With the market’s level of volatility similar to that of a six-year-old at a candy store, it’s no real surprise that the reverse mortgage market is booming. Okay, maybe ‘booming’ is generous, but let’s say relative to the reverse mortgage market’s performance pre-market-downturn… a few more nodding heads are certainly evident.

Retirees (or should-be retirees) who’ve spent a lifetime busting their proverbial behinds to build a comfortable future are finding their retirement fund severely diminished to the tune of 30 to 40 percent. The result? Exponentially increasing difficulty to pay their mortgage, manage increasing medical bills (with decreasing coverage) afford the cost of living, or simply retire when they’d planned. Fair? Not so. Not for those who deserve better, or who need better… who need to retire for the sheer sake of health.

Reverse Mortgages Explained

And that’s where a reverse mortgage can really benefit homeowners who are 62 and older. Quick definition for those unfamiliar: Reverse mortgages are exclusively for homeowners age 62+ and allow you to eliminate your mortgage payment if you have one, or if you own your home free and clear, you can stay in you home and use your home’s equity like income… and never make another monthly mortgage payment for as long as you live in your home.

But here’s what gets me—as a product of incredibly hard-working parents. There are two major challenges among senior homeowners in need, that stop people from considering a reverse mortgage.

1. A lack of understanding about the program itself: Benefits, qualifications, risks, fees, myths, etc. This is purely understandable. Without a good understanding of the product, the idea of tapping into your home’s equity without making a payment is so foreign and seemingly surreal that homeowners—particularly older homeowners who are necessarily cautious of fraud—are very hesitant to ‘buy in.’ Makes perfect sense.
2. But the real mystery to me is The children of these homeowners. The children of these homeowners object to their parents pursuing a reverse mortgage, even when they’re in need of additional income. Why would this be? Because they’re afraid their parents will be taken advantage of? Not usually. Most of these programs are government-insured, with guidelines set by the Federal Housing Administration. Not to mention that there are scads of sources from trusted organizations ripe with explanations on the product. So what’s with the kids? What interest do they have in this transaction? Well, when you get a reverse mortgage, your home’s equity is paid out to you. Which means there’s less equity left in the house once the owner no longer occupies the home. And what’s another word for equity? Inheritance.

It’s this group of protestors that is purely beyond me. As far as I’m concerned, you can dislike the concept of reverse mortgages all day long for any reason… EXCEPT this one. Talking a parent out of a comfortable retirement… or a retirement at all… (funded by their own hard-earned dollars mind you) for the purpose of preserving inheritance is puzzling to say the least. Some “children” of seniors cite the fact that they were “promised” this inheritance, or they built their financial plan around one day getting it, or that this was the only way they were going to achieve ultimate comfort in their own lives… One inquiry on a public online forum asked, “How can I talk my dad out of a reverse mortgage?” then proceeded to cite personal interests.

If I can interject my own opinion here, all I can say is: “Not in this market” (followed closely by, “You kiss your mother with that mouth?”). First, there are still ways to preserve equity in your home with a reverse mortgage or preserve the money you receive from your reverse mortgage in an interest-bearing account. (A financial advisor or reverse mortgage counselor/banker would have a line on this.)

Second, it’d be nice if we could all agree on this: With the cost of living on the rise and retirement funds getting as much endangerment press as the polar bear (without the heartstrings), senior homeowners deserve the first right to their own money and they deserve to know how they can use it to their benefit without anyone’s interest but their own in mind.

Photo Credit: cogdogblog

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Tags: housing, loan, mortgage, retirement, reverse mortgage, reverse mortgages

As the financial markets melt down will there be anyone left to invest?  Or better yet, are there any lenders available to finance investment properties?

I received this email today from a client and I feel that is important for a couple of reason, both which we will get to later.

Hi Troy,

I was wondering if you could find Jason and me a loan for a rental. We currently have 7 rental properties and have been told 4 is the new limit.  Is there any way around this?

Kim

My reply:

Kim,

I do have at least two lenders that still allow borrowers to finance more than 4 properties.  These particular banks do not have a limit to the number of properties owned individuals, just have to be able to qualify.  Here is a brief overview of the guidelines:

• 75% Loan to value
• 6.75%  30 year fixed interest rate
• 1% prepayment charged if paid off in first three years (.5 fee to have n prepay)
• Full documentation of income

If you would like I can put together some numbers, please provide me with the details.

Thanks, Troy

She followed up with:

This great news! I am cc:ing Jason to this so he can follow up with you. We hae been considering buying stuff at auction to use as rentals but had heard we would not be able to get loans.  Thanks for your quick response.

I share this with you for a couple of reasons.  There is a great deal of opportunity and optimism about the investment market place.  While there are thousands of people in peril, there are still a large number of individuals that can take advantage of low low prices, selection of inventory,low interest rates and the number of quality renters.

Why is now the time to buy?

Here is a look at appreciation from The National Association of Realtors.  

Real Estate markets across the nation are already going up.  The west is the last region trending down, but it soon will turn as the foreclosures purge themselves from the market place.  In Phoenix, Arizona you can buy some homes for less than what it cost to replace them.  This indicates that the bottom is soon to come, just like other regions.

For those that can buy real estate please do not follow media headlines during a Presidential race.  Follow the facts, numbers and statistics.  

Tags: borrowing, lending, loan, mortgage, real estate investing

Today, we’ve got an important guest post to share, written by Dan Gilbert, Chairman of Quicken Loans.

Last week, President Bush signed into law the hotly debated financial rescue package called the Emergency Economic Stabilization Act of 2008. While this legislation helps stabilize Wall Street and the banking system, it does nothing to address the root problems of the housing dilemma that is at the core of the financial crisis. High foreclosures, adjusting ARMS, rapidly falling property values and an oversupply of housing have combined to form a housing market “death spiral”.

Frankly, the $700 billion government bailout isn’t enough to solve the downward spiraling housing market. The country needs more. The current legislation does nothing to address the homeowner. Our nation’s financial recovery must begin at home with the homeowner. Enacting measures that keep homeowners in their homes is the only real way to stem our financial crisis. That’s where A Solution That Works comes in. I’ll summarize the main points of the plan here, but I truly hope that readers will visit the site (www.asolutionthatworks.com) to read the entire plan and give your input, or check out the Choose Thinking blog. Then, if you agree with the solution, please share it with your friends and family, and your representatives in Congress. This is something that will benefit millions of people.

So, here are the main points you’ll want to know about A Solution That Works…

THE PROBLEM:

• At the core of the financial crisis is the housing crisis, which needs to be addressed.
• Stabilizing Wall Street and the banking system is only a start. The current bill does not forestall the tide of foreclosures that are to come.
• Adjusting ARMS, high foreclosures, low property values and an oversupply of housings have combined to form a “death spiral” in the housing market
• The $700B bailout does not address this. That plan (i) doesn’t address how prices will be set for the loans (ii) causes unfair results for borrowers who have dutifully made their payments (iii) is potentially extremely expensive for the taxpayers (iv) will take a long time to have an impact (v) doesn’t address the root cause of the messed up housing market

THERE IS A SOLUTION THAT:

1. Keeps homeowners in their homes with fixed affordable amortizing monthly payments
2. Costs the tax payers a fraction of the cost
3. Stabilizes prices and stops free fall in home values
4. Gives investors higher odds of recovering their investment in these loans/securities vs. expensive foreclosure and resale in declining spiral of housing market

HOW:

• Focus on specific types of loans, each of which must be owner occupied: (i) ARMS with no caps (ii) Option Arms (iii) interest only loans.
• Require servicers of these loans to reset the borrower’s rate to 6.375% fixed with a 30 year term/amortization. But the borrower only pays 4.875%; thus, government pays/subsidizes the difference between 6.375% and 4.875%.
• Over the ensuing 6 years, gradually raise the rate the borrower pays and lower the amount of the government subsidy until year 6, when the borrower pays a rate of 6.375% for the remaining term of the loan.
• The lender/servicer has a one-time chance to write off any negative equity and receive two times the normal write-off
• All prepayment penalties on these loans are voided
• Homeowners get the benefit of lower payment for the first 5 years, and then a low fixed rate for the next 25. They get to keep their homes. Their homes values (and neighborhoods) stabilize.
• Lenders are in a much better position than if they had to forecloses on these borrowers, and the stability this brings to the housing market helps them with their REO’s
• Taxpayers receive benefit because this costs an estimated $50B spread over 5 years– a fraction (1/14th) of the cost of the $700B plan

Under this plan, everyone benefits. Homeowners with troubled mortgage loans (ARMS, OARMS and Interest Only) have a lower payment for the first 5 years, and then a low fixed rate for the next 25. They get to keep their homes. Homeowners who have been responsible in their mortgage choices and payments also experience a more indirect, but no less valuable benefit as their homes’ values and neighborhoods stabilize and eventually appreciate. Lenders find themselves in a much better position as well.

Implemented correctly, this plan would help rapidly stabilize the housing market. It would significantly reduce foreclosures, stabilize home prices and allow millions of American homeowners to work their way out of “upside down” financial situations that continue to perpetuate our downward spiral. And at a fraction of the $700 billion dollar cost.

If you think this sounds like a proposal you could get behind, check out the site asolutionthatworks.com or head to the blog http://choosethinking.com/ for more details.

For more media coverage about A Solution That Works, check out this article in the Detroit Free Press or this interview with WJR Radio in Detroit .

Tags: $700 billion, bailout, housing, loan, mortgage, Mortgages, option ARM loan

With the credit crunch in full swing, investors should start to pay attention the the lending options available to their buyers. 
 Most investors and individuals in the real estate profession already know that it has become difficult to finance properties and with daily changing guidelines it is very hard to predict the future, but lets look into the 2009 crystal ball and see what is coming.

With FHA seller down payment assistance disappearing on Oct. 1 many builders, investors and sellers are faced with fewer clients to buy their home.   This is only big news because a majority of Americans do not like to save and would rather spend.   Now the next generation of home buyers are not prepared to buy a home with a down payment.  While this is not a bad thing long term it certainly is not good for sellers come October.

Suprisingly there are a number of loans that still offer low down payment solutions.

While FHA is the grand daddy starting in 1934 and lending to 34 million homeowners. Since the 70’s the USDA Rural Home Loan Program has been an alternative solution for those that buying and selling homes in the outer lying areas of metro cities.  This program is still funding loans to 100% and if the property and borrower is eligible it is a better program than the old FHA program when comparing interest rate, final payment and closing cost.

Another solution is Portfolio lenders.  This is not the first time I have spoke about these banks.  While nearly impossible to locate by the average person or mortgage broker, these banks go by their own set of rules.  I still see 98% programs that allow the 2% down payment to be gifted by employer or family member.   

The come back kid.  Over the last year and a half the combo loans have became nearly extinct and are now seeing some signs of life.  This could be a major indicator that we are truly at the bottom of the housing cycle.   Combo loans usually have a first mortgage at 80% and then 5-15% in  second loan.  While these loans can not currently go to 100%, having them as a option the avoid the Private Mortgage Insurance companies is a good thing.  Mortgage insurance companies have tighter guidelines than most banks and generally require a mid credit score of 680 to finance above 90%.

While the crystal ball can change its out look tomorrow one thing is for certain.  This is the United States of America, it is a country of individuals that can over come adversity.  Its made up of smart business entrepreneurs that know how to not only be creative, but are willing to except risk.  If you know where to look there are always financing options for your buyers.

Tags: lenders, loan, mortgage, mortgage insurance, portfolio lenders, real-estate-finance

Here are some mighty strong words: “The subprime lending debacle has caused the greatest loss of wealth to people of color in modern U.S. history.” That is the conclusion of the lead author of a new report by United for a Fair Economy, Amaad Rivera, as quoted in an excellent article in the Christian Science Monitor.

The report, says the paper, also concludes that “Black/African-American borrowers will lose between $71 billion and $92 billion in the current foreclosure crisis…” Add another loss for Latino borrowers of another $75 billion to $98 billion, says the paper.

Why?

The paper reports that a little more than half of African-Americans and 4 in 10 Hispanics back in 2006 got subprime mortgage loans. And, as we all know, defaults on subprime loans were the spark that ignited this entire economic mess that now is taking down the banking system along with the real estate one.

When viewed in this light, it is apparent who is getting hit the hardest–as a group–by this awful downturn.

Says the paper, “There’s broad support on Capitol Hill for shoring up government-sponsored home-mortgage giants Fannie Mae and Freddie Mac: They’re too big to fail, many say. But there’s much less consensus over what to do about people who are losing their homes,especially in poor, inner-city neighborhoods–or even over how to understand their plight.”

I interviewed earlier today an African-American woman who is an example of this very issue: She holds down one full time and two part time jobs, works seven days a week, is a widow, is supporting a live-in 17 year old niece, and, this week, will probably lose the home she long lived in with her husband in a “mixed” neighborhood, as she puts it, of Southern California.

To listen to her story, is to listen to all the stories out there of those suffering the worst housing downturn since the Great Depression: The value of her home dropped by nearly $100 thousand over a year and a half period, she says. She had to refinance several times to pay the bills. She tried in vain to get help from her lender. She started falling behind on her monthly mortgage payments. She has lost this battle!

Of course there are many white Americans who are in the very same place as this woman–also in dire need of a helping hand from the government…from somebody!

But she represents more…she represents a tidal wave of economic destruction that is tearing about entire neighborhoods in this country. Places where people who may have started on a lower rung of the ladder bought into the American dream only to get ripped off by greedy lenders who cared less about reinforcing the matrix of a community than about selling the loan to some other agency, some foreign bank perhaps, in the form of a repackaged security.

When the woman in question tried to extract an ounce of empathy from her lender — a lender now, itself, under government scrutiny for its home loan practices, she was told it no longer owned her mortgage…months later, she still hasn’t been able to find out exactly who does!

And so, this week, she will put pen to paper and leave behind for good a place she once came home to every night to eat dinner with her husband; a place she once watched her now fully grown son mature; a place she once took pride in; a place she once thought she’d live in till the day she retires; a place that, within days, will no longer belong to her.

She will visit it from time to time now that she has moved into a nearby rental unit. She will pass by it in her car but not turn into its driveway. She will keep on going because the American dream has now passed her by. Some dreams just don’t happen twice.

Tags: foreclosure, lender, loan, mortgage, sub-prime, subprime

The Associated Press is reporting today that Wachovia Bank, the nation’s fourth largest bank in terms of assets, will be shutting down it’s mortgage lending division.

“Wachovia Corp. lost $8.86 billion in the second quarter, and said Tuesday it was slashing its dividend and cutting 6,350 jobs after losses tied to mortgages soared.” In addition, “late Monday, Wachovia announced plans to leave the wholesale mortgage lending business. And beginning Friday, the company will no longer offer mortgages through brokers, joining other lenders making similar moves to exit the troubled sector.”

Any guesses on who is next?

Tags: bank failure, foreclosure, lender, loan, mortgage, wachovia, wachovia bank

Mortgage loans can be come from a variety of sources, private individuals, banks, mortgage brokers, mortgage bankers, credit unions, etc.

Investors need to understand that in most cases these lending sources are not actually making their own capital available for a mortgage. Instead, they are acquiring or borrowing the funds from another party. Pension fund, hedge fund or insurance company can and do provide liquidity to banks, credit unions and lenders.

Portfolio lenders have the ability to lend from their own funds. This means that they are able to make loans available at any terms acceptable to them. In many cases, this means that a portfolio lender will have funds available with less restrictive qualifications than a conventional lender.

Why is this important to an investor?
In today’s market place conventional financing can be difficult for investment properties.

Below or the top 5 reasons to find a portfolio lender:

1. Can lend to individuals that own more that 10 properties
2. Can self insure their loans which allows them to finance 90% of purchase price
3. They utilize compensative factors to over come deficiencies
4. Allow deposits into their bank to help qualify
5. Can cross collateralize other properties

There are a number of benefits to using a portfolio lender or bank, but be prepared to have a higher interest rate, high closing cost or both to utilize this out side the box lending source.

Tags: Interest Rates, lenders, lending, loan, mortgage, portfolio lenders