New group aims to enlist millions to push the interests of homeowners and tenants

By Kenneth R. Harney Friday, July 26, 8:45 AM

Do 75 million homeowners need their own advocate before Congress and federal agencies on issues such as the mortgage interest tax deduction, retention of low-down-payment loans and the start of tougher financing rules in January?

Who knows? But a group of mortgage and real estate industry veterans, joined by leaders of national community development, fair housing and consumer groups, are set to launch an unusual effort: a national nonprofit organization modeled after AARP, the lobby for people ages 50 and older, solely to speak for the home-owning public.

It’s called America’s Homeowner Alliance, and it is scheduled to be formally announced within the next two weeks. The mission, according to its sponsors, is to “protect and promote sustainable home ownership for all segments” of the population – from moderate-income renters saving money for a down payment to long-established owners.

Members will be asked to pay annual dues of $20 – by comparison, AARP’s dues are $16 – and will receive access to an extensive program of rewards and discounts from more than 1,000 participating companies offering home-related products and services. These firms include Home Depot, Lowe’s, Best Buy, Sears, Verizon, major appliance manufacturers, and furniture and housewares stores, encompassing what sponsors say will be more than a million products. Members will earn points on every purchase and be able to redeem them for merchandise, travel and other benefits.

The new group, which will be headquartered in St. Louis, is the brainchild of Phil Bracken, former executive vice president for Wells Fargo Home Mortgage and now chief policy officer of government relations for Radian Guaranty, a private mortgage insurer. His specialty as a lender has been financing and promoting affordable homeownership, especially for entry-level buyers, and he has chaired or co-chaired groups such as the Consumer/Lender Roundtable. Bracken will serve as chairman of the alliance. Its president and chief executive will be Tino Diaz, who heads a management consulting firm in Florida and is a former chairman and president of the National Association of Hispanic Real Estate Professionals.

The group’s directors and advisory board represent a mix of industry and consumer-group leaders, including several from Asian, Hispanic and African American real estate organizations, plus the Consumer Federation of America.

In an interview, Bracken said the alliance is needed “because no one currently represents homeowners’ interests,” even though trade groups representing realty brokers, lenders and builders take positions on legislative and regulatory issues that often coincide with those interests.

Lisa Rice, a vice president of the National Fair Housing Alliance and a member of Bracken’s advisory board, said that despite those supportive positions taken by trade groups, the fact remains, “Realtors represent Realtors; builders represent builders. There is no group that is only looking out for and taking care of homeowners.”

Bracken said he expects to mount a multichannel marketing outreach campaign using social media and the efforts of the alliance’s participating organizations starting in September. He hopes to have 250,000 members within 12 months. By the end of the second year, the goal is 500,000 members, and after five years, 5 million members.

“This is a long-term effort,” he said, noting that it has taken AARP decades to grow into the powerhouse it is today. Like AARP, which focuses on a diverse and large pool of people, the alliance is targeted at a base of millions of consumers – current property owners and millions of renters who would like to become homeowners – who often have common interests.

How will the alliance handle bread-and-butter real estate issues such as the mortgage-interest deduction, which is a target this year for tax reformers who complain that homeowner write-offs add too much to the federal deficit and chiefly benefit upper-middle-income and wealthy property owners? Bracken says the group will strongly favor retention of the deductions, a position that coincides with that of the Realtors and home builders.

But at least one of Bracken’s board members, John Taylor, president and chief executive of the National Community Reinvestment Coalition, hints at the sort of internal policy splits that seem inevitable for the alliance with its diverse makeup. Taylor said in an interview that if Congress wanted to cut out deductions for second homes to help reduce the federal deficit, he would be in favor – and would urge the alliance to work with tax reformers on that issue.

The alliance’s Web site, which will go live once the group is formally launched, is www.myaha.com.

A reverse mortgage nightmare

Jul 19, 2013 Kenneth R. Harney

WASHINGTON — Call it the estate-devouring, nightmare home loan you hope to never encounter: A reverse mortgage with a base interest rate of 9.95 percent, plus a 50 percent share for the lender of increases in value of the house following closing, plus another 2 percent “maturity fee” to sweeten the payout even more. On top of that, there’s a $33,000 mandatory purchase of an annuity by the homeowner that is added to the principal balance and incurs compounding interest while lessening the lender’s future payments to the homeowner.

Is this for real? Do mortgages with terms like this actually exist in this country today? They do. Talk to Sarah Havemeyer of Southampton, N.Y., who’s been fighting a California bank in court for two years over her late mother’s reverse mortgage that dates back to 1997. Although the bank, OneWest, has not yet provided a total of what it believes is owed on the reverse mortgage, according to Havemeyer, she estimates it could be in the neighborhood of $1.5 million to $1.6 million. By comparison, the amount that Havemeyer’s mother actually received from the reverse mortgage between 1997 and her death in 2010 was just $272,911.51. A reverse mortgage places a lien against a senior’s home in exchange for periodic or lump sum payments. The full amount borrowed does not come due until the borrower dies, moves out or sells the home.

OneWest, for its part, isn’t talking. The bank declined to discuss either Havemeyer’s litigation or any details of the reverse mortgage terms. The law firm representing OneWest’s subsidiary that claims ownership of the reverse mortgage note — Financial Freedom Acquisition LLC — did not respond to a request for comment.

Financial Freedom has filed for foreclosure, seeking payment of the $272,911.51, plus “interest at the rate stated” in the mortgage along with legal and other fees. The filing did not indicate that a huge chunk of the “interest” due flows from its 50-50 share in the appreciation of the house from $556,000 in 1997 to its approximate current value around $1.8 million.

Havemeyer, who is serving as executrix of her mother’s estate, is challenging the foreclosure, claiming that Financial Freedom has not been able to present documentation that it actually owns the mortgage, and the terms of the loan are “unconscionable and usurious” and violate state law.

Were it not for the unusual terms of the mortgage, Havemeyer’s dispute with the bank and its subsidiary might be seen as just another real estate squabble in the high-gloss Hamptons on New York’s Long Island. But the terms make this case jump out as special.

Start with the triple whammy of 50-50 appreciation sharing, plus the mandatory annuity added to the loan balance, plus the 2 percent extra fee tacked on at the end. Although the vast majority of reverse mortgages have never employed such payment terms, thousands that were marketed in the 1990s did.

In the late 1990s, a series of California lawsuits claimed that terms such as these amounted to “financial abuse of the elderly” and allowed lenders to “[reap] unfair profits at the expense of the elderly,” many of whom ended up owing far more than they borrowed. A consolidated class-action suit was later settled by the defendants — Transamerica Corp. Transamerica HomeFirst, Inc., Metropolitan Life Insurance Co. and Financial Freedom Senior Funding Corp — for $8 million. None of the companies admitted wrongdoing. Through a long chain of events spanning the mortgage crash, OneWest Bank acquired reverse mortgage assets that dated back to Transamerica and Financial Freedom Senior Funding, including the loan now in dispute.

A widow and 78 when she originally obtained her loan from Transamerica Home First, Sarah C. Hoge, Havemeyer’s mother, did not seek guidance from family members. Havemeyer’s lawyer in the foreclosure case, Michael Walsh, says “I can’t imagine that Mrs. Hoge really did understand what she was getting into.” But she signed up, and ultimately did not opt out of the class-action settlement in California, which provided her a payment of $8,480.

How Havemeyer’s case ultimately turns out is anybody’s guess. But the bottom line is this: Reverse mortgages, even today’s friendlier versions that offer upfront counseling, can be hazardous to elderly borrowers’ financial health and potentially costly for their heirs. Nearly one in 10 federally-backed reverse mortgages is in default, risking foreclosure for owners. Family members need to be involved from Day One. And stay involved.

Routes to a lower down payment

By KENNETH R. HARNEY 07/12/2013

It’s a crucial question for many first-time and moderate-income buyers in rebounding markets across the country: Where do we find the lowest down payment, lowest monthly cost loans? The answers are changing.

True zero-down alternatives are rare and tend to be tightly restricted. If you’re a veteran or active military, a VA-guaranteed home loan might be ideal since it requires no down payment. The same is true for certain rural housing loans administered by the Department of Agriculture, but purchases must be in designated areas outside large population centers. Members of the Navy Federal and NASA federal credit unions can qualify for zero down financing, but those programs are closed to everybody else. Some state housing finance agency programs may also be helpful, but they often come with income limits and other requirements.

For most shoppers looking for mini-down payments, there are much larger, less restrictive sources. The Federal Housing Administration is probably the traditional favorite since it requires just 3.5 percent down. But beware: In the wake of a series of insurance premium increases and a highly controversial move to make premiums non-cancellable for the life of the loan for most new borrowers, FHA no longer rules the low-cost roost.

Fannie Mae, the giant federal mortgage investor, may now do better. And for some applicants, so might Freddie Mac, Fannie’s smaller competitor. Consider this scenario prepared by George Souto, a loan officer with McCue Mortgage in New Britain, Conn., who has long specialized in putting first-time buyers into houses using FHA loans. But lately, says Souto, “the numbers just don’t work as well.” He’s directing clients instead into Fannie Mae’s 3 percent minimum down payment “My Community Mortgage” program.

Here’s the head-to-head: Say you want to buy a $180,000 house but you don’t have much cash for a down payment. If you go with a 3.5 percent FHA loan, you would need to come up with $6,300. If you select Fannie’s 3 percent loan, it’s just $5,400.

The rate on the FHA loan with zero points will be lower – 4.25 percent in Souto’s hypothetical – than 4.625 percent for Fannie. (A point is 1 percent of the loan amount.) But FHA’s new mortgage insurance premium charges spoil the rate advantage: $195.41 monthly for FHA versus $123.68 for Fannie’s plan using private mortgage insurance. On a monthly basis, FHA costs $43.30 more – a $1,064.67 payment compared with $1,021.37 – including principal, interest and insurance.

More important for buyers who plan to hold on to their low mortgage interest rates for years, Fannie’s insurance charges disappear when the principal balance on the loan reaches 78 percent of the purchase price of the home – knocking $123.68 off the monthly mortgage bill. FHA’s insurance fees of $195.41 a month, by contrast, are a drag until you pay off the loan. FHA previously allowed cancellation, but that changed June 3, when the agency revoked the privilege for most new borrowers.

There are some noteworthy restrictions to the Fannie program that might stand in the way of some buyers, however. There are income limits pegged to median incomes in the metropolitan area where the house is located, although applicants in higher-cost markets such as in California, metropolitan Washington, D.C., Seattle, Vancouver-Portland, Boston and New York among others can qualify with incomes well above the median. Check with your loan officer about what ceiling may apply to you.

Fannie requires higher credit scores – generally 680 FICO and up – whereas FHA is more generous, allowing 580 FICOs. But as a practical matter, many mortgage lenders won’t do FHA loans for borrowers with FICO scores below 640. Fannie also insists that for first-time purchasers, at least one borrower must complete a financial education or counseling course. FHA has no such requirement.

FHA allows borrowers to use gift funds as part of their down payments, but the Fannie program requires the full down payment to come from the borrowers’ own resources such as savings accounts.

Freddie Mac’s “Home Possible” program, which is its low-down-payment competitor to both Fannie and FHA, may also be an attractive option for buyers who don’t want to keep paying expensive FHA insurance premiums for long periods. It requires a 5 percent minimum down payment but allows all of it to come from gifts provided by family, friends, employers or other sources. There is no minimum cash contribution directly from the borrower – which may resemble zero down but really isn’t.