home equity loan?

With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you there are no monthly principal and interest payments. With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

6. Will we have an estate that we can leave to heirs?

When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to heirs. No debt is passed along to the estate or heirs.

7. How much money can I get from my home?

The amount varies by borrower and depends on:

  • Age of the youngest borrower or eligible non-borrowing spouse
  • Current interest rate; and
  • Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price

If there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower is used to determine the amount you can borrow.

8. Should I use an estate planning service to find a reverse mortgage lender?

FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA-approved lender. You can locate a FHA-approved lender by searching online at www.hud.gov or by contacting a HECM counselor for a listing. Services rendered by HECM counselors are free or at a low cost. To locate a HECM counselor Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you

9. How do I receive my payments?

For adjustable interest rate mortgages, you can select one of the following payment plans:

  • Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
  • Term – equal monthly payments for a fixed period of months selected.
  • Line of Credit – unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
  • Modified Tenure – combination of line of credit and scheduled monthly payments for as long as you remain in the home.
  • Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

For fixed interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan.

  • Single Disbursement Lump Sum – a single lump sum disbursement at mortgage closing.

10. What if I change my mind and no longer want the loan after I go to closing? How do I do this?

By law, you have three calendar days to change your mind and cancel the loan. This is called a three day right of rescission. The process of canceling the loan should be explained at loan closing. Be sure to ask the lender for instructions on this process. Mortgage lenders differ in the process of canceling a loan. You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place. In most cases, the right of rescission will not be applicable to HECM for purchase transactions.


Want to know the truth? Verifiable information on banking, health, energy, media, war, elections, 9


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For Those Who Want To Know

This website provides a concise, reliable introduction to vital information of which few are aware. We specialize in providing fact-filled news articles and concise summaries of major cover-ups and corruption which impact our lives and world. All information is taken from the most reliable sources available and can be verified using the links provided. Sources are always noted, with links direct to the information source provided when possible.

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Disinformation – Everything You Know Is Wrong #what #i #know


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While People Were Still Freaking Out About Pizzagate, the Catholic Church Got Busted for Pedophilia Again, and Another Church Got Caught Importing Slaves

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Adjustable Rate Mortgage Terms You Should Know #mortgage #broker #license


#5 year arm

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Adjustable Rate Mortgage Terms You Should Know – “ARM” Yourself with Knowledge

With interest rates on fixed-rate mortgages trending upward, adjustable rate mortgages (ARMs) can be an attractive alternative. Several times over the last 30 years, consumers have turned to ARMs in market conditions that favored short-term rates over the traditional 30-year fixed.

However, while most consumers responsibly carry an ARM, there have been situations where the ARM did not make financial sense, and as a result, the loan earned a tarnished reputation. News of negative amortization loans and optional payment plans overshadowed the true function of the ARM which involves neither.

The truth is, many consumers have benefitted from ARMs and prefer to use them as a tool to save money in the short-term while planning for the long-term. Current market conditions are once again leaning in favor of adjustable rate mortgages and it’s important to understand their function. Here’s information about ARMs, how to interpret the “lingo” and how to decide if it’s right for you.

Adjustable Rate Mortgage Definition

An adjustable rate mortgage is a home loan with an interest rate that adjusts on a predetermined basis. Most ARMs begin with a fixed rate for a certain period of time and then adjust up or down according to the index on which it is based, after the fixed period expires. For example, if you have a 5/1 ARM, the interest rate is fixed for the first five years and then the rate adjusts once each year beginning in year 6.

ARMs typically offer a lower initial interest rate than a traditional 30-year fixed mortgage. After the fixed period, the interest rate can fluctuate based on market conditions but the loan agreement typically has a lifetime cap so the monthly payments cannot exceed a specific threshold. When interest rates increase, typically, loan payments also increase and the same is true when rates go down. However, each time the rate resets, it does so on the remaining years and the remaining balance of your loan, not the initial loan amount, which can help mitigate an extreme disparity between the previous payment and the new one.

Adjustable Rate Mortgages

To comprehend the functionality of ARMs, there are a few terms you should understand when talking to your mortgage banker to determine if this loan program is a good match for your financial situation:

Index: The economic indicator used to calculate interest-rate adjustments for ARMs. The index rate can increase or decrease at any time.

Initial Cap: This cap is the maximum amount the interest rate can adjust after the fixed-period. (The initial cap and the periodic cap may be the same or different i.e. 2/2/5 or 5/2/5)

Periodic Cap: This cap puts a limit on the interest-rate increase from one adjustment period to the next.

Lifetime Cap: This cap puts a limit on the interest-rate increase over the life of the loan. All adjustable-rate mortgages have an overall cap.

Adjustable Rate Mortgage Loans

You should also be able to recognize these terms in their numerical form, as this is the way in which your lender will illustrate the type of ARM you qualify for.

5/1: The five represents the amount of years the interest rate is fixed. The one indicates that the interest rate will adjust yearly after the fixed period.

2/2/5:(Note: Caps can be different depending on the term of the loan. For example, you may find that a 7-year ARM has a 5/2/5 cap structure). But for this example, the first two means that the most a rate can change is two percent the year after the fixed period expires. The second two means that the rate can change two percent every year thereafter, and the five means the maximum percentage that can be added to the initial rate for the lifetime of the loan.

For example, the maximum rate and payment you would experience for a $200,000 5/1 loan (2/2/5) at 3.99% would be:

It’s important to note that while interest rates can rise, they can also decrease, making your payments smaller. The example above reflects the most you would pay if rates increased to the maximum or lifetime cap. Knowing the maximum amount you could end up paying on your ARM is important, because it will help you decide if it’s best to refinance prior to the expiration of the fixed rate, or continue to allow the rate to adjust because it is still cost-effective. Even with the adjusted rates, the average rate on this loan is 5.365%, which is comparable or lower than a 30-year fixed rate. In addition, the ARM gives you the opportunity to save thousands of dollars the first five years of the loan (money you would have spent on the fixed-rate loan) and gives you greater equity in your home because you reduce your principal faster. Being the financially savvy client that you are, you realize that the savings could be used to pay down additional debt, add to your retirement fund or something more creative!

Ready to get started or curious about adjustable rate loan options? Contact a Home Loan Expert today !

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Cash Call Mortgage Reviews: What You Need to Know #second #mortgage #lenders


#cash call mortgage

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Cash Call Mortgage Reviews: What You Need to Know

Since the lead-up to the housing bubble in the mid-2000s, the mortgage industry has been dominated by direct-to-consumer mortgage originators offering lower rates and a streamlined underwriting process. As the housing market heated up, homebuyers were pressed into obtaining a quick lock on their rates and a fast turnaround on their applications, which was what these new mortgage companies advertised. For many homebuyers, the only thing that matters is getting the lowest possible rate. This is especially true in markets such as southern California, where the cost of home ownership is among the highest in the country. Chances are, if you live in or visit southern California and listen to the radio at night, you have heard the radio commercials touting a “no closing cost mortgage” by CashCall Mortgage, a division of CashCall Inc. Founded in 2003, CashCall Mortgage is among the top 30 mortgage originators in the country.

About CashCall Mortgage

CashCall Mortgage, an Orange, California-based company, operates as a centralized call center, taking loan applications directly from consumers or through the Internet. As a direct-to-consumer loan originator, the company offers a streamlined application and lending process, which reduces its costs. The savings are passed on to its customers in the form of lower interest rates. In 2015, CashCall Mortgage was acquired by Impac Mortgage Holdings Inc. (NYSE: IMH ), an Irvine, California-based mortgage originator founded in 1995. The acquisition ranks Impac Mortgage in the top 20 mortgage lenders in the country. CashCall Mortgage continues to operate as a separate division under its original name.

Mortgage Products Offered

CashCall Mortgage offers a full range of loan products, including 10-, 15-, and 30-year fixed-rate mortgages. For each of its fixed-rate loan products, the company offers a zero closing costs version on refinances. Rates on the zero closing cost loans are slightly higher than the standard version, but there are no upfront closing costs to be paid. That includes the cost of an appraisal, which is paid by CashCall Mortgage.

CashCall Mortgage also offers no closing cost jumbo loans over $417,000, and a Do Over Refinance for owner-occupied borrowers who funded a loan elsewhere in the last 18 months. For the Do Over Refinance, borrowers must provide a copy of their mortgage statement with the current fixed loan rate and mortgage term. CashCall will then offer a lower fixed rate with no closing costs, although it may come with a shorter mortgage term. The loan must fund within 30 days of the application.

Mortgage Rates

CashCall Mortgage offers several options for each of its fixed-rate loans, including a zero-cost Roll Down option, a flat $995 lender fee and two-point options.

As of May 7, 2016, the rates on the company’s 30-year fixed loan were 3.50% for a Roll Down, 3.50% for a flat lender fee, 3.375% for 0.50 points, and 3.25% for 1.25 points.

For 15-year fixed loans, the rates were 2.875% for a Roll Down, 2.875% for a flat fee, 2.750% for 0.25 points and 2.625% for 0.50 points.

For 10-year fixed loans, the rates were 2.875% for a Roll Down, 2.75% for a flat fee, 2.625% for 0.25 points and 2.50% for 1.0 points.

What Consumers Are Saying

CashCall Inc. has 204 complaints filed with the Better Business Bureau (BBB), but the vast majority of them involve the company’s consumer loan division, which has come under fire from a number of states for illegal advertising and lending practices. Reviews for its mortgage loans found on review sites such as Yelp are mixed, with about two-thirds giving five stars and one-third giving one star. Most of the reviews, both positive and negative, centered on the company’s underwriting process and customer service.

People who had a favorable experience touted the easy application process and quick turnaround, while those with an unfavorable experience complained that the process was convoluted and slow. It appears that the difference in experiences came down to the particular agent with whom they worked. The company either earned high praise for competence and customer service or criticism for poor service and indifference.


Obama – s Loan Modification Plan: 7 Things You Need to Know #fixed #mortgage


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Obama’s Loan Modification Plan: 7 Things You Need to Know

At the heart of the President Barack Obama’s ambitious plan to rescue the housing market is the conviction that restructuring distressed mortgages will keep struggling borrowers in their homes and help insert a floor beneath plummeting property values. With $75 billion dedicated to reworking troubled loans, that’s a big bet—especially considering that a top banking regulator said last December that almost 53 percent of loans modified in the first quarter of 2008 went bad again within six months. But supporters argue that mortgage modifications need to be properly engineered to work—and many early ones weren’t. To that end, the Obama administration on Wednesday unveiled fresh details on its plan to restructure at-risk loans and help as many as four million home owners avoid foreclosure. Here are seven things you need to know about Obama’s loan modification program.

1. Payments, not prices. The plan centers on the belief that struggling borrowers will stay in their homes—even as values decline sharply—as long as they can make their monthly payments. Although not everyone agrees with this, billionaire investor Warren Buffett endorsed the philosophy in his most recent letter to shareholders. “Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans),” Buffett wrote. “Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay.”

2. Thirty-one percent. To that end, the administration’s plan requires participating loan servicers to reduce monthly payments to no more than 38 percent of the borrower’s gross monthly income. The government would then chip in to bring payments down further, to no more than 31 percent of the borrower’s monthly income. In lowering the payment, the servicer would first reduce the interest rate to as low as 2 percent. If that’s not enough to hit the 31 percent threshold, they would then extend the terms of the loan to up to 40 years. If that’s still not enough, the servicer would forebear loan principal at no interest. The plan does not, however, require servicers to reduce mortgage principal, which Richard Green, the director of the Lusk Center for Real Estate at USC, considers a shortcoming. “For underwater loans, if you don’t write down the balance to be less than the value of the house, people still have an incentive to default,” Green says. “Writing down the principal first instead of last—which is what [the Obama administration is] proposing—makes sense to me.”

3. Cash incentives. To encourage participation, servicers will be paid $1,000 for each modification and will get an additional $1,000 payout each year for as many as three years, as long as the borrower continues making payments. Borrowers, meanwhile, can get up to $1,000 knocked off the principal of their loan each year for as many as five years if they make their payments on time. Neither party can receive the cash incentives until the modified loan payments have been made for at least three months.

4. Financial hardship. The Obama administration is pitching its plan as an effort to help responsible homeowners ensnared in the historic housing slump and painful recession—not speculators. As such, only owner-occupied, primary residences with outstanding principal balances of up to $729,750 are eligible. Occupancy status will be verified through documents, such as the borrower’s credit report. In addition, the program is designed to target homeowners who are undergoing “serious hardships”—such as a loss of income—which have put them at risk of default. To participate, borrowers will have to sign an affidavit of financial hardship and verify their income with documents. “If we would have had such stringent verification over the last four or five years, we probably wouldn’t be in as bad a position as we are in,” says Richard Moody, the chief economist at Mission Residential. But while Moody has no objection to such verification, obtaining documents from so many homeowners could be an onerous effort. “It’s going to be a very time-consuming process,” he says. Only loans originated on or before Jan. 1, 2009, are eligible, and modified payments will remain in place for five years. Now that the administration’s plan is out, lenders are free to begin modifying loans.

5. Net present value. To determine if a particular mortgage will be modified, the servicer will perform a so-called net present value test. The test compares the expected cash flow that the loan would generate if it is modified with the expected cash flow it would generate if it isn’t. If the modified loan is expected to produce more cash flow for the mortgage holder, the servicer is to restructure the loan. Howard Glaser, a mortgage industry consultant and a U.S. Department of Housing and Urban Development official during the Clinton administration, called this component of the plan “clever,” arguing that it would work to ensure broad participation. “When you apply the formula, the loans that are modified are the ones that are in the best economic interest of the investors to modify,” Glaser says. “The federal subsidy for the payment on the modification…tips the scale toward modification as a better deal for the investor.”

6. Second liens. The Obama plan also addresses the issue of second liens—such as home equity loans or home equity lines of credit—by offering incentives to extinguish them. But key details on this component of the plan remained unclear. “Distinguishing the second lien is really important,” Green says. “[But] exactly how they are going to convince the second lien holder to do this is not clear to me at all.”

7. Will it work? Moody argues that while the plan may reduce foreclosures for primary residences, it could lead to a spike in defaults for another group of homeowners. Although he supports the administration’s efforts to focus the initiative on primary residences, Moody notes that “it could be the case that a lot of [real estate speculators] have been just hanging on waiting to see exactly what the details are of this [plan],” Moody says. Now that it’s clear the Obama plan leaves speculators out, “we could actually see a spike in foreclosures or at least mortgage defaults among this group.”

Glaser, meanwhile, worries that lenders may soon be overwhelmed by inquiries from homeowners looking to participate. “Starting today, millions of borrowers are going to start to call their lenders to see whether or not they are eligible,” he said. “And I’m not sure that the financial services industry has the capacity to handle these inquiries.”


What to know before buying mortgage notes – The Washington Post #morgages


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What to know before buying mortgage notes

By Harvey S. Jacobs April 19, 2013

Last of three parts

Buying mortgage notes can provide the savvy investor with secure returns without the hassles and risks of buying and flipping a fixer-upper, locating tenants for a rental condo or unclogging toilets.

When most folks think about mortgage notes they think about industry giants such as Bank of America or Wells Fargo. According to Mortgage Bankers Association estimates, these institutions will originate $1.3 trillion in residential mortgages this year.

But there is a subset of the mortgage market called private mortgages, which come in several forms.

A common one is “seller financing” — that’s when the seller agrees to lend his buyer all or a portion of the home’s purchase price. Often the principal and interest payments are structured to amortize over a 30-year period like traditional loans, but require a balloon payment — meaning the borrower must remit the entire outstanding principal — after five years.

The expectation is that the borrower will, during this five-year period, refinance into a conventional-type loan from an institutional lender. If the borrower is unable to pay the full amount after five years, the noteholder can foreclose and take back the home. The main risk to the note investor is that the net sale proceeds of the foreclosure sale are insufficient to cover the note balance.

These seller-financed loans are generally used by borrowers who are unable to qualify for conventional institutional financing. This may not necessarily be a reflection of the borrower’s creditworthiness. For example, under existing institutional guidelines, many self-employed borrowers with high incomes and top credit scores still do not qualify for many institutional conventional loans.

Retirees face similar hurdles.

For these reasons, private mortgage loans generally carry a higher-than-market interest rate. It is this high interest rate that makes them attractive to real estate investors.

Private mortgages are also originated by private lenders who are willing to lend money to home buyers at above-market rates provided that the loan is secured by the borrower’s property as collateral. These investors will want to conduct due diligence not only on the borrower’s ability to repay, but also on the property’s market value and condition, should the investor have to foreclose.

Private mortgage notes are readily saleable in a robust secondary market. Although their higher-than-market interest rates make them attractive as buy and hold investments, private mortgage notes can be sold and thus converted into cash. The amount they sell for is based on the principal balance, the number of payments that have been made (referred to as “seasoning”), the number of remaining payments, the home’s appraised value and the borrower’s creditworthiness.

The concept of “time value of money” also controls how much you should be willing to pay for a private mortgage note. This concept dictates that receiving a dollar today is worth more than receiving a dollar in the future. Tools available online will calculate the present value of a future stream of income. What this means is that the seller of a private mortgage note cannot expect to sell his note for the outstanding principal balance of that note. Rather, he can sell it only for the discounted “present value” of the sum of the future payments.

To illustrate this concept, assume a seller sells his home on June 1 for $500,000; he insists on a 20 percent down payment of $100,000 and agrees to lend the buyer the remaining $400,000. He agrees to amortize the loan over a 30-year period with a balloon payment after five years.

The note bears interest at 5 percent annually. To “season” the note, he holds it for six months and receives six monthly payments of principal and interest. After the sixth payment, the outstanding principal balance of the note is $396,593. By using the present value calculator, we see that the present value of this note on Jan. 1, 2014, is $391,443. This value is then a baseline for the note’s purchase price. Depending on the other factors, such as property condition, market interest rates and the borrower’s creditworthiness, the price a note buyer would be willing to pay may be adjusted up or down accordingly.

How can a potential note investor protect himself? If possible, only buy or sell notes to people you can deal with locally. Check the local Better Business Bureau, the Federal Trade Commission and the Consumer Financial Protection Bureau Web sites.


Top Ten Things to Know if You re Interested in a Reverse Mortgage #amortization #mortgage


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Frequently Asked Questions about HUD s Reverse Mortgages

The Home Equity Conversion Mortgage (HECM) is FHA s reverse mortgage program, which enables you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements and more. You can receive additional free information about reverse mortgages in general by contacting the National Council on Aging at (800) 510-0301. It is smart to know more about reverse mortgages, and decide if one is right for you!

1. What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

2. Can I qualify for FHA s HECM reverse mortgage?

To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan. You can find a HECM counselor online or by phoning (800) 569-4287.

3. Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?

Yes. You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.

4. What types of homes are eligible?

To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

5.What are the differences between a reverse mortgage and a home equity loan?

With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you there are no monthly principal and interest payments. With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

6. Will we have an estate that we can leave to heirs?

When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to heirs. No debt is passed along to the estate or heirs.

7. How much money can I get from my home?

The amount varies by borrower and depends on:

  • Age of the youngest borrower or eligible non-borrowing spouse
  • Current interest rate; and
  • Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price

If there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower is used to determine the amount you can borrow.

8. Should I use an estate planning service to find a reverse mortgage lender?

FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA-approved lender. You can locate a FHA-approved lender by searching online at www.hud.gov or by contacting a HECM counselor for a listing. Services rendered by HECM counselors are free or at a low cost. To locate a HECM counselor Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you

9. How do I receive my payments?

For adjustable interest rate mortgages, you can select one of the following payment plans:

  • Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
  • Term – equal monthly payments for a fixed period of months selected.
  • Line of Credit – unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
  • Modified Tenure – combination of line of credit and scheduled monthly payments for as long as you remain in the home.
  • Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

For fixed interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan.

  • Single Disbursement Lump Sum – a single lump sum disbursement at mortgage closing.

10. What if I change my mind and no longer want the loan after I go to closing? How do I do this?

By law, you have three calendar days to change your mind and cancel the loan. This is called a three day right of rescission. The process of canceling the loan should be explained at loan closing. Be sure to ask the lender for instructions on this process. Mortgage lenders differ in the process of canceling a loan. You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place. In most cases, the right of rescission will not be applicable to HECM for purchase transactions.