Reverse mortgages tightening up

Sep 13, 2013

Kenneth R. Harney

WASHINGTON — For homeowners who were looking to the federal government’s reverse mortgage program to supply lots of cash for their retirement years, here’s a heads-up: The pipeline just got narrower.

Pressed by Congress to slash losses, the Federal Housing Administration last week outlined a series of steps designed to limit the maximum amounts that seniors can draw down on their homes and to make qualifying for a reverse mortgage tougher.

Starting in January, applicants for FHA-backed reverse mortgages will for the first time have to qualify under comprehensive new “financial assessments” — covering credit history, household cash flow and debt levels– to make sure they have the “capacity and willingness” to meet their financial obligations under the terms of the loan. At the same time, they may also be required to set aside sizable portions of their drawdowns to handle property taxes and hazard insurance for years to come. As early as next month, some applicants will also be required to pay substantially higher FHA insurance premiums if they pull out hefty amounts of funds upfront at closing.

Reverse mortgages are limited to homeowners 62 and older, and allow them to use the equity in their properties to provide funds for their retirement years. Borrowers need not repay their principal balances — plus compounded interest charges — until they move from the home, sell it or die.

FHA’s insured reverse-mortgage program, which is hawked aggressively by TV pitchmen including former Tennessee Sen. Fred Thompson, Henry “the Fonz”

Winkler and Robert Wagner, dominates the field. But losses to FHA’s insurance funds caused by reverse mortgages have mounted in recent years, and could trigger a nearly $1 billion bailout by the Treasury. FHA hopes to avoid that, however. The newly imposed eligibility and drawdown rules are intended to cut losses and help achieve greater financial stability for the program, according to Carol J. Galante, FHA’s commissioner.

Limits on the amounts that seniors can draw down, higher mortgage insurance fees and rigorous financial vetting of applicants are worrying some lenders and brokers active in the program. They estimate that the maximum drawdowns seniors can obtain will be reduced by about 15 percent, compared with the popular “standard” version of the program that has now been phased out.

Borrowers who take more than 60 percent of the maximum amounts available to them upfront will also pay substantially higher insurance premiums. The changes are likely to reduce the attractiveness of reverse mortgages to large numbers of seniors, according to some industry specialists. Matt Neumeyer, owner of Premier Reverse Mortgage LLC in Atlanta, estimates that as many as 40 percent of previously eligible borrowers will look at the reduced limits, the new financial assessments and higher fees and say: no thanks.

“You’re offering me less on my house for a whole lot more hassle,” — that’s how clients will see it, Neumeyer said in an interview. “A lot of people are going to balk.” He offered this example of how the reductions would work.

For a 70-year-old owner with a $200,000 house, the standard version of the program would have offered a total “principal limit” — the amount available to the borrower — of $132,600. Under the revised program, that will be cut by nearly $20,000 to $112,800, provided the applicant can make it through the financial assessment hoops. And if the borrower wants to pull down more than 60 percent of what’s available, he or she will get hit by higher mortgage insurance premiums. Add in the set-asides for future property taxes and hazard insurance that may be subtracted from the initial drawdown of funds, said Neumeyer, and many borrowers will look at either selling their home or obtaining a home equity line.

Deborah Nance, a reverse mortgage specialist with iReverse Home Loans LLC in the Los Angeles-Riverside, Calif., market area, agrees that fewer seniors will qualify for FHA reverse mortgages but believes they will be predominantly borrowers with lower incomes, higher household debt loads and more marginal credit histories — “the needy people” who previously would have taken the maximum lump-sum drawdown to pay off mortgages and other obligations but now will be prevented.

Nonetheless, she said in an interview, “we’ll still be able to help a lot of people.

” Cristina Martin Firvida, director of financial security and consumer affairs for AARP, the seniors lobby, said while she understands that FHA must cut losses, inevitably “the changes … will bar access to reverse mortgages for many.”

Reverse mortgages tightening up

Sep 13, 2013 Kenneth R. Harney

WASHINGTON — For homeowners who were looking to the federal government’s reverse mortgage program to supply lots of cash for their retirement years, here’s a heads-up: The pipeline just got narrower.

Pressed by Congress to slash losses, the Federal Housing Administration last week outlined a series of steps designed to limit the maximum amounts that seniors can draw down on their homes and to make qualifying for a reverse mortgage tougher.

Starting in January, applicants for FHA-backed reverse mortgages will for the first time have to qualify under comprehensive new “financial assessments” — covering credit history, household cash flow and debt levels

For short-sellers, some good news

Kenneth R. Harney Sep 6, 2013

Policy changes by two of the biggest players in the mortgage market could open doors to home purchases this fall by thousands of people who were hard hit by the housing bust and who thought they’d have to wait for years before owning again.

Fannie Mae, the federally controlled mortgage investor, has come up with a “fix” designed to help large numbers of consumers whose short sales were misidentified as foreclosures by the national credit bureaus. Under previous rules, short-sellers would have to wait for up to seven years before becoming eligible for a new mortgage to buy a house. Under the revised plan, they may be able to qualify for a mortgage in as little as two years. Homeowners who are foreclosed upon generally must still wait for up to seven years before becoming eligible again to finance a house through Fannie. Industry estimates suggest that more than 2 million short-sellers might be affected by credit bureaus’ inaccurate descriptions of their transactions.

Meanwhile, the Federal Housing Administration (FHA) has announced a new program allowing borrowers whose previous mortgage troubles were caused by “extenuating circumstances” beyond their control to obtain new mortgages in as little as a year after losing their homes instead of the current three years. They will need to show that their delinquency problem was caused by a 20 percent or greater drop in income that continued for at least six months, and that they are now “back to work,” paying their bills on time and earning enough to qualify for a new FHA-insured mortgage.

Fannie Mae’s policy change came after months of prodding by the federal Consumer Financial Protection Bureau, Sen. Bill Nelson, D-Fla., the National Consumer Reporting Association, the National Association of Realtors and Pam Marron, an outspoken Florida consumer advocate. They all sought fairer treatment of borrowers who had participated in short sales in recent years. Marron, a mortgage broker, spotted the erroneous reporting of short sales on credit reports and mounted a campaign to correct the problem.

In a short sale, the lender approves the sale of a house to a new buyer but typically receives less than the balance owed. In a foreclosure, the bank takes title to the property and seeks to recover whatever it can through a resale. Though the two types of transactions are distinct and involve significantly different losses for banks — foreclosures are far more costly on average — the nation’s major credit bureaus have no special reporting code to identify short sales. As a result, say critics, millions of people who have undertaken short sales in recent years may have their transactions coded as foreclosures on their credit bureau reports.

That matters — a lot — because Fannie Mae and other major financing sources have mandated different waiting periods for new loans to borrowers who have completed short sales compared with borrowers who were foreclosed upon — in this case, two years versus seven. Under the new policy, which takes effect Nov. 16, short-sellers who find that their transactions were miscoded on their credit reports, and are able to put 20 percent down, should alert their loan officers and provide documentation on their transaction. The loan officer should advise Fannie Mae about the credit report coding error. Fannie will then run the loan application through its revised automated underwriting system.

Freddie Mac, the other government-administered mortgage investor, continues to require a four-year waiting period for short-sellers who cannot demonstrate “extenuating circumstances” as having caused their problems. If they can do so — documenting income reductions beyond their control that wrecked their credit — they may be able to qualify for a new Freddie Mac loan in two years.

FHA’s policy change may prove to be an even more generous deal for some previous homeowners. Like Freddie Mac, FHA wants to see hard evidence of what economic events beyond the borrowers’ control — loss of a job, serious illness, or death of a wage earner, for example — led to the delinquency or loss of the house. Applicants must be able to show 12 months of solid credit behavior, participate in a housing counseling program and get through the agency’s underwriting hoops. But unlike either Fannie or Freddie, if you qualify under FHA’s revised rules, which are now in effect, and your lender approves, you might be able to buy a house with a new, low-down-payment mortgage in as little as a year.

It’s worth checking out.

On housing, a chill is in the air

Aug 23, 2013 Kenneth R. Harney

WASHINGTON — Do you feel that hint of a chill starting to swirl through the housing market? The cooling is slight but it’s for real. Home prices are not rising as fast in most metropolitan areas as they did earlier this year and much of 2012. Multiple bid competitions — fierce in many places this spring and late last year — aren’t as intense. Inventories of homes for sale have increased this summer, reversing near droughts of listings that helped fuel higher prices.

Add in rising mortgage rates, and you’ve got a distinct, measurable momentum shift in the pace of the housing recovery. The recovery is still well under way — it’s just not as effervescent as it once was.

Consider some of the key numbers:

CFPB’s Cordray on Senate Confirmation, QM and Future Challenges

by Rachel Witkowski AUG 19, 2013 6:15pm ET

WASHINGTON – Consumer Financial Protection Bureau Director Richard Cordray has spent the past year and a half deflecting questions about the impact his controversial recess appointment is having on the agency, saying he and others were just focused on their work.

But in a sit-down interview with American Banker on Monday, Cordray acknowledged that his Senate confirmation, which cleared with a bipartisan majority, has boosted morale at the agency and provided personnel with additional confidence.

While bankers might fear that means a more aggressive CFPB, Cordray is quick to suggest otherwise, arguing he’s balancing safety and soundness concerns with additional consumer protection. He also talked about what he sees as the agency’s top accomplishments during its first two years of operation as well as the biggest challenges ahead.

Following is an edited transcript of the interview.

Since you’ve been at the CFPB, what would you say are the greatest accomplishments to date? CORDRAY: There are a number of accomplishments, actually. First are the changes that we are effecting in the mortgage market, which is the largest consumer finance market and was the one that was most responsible for the credit freeze and the financial meltdown. For the agency to put new protections in place around that and yet, to be sensitive and responsive to access to credit issues, I think was quite a good piece of work by us. And it’s obviously drawn a lot of positive commentary.

I think that our consumer complaint function has been influential with the industry. There were a lot of concerns the industry had about that to start with. But we’ve been working on it, it’s been a very efficient and sensible process, and it is resolving a lot of issues. And we just actually received our 200,000th consumer complaint, which for us represents a continued growing trajectory of people now knowing that they can come to the CFPB to get help and to complain about a bigger array of products over time. That’s meaningful.

The enforcement actions we’ve taken to make it clear that when we see deceptive marketing and other practices at these large institutions we won’t hesitate to act, I think, is important. And so is our work on a growing range of issues, such as financial education, financial literacy, and financial empowerment — both for consumers generally and with respect to our specialty populations such as service members, students, older Americans, and those of low-to-moderate income. It’s really a great set of work that we’re doing. There are many challenges, there’s much to do, but I’m pleased at our progress thus far.

And I think that partly was what was reflected in what was a strongly bipartisan vote on confirmation a few weeks ago. And I told everybody here I think this reflects their work. It’s good to know that I’m going to be here beyond the end of this year and have some time ahead for us to follow through on a lot of things we had under way.

I know you’ve said the battle in the Senate didn’t impact how the agency was before or where it will go in the future but does your confirmation have some influence on your way of thinking? I think two things. First, I do think that the key for us was before that occurred, everybody here was dedicated to keeping their eye on the ball and recognizing that we all came here because of the mission: to protect and empower consumers in a financial marketplace. It’s a marketplace that is much more complex now than it was a generation ago and people need this agency to do its work well. But I do think going forward, it creates a further sense of certainty. It’s been a morale boost here. And again, the fact the vote was so strongly bipartisan was a great reflection on everybody here. I think they recognize that as such, so it redoubles their enthusiasm to continue doing good work.

Does that boost in certainty and morale help with staffing up the agency and the recent turnover of senior officials? How close are you to being at that point where it’s a solid entity? We continue to grow steadily. First of all, this is a great place to work and it’s a very attractive place to work because of our mission. And most everybody who comes here, they’re attracted by the mission. We continue to get hundreds of resumes for our positions and tremendous talent. I think that some of the stories about departures were overblown. I mean, it was natural for us to see some departures two to three years in. Some of our people who have management consulting backgrounds are used to doing short stints in places and then going to another place. So some people were on time to move on with their lives. But we get great candidates applying for positions. We’re now a little over 1,300 employees, so we’ve grown steadily over each of the last three years. And our processes that are in place are very solid. Our recruiting is solid. And it’s just very interesting to see the kind of people that we’re bringing in.

How far off do you think you are from being completely staffed? I would guess 12-18 months at the pace we’re going. And part of it is each year we get a better sense of how much were doing with the people we have. It’s different when you have 500 than when you have 900. It’s different when you have 900 than when you have 1,300. And we get a better sense, as we become more familiar with it, of how much work we need to be doing and how much work we’re able to do.

The CFPB’s mission is clear: to protect consumers. But bankers fear the CFPB is so focused on their mission that they’re going to forget the survival and safety and soundness of an institution. How does that make you feel? I understand the concern. First of all, this is all in the statute. I also sit on the FDIC board so I do see and spend some time seeing things from the standpoint of regulating institutions in a different way. I serve on the FSOC, which is with all the regulators and we’ve been meeting quite regularly to discuss issues about the overall strength of the financial system. I will also say that the oversight that I get from Capitol Hill puts us in mind of those issues as well.

One of the things we learned as we worked on the mortgage rules is that those rules are going to provide real, significant protections for the mortgage market and for consumers who will not be subject to some of the reckless and irresponsible products and marketing that we saw in the mortgage market six to seven years ago. But at the same time, we were very mindful and learned a lot about the challenges in this market of access to credit. If consumers can’t get the loans it doesn’t matter what kind of protections they have because they won’t have anything to protect. That’s something we’ve learned and it led to a balance. That’s the balance that is reflected in the QM rule that I think has been widely praised and we’re pleased about that. But it’s also a balanced perspective that we’re taking to other issues in addressing them in the future.

Still, some lenders are worried about making the January deadline. And there’s this growing concern that those lenders will either only do QM loans or jump out of mortgages entirely, perhaps creating a short-term credit crunch until they can fully implement the rules. What is your response? I would say a couple of things. Number one, we’ve really been hard at work with the industry on implementing these rules during this current year. And we’re well along on that. We have a very bird’s eye perspective on how they’re coming along. They’ve made tremendous progress and we’ve found ways to address concerns they’ve raised about what the rule actually means instead of just leaving it to them and saying “It’s your problem now.” We’ve been working with them to do some clarifications and tweaks to address operational issues and I think that goes a long way in helping lenders.

We recognize that ultimately for consumers we want these rules to be in place, to be implemented, to be effective. And that’s when they’ll deliver value for consumers. But I would also say to lenders . that if you have been lending historically according to strong underwriting criteria that are based on sound criteria, you should continue to make those loans. They’re good loans. And you’ll just be leaving money on the table if you stop making loans because you have some anxiety around the new mortgage rules. They’re not meant to stop you from doing sound mortgages where you underwrite carefully. And that’s what most banks, particularly community banks and credit unions, do. They should continue to have confidence in their models many of which, they know have performed extremely well, even during the worst mortgage crisis we’ve known in 80 years. So that was a pretty good test and for them to stop making those loans would seem to me to be pretty short sighted.

Going forward, what would you say are the biggest challenges for the agency? We continue to work on mortgages. There’s more to do there including our ‘know before you owe’ project which we’ll finalize later this year. I gave a speech earlier this year on what we called the ‘Four D’s.’ The first, deceptive and misleading marketing of products, we’ve already been addressing through our enforcement actions but it’s an ongoing issue. There’s still a fair amount of work to do for everybody to get the message that they have to market transparently, candidly and clearly with customers.

Second, debt traps. We issued a white paper on payday loans and deposit-advance products, which are a concern to us. People who end up trapped in high-cost debt where they spend most of their life living off of 390% interest, for example, that’s a real concern. That sets people back and multiplies their troubles.

Third, discrimination is something we’ve talked about from the beginning. It’s the law. Everybody knows it’s the law. They need to be careful to comply with that. It’s not fair to any consumer to go into the market and be treated differently than other consumers though it is often not transparent or visible to them but hurting them nonetheless.

And finally, is these markets where we found the structure of the market causes many consumers to run up against dead ends. This includes debt collection; loan servicing, particularly mortgage servicing and potentially student loan servicing; and credit reporting – all instances where the relationship is between two businesses and the customer is almost collateral damage in it. We’re trying to shift those markets to take more account of the consumer and recognize consumers have rights, those rights need to be respected, and you need to put the work in to be in compliance with the law.

I think that message is starting to be heard and understood. But it’s going to be some hard work for probably several years to make sure that’s happening.