Consider this before you get a reverse mortgage

Reverse mortgages can help older peope in need of extra cash.  They allow homeowners ages 62 and older to access their home’s equity for any financial purpose.  If the owner remains in the home, the loan doesn’t have to be paid back (payback occurs when the home is sold).

The drawbacks?  Although the new federally backed Home Equity Conversion Mortgage SaverLoan is cheaper than older versions, (0.01% of a home’s value vs. 2%), borrowing limits are smaller and interest rates higher.  Add to that annual insurance costs of 1.25% of a home’s value.  “Throw in the loan-origination fee, appraisal and other upfront costs, and we’re potentially talking big bucks,” says Ray Brown, co-author of Mortgages for Dummies.  So consider:

Will you stay long?  The longer you stay in your home, the more you can spread out the expense. 

Does your home fit?  “A reverse mortgage enables some folks to remain in a house that’s highly unsuitable for them – too big, too many stairs, not energy efficient,” says Brown.  “Downsizing into a smaller home is one way to free up the equity in your big, old empty nest.”

Jeff Wuorio – from USA WEEKEND magazine

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Loan mod portals a win-win for real estate

Will the rule that all mortgage servicers must designate one employee as a single point of contact for every borrower requesting a loan modification make the process easier for borrowers to navigate?”

The rule to which you refer was issued earlier this year by the Office of the Comptroller of the Currency (OCC). It was part of a package of enforcement actions taken against eight of the largest national bank mortgage servicers for unsafe and unsound practices related to mortgage servicing.

This particular action required the servicers to provide each applicant with the name of a single point of contact (SPOC) along with “one or more direct means of communication with the contact.” Shortly thereafter, Treasury announced that SPOC would be the rule for all servicers participating in the Making Home Affordable Program.

Since poor communication between servicers and borrowers has been a core problem bedeviling the mortgage modifications problem, the SPOC seems like a sensible idea. In fact, SPOC will not improve communication with borrowers.

“Will the rule that all mortgage servicers must designate one employee as a single point of contact for every borrower requesting a loan modification make the process easier for borrowers to navigate?”

The rule to which you refer was issued earlier this year by the Office of the Comptroller of the Currency (OCC). It was part of a package of enforcement actions taken against eight of the largest national bank mortgage servicers for unsafe and unsound practices related to mortgage servicing.

This particular action required the servicers to provide each applicant with the name of a single point of contact (SPOC) along with “one or more direct means of communication with the contact.” Shortly thereafter, Treasury announced that SPOC would be the rule for all servicers participating in the Making Home Affordable Program.

Since poor communication between servicers and borrowers has been a core problem bedeviling the mortgage modifications problem, the SPOC seems like a sensible idea. In fact, SPOC will not improve communication with borrowers.

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For example, informing a borrower that “Henceforth, Jane Doe is your contact person and her email address is jdoe@lenderZ.com” won’t actually help the borrower unless Jane has quick access to the most current information about the status of the application, which today is very unlikely.

The crux of the communication problem is not the lack of an SPOC — it is inadequate systems for capturing in one place all the information needed to resolve an application for a modification, and for making it available to all the persons involved.

If the servicer has an easily accessible system that shows what has been done, what remains to be done, and what additional information is required from the borrower, any customer service representative can provide the same information to the borrower.

In such case, the requirement that each borrower can communicate only with an SPOC can only reduce efficiency. The SPOC may be busy when the client calls, or having lunch, or perhaps on vacation, while other SPOCs are idle.

If the system isn’t adequate, on the other hand, an SPOC is not going to be able to answer the borrower’s questions without making the rounds of those who have been working on that borrower’s case, which will take time while other calls stack up. The SPOC cannot remedy system deficiencies.

The best system is an Internet-based portal available to borrowers as well as authorized employees of the servicer. The portal is the SPOC in the sense that borrowers can access it at any time to see the exact status of their application.

But it is also a multiple point of contact in the sense that borrowers can communicate with any of the employees involved in their case by sending and receiving messages through the portal.

Two portals now exist, one from Default Mitigation Management (DMM), a private firm that recently opened its portal to borrowers. The second is the Hope LoanPort, which is a nonprofit associated with Hope Now, the nonprofit consortium of servicers, loan counseling agencies and others.

The Hope LoanPort is more widely used by servicers than DMM, but it is not open to borrowers. I have no financial interest in either.

The DMM portal works in the following way: The borrower opens an account with DMM, selects the servicer from a list on the portal, and receives the complete set of documents required by that servicer. The borrower fills out the documents and sends them to the portal, which delivers the files to the servicer.

The borrower receives a dated acknowledgment of submission through the portal. If the servicer finds a deficiency in or omission from the submission, a message to that effect is sent back to the borrower through the portal. Corrections by the borrower are returned through the portal.

At any time, the borrower can access the portal for an update on what has been completed and what remains to be done. The servicer employees working a particular file are assigned to the borrower on the portal. This means that a borrower who has a question or issue is automatically directed to the employee involved in her issue.

All such communications are time-stamped and remain in the portal as a transparent record of borrower/servicer exchanges. As an important side benefit, the portal provides all the means for establishing the accountability of servicers for results.

The government’s decision to require a human SPOC rather than a systems SPOC is difficult to understand. A systems SPOC would solve both the communications problem and the accountability problem. The human SPOC is costing an enormous amount to provide little more than PR window-dressing for regulators.

By Jack Guttentag, Monday, December 5, 2011.

Inman News™

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

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How real estate distress can scar your credit score

E-books, video books, blogs, Web videos and infographics now all contribute to the knowledge we need to help make smart decisions, especially in the realm of real estate and personal finances.

Because so much about our own personal real estate and mortgage decision-making is dependent on personal and local market data, like our income and home prices in our area, interactive maps and other highly visual, interactive online tools are particularly useful in surfacing insights that allow for a deep understanding of a real estate or financial issue, at a glance.

So, for a few weeks, we’re going to spend some time exploring not books, but interactive online infographics and tools, starting with the Annual State of Credit Map recently published by Experian. The credit bureau and financial data company ranked more than 100 metropolitan areas in all 50 states in the order of their average resident’s credit scores.

From a sweep of the eye over the top and bottom 10 cities, one pattern instantly emerges: Eight of the 10 American cities with the highest credit scores are in the Midwest (the outliers were San Francisco and Sioux Falls, S.D.). A parallel pattern emerges on the other end of the credit score rankings: Eight of the 10 cities with the lowest credit scores are located in the South (rounding out the list:  Bakersfield, Calif., and Las Vegas).

Experian points out on its graphic of the list that there seem to be strong correlations between a metro area’s average debt (that nine of the 10 cities on the high-credit-score list have unemployment scores below the national average. This makes sense, as it would seem difficult to pay your bills on time every month with no job and no income.

The report also found some regional patterns in debt levels consistent with the credit score rankings; six of the 10 American cities with the lowest levels of debt were in the Midwest, and eight of the 10 with the highest debt levels were in the South.

I was most intrigued, however, by the real estate and mortgage insights layered within the study. If you go to the interactive map, here, you’ll see that it allows you to mouse over individual metro areas and see a set of data points for each locale, including its average credit score, average number of open credit card accounts, average debt, population, unemployment rate, and the area’s foreclosure activity over a one-month time frame.

The conclusion is almost inescapable that cities like Bakersfield and Las Vegas, the two non-Southern cities on the lowest credit score list, made it onto the list as a result of the unfortunate one-two punch: sky-high unemployment and chart-topping foreclosure rates.

At the top of the credit score list, the reverse also seems to be true — Midwestern cities have been notoriously resistant to the real estate recession compared to the rest of the country, as have San Francisco and Sioux Falls, the only two non-Midwestern areas on the list. And this is backed up by the low foreclosure rates reflected in the data on the infographic for these areas.

I’ve long believed that negative home equity, unemployment and resulting foreclosure epidemics would take down credit scores far below what the credit bureaus even project, because my experience has been that the actual credit impact of a short sale or foreclosure event virtually never occurs in isolation.

Working and corresponding with thousands of homeowners in mortgage distress throughout the course of this four-plus-year real estate recession, I’ve seen a number of hidden credit harms of housing market distress:

  • People who hope to keep their homes will generally max out their credit cards and fall behind on them before they begin missing mortgage payments (especially if they’re trying to get a new job after becoming unemployed), which impairs their credit scores;
  • Homeowners who know they are going to lose their homes to foreclosure might miss the equivalent of two or more years of payments before the lender actually repossesses the home, damaging their credit scores every month before the final credit nail in the coffin; and
  • Even those who seek to work things out with their mortgage lenders via loan modifications and short sales often are counseled to stop making payments to bolster their claims of financial hardship and boost the chances they’ll be granted the mortgage relief they need — again, dinging their credit scores every month until they either get a modification or finally lose the property.

There’s at least one other major hidden harm to credit scores that the housing market meltdown has had: People simply care less about their credit scores than they used to.

When you’re out of work and your credit is going to take hits no matter what you do, your home is a couple of hundred thousand dollars upside down or your mortgage payments double, you are forced to make your financial decisions based on considerations beyond credit score, like how you’ll feed your family and choosing between sending your kids to college and holding on to an upside-down home.

And all these factors, I suspect, might also be impacting credit scores in a way that even the most insightful infographic will never be able to surface.

By Tara-Nicholle Nelson,

Inman News™

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

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Renter’s Insurance

Take a look around you. Everything you see has value, and you could be vulnerable if you don’t have insurance.  Many renters think that their possessions are covered by their landlord’s policy. But your landlord’s policy typically only covers the structure and any liabilities the owner would face. Your possessions are not covered under this type of policy.

Why Do You Need Insurance?

You may think your possessions aren’t valuable enough to insure, but add up the cost of replacing everything you have. It is a significant amount of money. If you do not have enough savings to cover these expenses all at once, you need renter’s insurance. Many policies also provide personal liability coverage, protecting you in the event that someone is injured at your home.

Isn’t It Expensive?

Renter’s insurance can cost as little as $15.00 a month. It all depends on how much coverage you want and where you live. Considering that you have no control over circumstances like fire, water damage, or burglary, this is a wise investment and gives you peace of mind.

Where Do I Get Renter’s Insurance?

Almost all insurance agents that sell homeowner’s insurance also sell renter’s insurance. Call several for quotes and choose the one that seems the most comprehensive and affordable for you. If you are interested in buying renter’s insurance online, search for renter’s insurance and you will find many companies willing to give you quotes by email. One company specializes in renter’s insurance with a low deductible and the ability to purchase your policy online. Go to renterscoverage. com for more information. 

from Puliz Records Management September 2011 Newsletter “Bits and Pieces”

 

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Fannie Mae and Freddie Mac Update

In September 2008, Fannie Mae and Freddie Mac — two government-sponsored enterprises (GSEs) that facilitate residential lending in the U.S. — were financially rescued by the U.S. government and placed into conservatorship with the Federal Housing Finance Agency (FHFA).

This crisis swayed Congress to gradually reduce the role of Fannie and Freddie in the U.S. housing market. The House of Representatives’ Capital Markets and Government Sponsored Enterprises Subcommittee recently approved a series of bills toward this end.

The legislation seeks to hold Fannie and Freddie to the same standards as any other mortgage market participant with regard to risk retention rules. Cumulatively, the legislation will suspend the compensation packages for executives and place all other employees on a government pay scale; reduce the size of their loan portfolios; gradually increase the fee requirements; and end the companies’ mandates to back mortgages for lower-income people. These bills will now be sent to the House Financial Services Committee in the House of Representatives.

The Treasury Department has also issued a list of recommendations for Fannie and Freddie. These include three options:

  1. Limit tax payer exposure to risks in the mortgage market and relegate the government to more narrowly targeted loan programs, such as the FHA and VA.
  2. Develop a “backstop mechanism” to ensure homeowners had access to credit during a crises.
  3. Have a group of private companies provide guarantees on mortgage securities with the Treasury providing reinsurance on these securities.

Analysts believe comprehensive reform of the two GSEs will be years in the making. Treasury Secretary Tim Geithner said whatever plan Congress chooses, it would take between five and seven years to implement.

– From Prospect Mortgage Industry Insider

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