A high number of retirees have equity in a home that could generate additional income, but few see the Home Equity Conversion Mortgage (HECM) as a viable option. In this opinion piece, Wharton emeritus finance professor Jack Guttentag, who runs a website called The Mortgage Professor, offers suggestions on how the HECM market could be substantially improved.
People reaching retirement age are living longer than ever, and retiring with less capacity to maintain their living standards. The Center for Retirement Research at Boston College estimates that more than half of the households entering retirement “may be unable to maintain their standard of living in retirement.”
Yet a sizeable segment of retirees have equity in a home that could generate additional funding through the use of a Home Equity Conversion Mortgage – the only variety of reverse mortgage insured by the federal government. The HECM program is well-designed and provides options for meeting a wide variety of retirees’ financial needs. Yet few seniors use it. At current rates, only about 60,000 HECMs will be written in 2015, which is a drop in the bucket compared to the need. To put this in perspective, about 3 million homeowners turn 65 every year.
The stunted growth of the HECM program mainly reflects market failure, as opposed to a considered preference by senior homeowners not to participate. For reasons explored in my working paper titled, “HECM Reverse Mortgages: Is Market Failure Fixable?,” the HECM market is the most dysfunctional and least competitive of all the major financial service markets. Lenders don’t display their prices anywhere, and borrowers don’t price shop. Most originators always charge the maximum origination fee allowed by law, regardless of how much they are making on the transaction. Markups are 2.5 to 3 times larger than in the standard mortgage market, though the work load involved in writing an HECM is much the same.
Some years ago, I decided to invest the money I had made in a moderately successful business venture in developing and maintaining a website to help consumers deal with home mortgages, later extended to reverse mortgages. My partners in this effort were Daryl Tubbs, Jack Pritchard and Allan Redstone. As I became aware of how and why the reverse mortgage market was so dysfunctional, I also realized that some of the tools my colleagues and I had developed to improve decision-making, if deployed more widely, could substantially improve the market. This article summarizes our game plan, which requires help from a number of quarters.
Establishing an Identity: Our approach to fixing the dysfunctional HECM market is to create an identifiable segment of the market that is functional, which over time will replace the segment that is not. For this to work, the new segment must have an easily recognizable identity that is associated with the features that distinguish it from the dysfunctional segment. Thus was born the “Kosher HECM,” with apologies to my Orthodox Jewish friends, for whom the term kosher means so much more.
read more: https://knowledge.wharton.upenn.edu/article/kosher-hecms-fixing-a-dysfunctional-reverse-mortgage-market/
Monday, August 31, 2015
Tuesday, August 25, 2015
The Loan Program With Today’s Lowest Mortgage Rates
TODAY'S LOWEST MORTGAGE RATES ARE VA
With today's low mortgage rates low, it's getting cheaper to finance a home for purchase or refinance.
Purchasing power is higher by 6% as compared to last year, which has added $6,000 to a buyer's maximum purchase price for every $100,000; and, low rates have put 6.5 million U.S. homeowners within striking distance to refinance.
Freddie Mac reports 30-year mortgage rates below 4% nationwide, but the lowest rates are those linked to the VA Loan Guaranty program.
Backed by the Department of Veterans Affairs, the VA loan program's mortgage rates are cheapest among the most common mortgage loan types for the 15th straight month.
Conventional loans, which include all loans backed by Fannie Mae and Freddie Mac, also for the 15th consecutive month, were the highest of all mortgage rates.
VA MORTGAGE RATES 0.27% BELOW CONVENTIONAL RATES
Want to lock the lowest mortgage rate out there? Start your search with the VA Loan Guaranty program.
According to Ellie Mae, which handles more than 3.5 million mortgage applications annually via its software, VA mortgage rates beat rates for comparable loan programs via other agencies of the government month after month after month.
Ellie Mae's July Origination Insight Report puts the average mortgage rate on a closed VA loan 27 basis points (0.27%) below the average rate for a conventional loan, marking the second-biggest discount in 12 months.
July's next-lowest mortgage rates were linked to loans insured by the Federal Housing Administration (FHA). FHA mortgage rates beat conventional ones by 12.5 basis points (0.125%), on average.
"Effective" FHA mortgage rates remain near their lowest in recorded history. It's never been cheaper to use FHA financing to buy or refinance a home.
By contrast, conventional mortgage rates averaged over 4.36% in July -- the highest reading this year and, as astute observers will notice, a rate which is substantially higher than conventional rates as reported by another rate-tracking survey, the Freddie Mac Primary Mortgage Market Survey.
There's actually a good reason for this.
see more at : http://themortgagereports.com/18059/loan-ellie-mae-va-mortgage-interest-rates
With today's low mortgage rates low, it's getting cheaper to finance a home for purchase or refinance.
Purchasing power is higher by 6% as compared to last year, which has added $6,000 to a buyer's maximum purchase price for every $100,000; and, low rates have put 6.5 million U.S. homeowners within striking distance to refinance.
Freddie Mac reports 30-year mortgage rates below 4% nationwide, but the lowest rates are those linked to the VA Loan Guaranty program.
Backed by the Department of Veterans Affairs, the VA loan program's mortgage rates are cheapest among the most common mortgage loan types for the 15th straight month.
Conventional loans, which include all loans backed by Fannie Mae and Freddie Mac, also for the 15th consecutive month, were the highest of all mortgage rates.
VA MORTGAGE RATES 0.27% BELOW CONVENTIONAL RATES
Want to lock the lowest mortgage rate out there? Start your search with the VA Loan Guaranty program.
According to Ellie Mae, which handles more than 3.5 million mortgage applications annually via its software, VA mortgage rates beat rates for comparable loan programs via other agencies of the government month after month after month.
Ellie Mae's July Origination Insight Report puts the average mortgage rate on a closed VA loan 27 basis points (0.27%) below the average rate for a conventional loan, marking the second-biggest discount in 12 months.
July's next-lowest mortgage rates were linked to loans insured by the Federal Housing Administration (FHA). FHA mortgage rates beat conventional ones by 12.5 basis points (0.125%), on average.
"Effective" FHA mortgage rates remain near their lowest in recorded history. It's never been cheaper to use FHA financing to buy or refinance a home.
By contrast, conventional mortgage rates averaged over 4.36% in July -- the highest reading this year and, as astute observers will notice, a rate which is substantially higher than conventional rates as reported by another rate-tracking survey, the Freddie Mac Primary Mortgage Market Survey.
There's actually a good reason for this.
see more at : http://themortgagereports.com/18059/loan-ellie-mae-va-mortgage-interest-rates
Tuesday, August 18, 2015
How retirees can benefit from reverse mortgages
You may have heard of reverse mortgages through Fred Thompson's ubiquitous daytime television ads, but you may not know much about them or how they work. So let us take over for Fred and explain them in detail.
In essence, the reverse mortgage is a variation of a home equity loan that is used to provide income during the retirement years. You are borrowing a certain amount of money using the equity in your house as collateral. The difference is that with a reverse mortgage, repayment is not required until the borrower passes away, chooses to sell the home, or permanently moves out of the home. At that time, the home is sold to repay the loan plus accrued interest and other charges. Any surplus from the sale beyond these costs is remitted to the borrower or his/her estate.
Fixed-rate reverse mortgages must be tapped as a lump sum, while variable-rate loans may be structured as regular payments or as an available line of credit.
To qualify, you must be at least 62 years old, own your home outright or have sufficient equity in the home (usually 50 percent or greater), and live in the home as your primary residence. Additionally, the loan requires that you pay all applicable property taxes and regularly maintain the home.
As a safeguard against borrowers overextending themselves, new rules as of April 27, 2015, require lenders to review the borrower's finances prior to approval to ensure that the borrower has enough stable income to pay those ongoing costs. Lenders must assess your "capacity to pay" via income, and your "willingness to pay" via your history of recent payments. Have this proof in hand when you apply.
see more: http://www.thedenverchannel.com/financial-fitness/how-retirees-can-benefit-from-reverse-mortgages
In essence, the reverse mortgage is a variation of a home equity loan that is used to provide income during the retirement years. You are borrowing a certain amount of money using the equity in your house as collateral. The difference is that with a reverse mortgage, repayment is not required until the borrower passes away, chooses to sell the home, or permanently moves out of the home. At that time, the home is sold to repay the loan plus accrued interest and other charges. Any surplus from the sale beyond these costs is remitted to the borrower or his/her estate.
Fixed-rate reverse mortgages must be tapped as a lump sum, while variable-rate loans may be structured as regular payments or as an available line of credit.
To qualify, you must be at least 62 years old, own your home outright or have sufficient equity in the home (usually 50 percent or greater), and live in the home as your primary residence. Additionally, the loan requires that you pay all applicable property taxes and regularly maintain the home.
As a safeguard against borrowers overextending themselves, new rules as of April 27, 2015, require lenders to review the borrower's finances prior to approval to ensure that the borrower has enough stable income to pay those ongoing costs. Lenders must assess your "capacity to pay" via income, and your "willingness to pay" via your history of recent payments. Have this proof in hand when you apply.
see more: http://www.thedenverchannel.com/financial-fitness/how-retirees-can-benefit-from-reverse-mortgages
Friday, August 14, 2015
Average rate on 30-year mortgage edges up to 3.94%
WASHINGTON (AP) — Average long-term U.S. mortgage rates edged up this week after three straight weeks of declines. The key 30-year loan rate remained under 4%.
Mortgage giant Freddie Mac said Thursday the average rate on a 30-year fixed-rate mortgage rose to 3.94% from 3.91% a week earlier. The rate on 15-year fixed-rate mortgages increased to 3.17% from 3.13%.
A solid U.S. employment report for July out last Friday — with employers adding 215,000 jobs and the jobless rate steady at 5.3 percent — means there’s a strong chance that the anticipated interest rate increase by the Federal Reserve will occur next month. The Fed has kept its key short-term rate near zero since the financial crisis year 2008.
However, China’s sharp and sudden devaluation of its currency against the dollar this week could complicate the Fed’s decision on timing of a rate increase. The rising dollar has been hurting U.S. exporters by making their goods costlier abroad. By making Chinese goods comparatively cheaper in the United States, a weaker yuan would push already-low U.S. inflation even lower.
The Fed wants to be “reasonably confident” that inflation is returning to its 2% target before raising rates. Inflation has risen just 1.3% in the past 12 months.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1%of the loan amount.
read more: http://www.usatoday.com/story/money/personalfinance/2015/08/13/mortgage-rates/31637993/
Mortgage giant Freddie Mac said Thursday the average rate on a 30-year fixed-rate mortgage rose to 3.94% from 3.91% a week earlier. The rate on 15-year fixed-rate mortgages increased to 3.17% from 3.13%.
A solid U.S. employment report for July out last Friday — with employers adding 215,000 jobs and the jobless rate steady at 5.3 percent — means there’s a strong chance that the anticipated interest rate increase by the Federal Reserve will occur next month. The Fed has kept its key short-term rate near zero since the financial crisis year 2008.
However, China’s sharp and sudden devaluation of its currency against the dollar this week could complicate the Fed’s decision on timing of a rate increase. The rising dollar has been hurting U.S. exporters by making their goods costlier abroad. By making Chinese goods comparatively cheaper in the United States, a weaker yuan would push already-low U.S. inflation even lower.
The Fed wants to be “reasonably confident” that inflation is returning to its 2% target before raising rates. Inflation has risen just 1.3% in the past 12 months.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1%of the loan amount.
read more: http://www.usatoday.com/story/money/personalfinance/2015/08/13/mortgage-rates/31637993/
Monday, August 10, 2015
Mortgage rates stall as bond yields and Fed expectations reach stalemate
Mortgage rates barely moved this week after volatile government bond yields and mixed news about the economy made headlines.
The bond yield roller coaster
Treasury yields fell to a 2-month low this week in response to disappointing economic data, but have since reversed course.
The 10-year Treasury yield closed at 2.15% Monday and bounced back to 2.27% by Wednesday afternoon.
Overall construction spending rose a measly 0.1% from May to June, the U.S. Census Bureau said Monday. That's the smallest increase seen in 5 months. Residential construction rose 0.4%, however.
Consumer spending increased 0.2% in June compared with 0.7% in May, according to the latest report from the Bureau of Economic Analysis.
September rate hike 'appropriate'?
Treasury yields started moving higher after the Atlanta Federal Reserve's president hinted that there's still a chance the central bank will increase the federal funds rate in September.
"My priors going into the (September) meeting as of today are that the economy is ready and it is an appropriate time to make a change," Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told The Wall Street Journal on Tuesday.
2015%30-year fixedMayJunJul4.004.104.2030-year fixed06/17/2015 : 4.13%
30 year fixed rate mortgage -- 3 month trend
A look at this week's rates
The benchmark 30-year fixed-rate mortgage rose to 4.1% from 4.09%, according to Bankrate's Aug. 5 survey of large lenders. A year ago, the rate was 4.29%. 4 weeks ago, it was 4.14%. The mortgages in this week's survey had an average total of 0.24 discount and origination points. Over the past 52 weeks, the 30-year fixed rate has averaged 4.03%. This week's rate is 0.07 percentage points higher than the 52-week average.
The benchmark 15-year fixed-rate mortgage rose to 3.28% from 3.27%.
The benchmark 30-year fixed-rate jumbo mortgage fell to 4.02% from 4.05%.
The benchmark 5/1 adjustable-rate mortgage rose to 3.24% from 3.22%.
Read more: http://www.bankrate.com/finance/mortgages/mortgage-analysis-080615.aspx
The bond yield roller coaster
Treasury yields fell to a 2-month low this week in response to disappointing economic data, but have since reversed course.
The 10-year Treasury yield closed at 2.15% Monday and bounced back to 2.27% by Wednesday afternoon.
Overall construction spending rose a measly 0.1% from May to June, the U.S. Census Bureau said Monday. That's the smallest increase seen in 5 months. Residential construction rose 0.4%, however.
Consumer spending increased 0.2% in June compared with 0.7% in May, according to the latest report from the Bureau of Economic Analysis.
September rate hike 'appropriate'?
Treasury yields started moving higher after the Atlanta Federal Reserve's president hinted that there's still a chance the central bank will increase the federal funds rate in September.
"My priors going into the (September) meeting as of today are that the economy is ready and it is an appropriate time to make a change," Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told The Wall Street Journal on Tuesday.
2015%30-year fixedMayJunJul4.004.104.2030-year fixed06/17/2015 : 4.13%
30 year fixed rate mortgage -- 3 month trend
A look at this week's rates
The benchmark 30-year fixed-rate mortgage rose to 4.1% from 4.09%, according to Bankrate's Aug. 5 survey of large lenders. A year ago, the rate was 4.29%. 4 weeks ago, it was 4.14%. The mortgages in this week's survey had an average total of 0.24 discount and origination points. Over the past 52 weeks, the 30-year fixed rate has averaged 4.03%. This week's rate is 0.07 percentage points higher than the 52-week average.
The benchmark 15-year fixed-rate mortgage rose to 3.28% from 3.27%.
The benchmark 30-year fixed-rate jumbo mortgage fell to 4.02% from 4.05%.
The benchmark 5/1 adjustable-rate mortgage rose to 3.24% from 3.22%.
Read more: http://www.bankrate.com/finance/mortgages/mortgage-analysis-080615.aspx
Thursday, August 6, 2015
It just got easier to get a jumbo mortgage
Getting a large home loan at Chase just got a little easier.
The bank is easing the lending requirements for its jumbo mortgages, which tend to be loans in excess of $417,000 in many markets and $625,500 in more expensive areas.
A potential buyer now only needs a credit score of 680 and a 15% down payment to qualify for a maximum loan amount of $3 million for a primary-residence home. Borrowers used to need a 740 score and put 20% down.
By easing its standards, the bank is hoping to gain more customers. "The performance we had on jumbo loans ... has been fantastic. We think we are able to make high-quality loans to high-quality customers," said Steve Hemperly, head of mortgage originations at JPMorgan (JPM) Chase & Co.
The standards for second-home purchases requiring a jumbo loan have also eased to a 680 credit score and a 20% down payment. Buyers used to have to put down 30% to 50%.
The bank claims it's the only lender allowing a 680 credit score with smaller down payments for primary and second home jumbo mortgages.
Loose lending practices helped bring down the housing market in 2008. In the wake of the Great Recession, credit markets froze and the mortgage industry upped their loan requirements.
While the standards have started to loosen, mortgage availability remains relatively tight and first-time buyers have been noticeably absent.
However, jumbo loans have performed well in the recovery. Hemperly said there's been an increase in these large loans in California, the Northeast and Chicago.
see more http://money.cnn.com/2015/08/05/real_estate/chase-jumbo-mortgage-qualify/
The bank is easing the lending requirements for its jumbo mortgages, which tend to be loans in excess of $417,000 in many markets and $625,500 in more expensive areas.
A potential buyer now only needs a credit score of 680 and a 15% down payment to qualify for a maximum loan amount of $3 million for a primary-residence home. Borrowers used to need a 740 score and put 20% down.
By easing its standards, the bank is hoping to gain more customers. "The performance we had on jumbo loans ... has been fantastic. We think we are able to make high-quality loans to high-quality customers," said Steve Hemperly, head of mortgage originations at JPMorgan (JPM) Chase & Co.
The standards for second-home purchases requiring a jumbo loan have also eased to a 680 credit score and a 20% down payment. Buyers used to have to put down 30% to 50%.
The bank claims it's the only lender allowing a 680 credit score with smaller down payments for primary and second home jumbo mortgages.
Loose lending practices helped bring down the housing market in 2008. In the wake of the Great Recession, credit markets froze and the mortgage industry upped their loan requirements.
While the standards have started to loosen, mortgage availability remains relatively tight and first-time buyers have been noticeably absent.
However, jumbo loans have performed well in the recovery. Hemperly said there's been an increase in these large loans in California, the Northeast and Chicago.
see more http://money.cnn.com/2015/08/05/real_estate/chase-jumbo-mortgage-qualify/
Tuesday, August 4, 2015
Demand for mortgages picks up in second quarter: Fed survey
The trend for stronger demand for mortgage loans continued in the second quarter, a Federal Reserve senior loan officer survey released Monday showed, suggesting financial strains on households are easing.
About 44% of banks reported moderately stronger demand for mortgages, compared with only 5% reporting weaker demand, according to the survey of 71 domestic and 23 branches of foreign banks operating in the U.S.
The increase in mortgage demand was across the spectrum, including both jumbo and non-jumbo mortgages. Banks trimmed standards for mortgage lending, which makes it easier for borrowers to obtain a loan, but at a slower pace than in the first quarter, according to the survey.
This report affirms Fed Chairwoman Janet Yellen’s recent testimony that U.S. households have to “wherewithal and confidence” to boost spending, said Millan Mulraine, economist at TD Securities.
Banks also reported stronger demand for auto and credit card loans.
A few large banks eased standards for credit cards, increased credit card limits and reduced minimum credit scores.
“In general, this report reaffirms the supportive backdrop for the U.S. economy as the continued progress in credit dynamics will be seen as complementing the boost in income from the robust labor market and the support to wealth from rising asset prices,” Mulraine said.
source: http://www.marketwatch.com/story/demand-for-mortgages-picks-up-in-second-quarter-fed-survey-2015-08-03
About 44% of banks reported moderately stronger demand for mortgages, compared with only 5% reporting weaker demand, according to the survey of 71 domestic and 23 branches of foreign banks operating in the U.S.
The increase in mortgage demand was across the spectrum, including both jumbo and non-jumbo mortgages. Banks trimmed standards for mortgage lending, which makes it easier for borrowers to obtain a loan, but at a slower pace than in the first quarter, according to the survey.
This report affirms Fed Chairwoman Janet Yellen’s recent testimony that U.S. households have to “wherewithal and confidence” to boost spending, said Millan Mulraine, economist at TD Securities.
Banks also reported stronger demand for auto and credit card loans.
A few large banks eased standards for credit cards, increased credit card limits and reduced minimum credit scores.
“In general, this report reaffirms the supportive backdrop for the U.S. economy as the continued progress in credit dynamics will be seen as complementing the boost in income from the robust labor market and the support to wealth from rising asset prices,” Mulraine said.
source: http://www.marketwatch.com/story/demand-for-mortgages-picks-up-in-second-quarter-fed-survey-2015-08-03
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