By Michelle Singletary
Washington Post
August 13, 2008 6:00 AM
The Housing and Economic Recovery Act of 2008 contains a provision intended to help seniors by reining in fees and fraud associated with reverse mortgages.
Reverse mortgages were created largely for seniors who are cash-poor and house-rich - meaning they have a lot of equity in their homes but little or no savings.
This type of loan allows homeowners 62 or older to borrow against their equity. But unlike traditional home loan products, no payment is due on a reverse mortgage until the homeowner moves, sells or dies.
The maximum a senior will be able to borrow through a reverse mortgage is $417,000 (or $625,000 in a high housing cost area). The range now is $200,160 to $362,790.
Most important, the law reduces fees. It cuts the origination fee to 2 percent of the first $200,000 borrowed and 1 percent for any amount after that. The maximum origination fee can't exceed $6,000.
Except for title insurance, hazard, flood or other such products, lenders are prohibited from requiring borrowers to purchase insurance, annuities or other similar products as a condition of getting a reverse mortgage.
Part of the reason the housing act included a provision for reverse mortgages was out of concern that seniors were inappropriately - and sometimes fraudulently - being sold other financial products.
In some cases, seniors have been encouraged to use the proceeds of their reverse mortgages to buy annuities or long-term care insurance.
Although only 1 percent of older households have reverse mortgages, the market has grown in recent years, increasing from 6,600 loans in 2000 to 107,000 in 2007, according to research by AARP's Public Policy Institute.
Still, the high fees scare off many borrowers.
The fees and costs associated with reverse mortgages are often significantly higher than traditional home-loan products - sometimes as high as 4 percent to 8 percent of the loan amount.
The housing act requires the government to conduct a study to look into the costs associated with reverse mortgages.
For more information about reverse mortgages, try these Web sites:
» AARP's www.aarp.org/money/revmort.
» HUD's site at www.hud.gov/buying/rvrsmort.cfm.
» National Reverse Mortgage Lenders Association's reverse mortgage calculator at www.reversemortgage.org. The calculator will give you an estimate of the fees you may be charged. Be sure to click on the link for "loan summary" after your calculation.
Contact Michelle Singletary, a personal finance columnist at The Washington Post, at singletarym@washpost.com.
August 12, 2008
Sales Up, Prices Down
A new quarterly affordability survey released Tuesday by the California Building Industry Association indicated that in San Joaquin County, affordability has more than doubled from the last three months of 2007 to the first quarter of this year, with 35.5 percent of new and existing sold homes being affordable to a household with a median family income of $61,300.
By comparison, that median-income family could afford only 9.7 percent of houses in the first quarter of last year.
The median price of new and existing houses sold last quarter countywide stood at $262,000, compared with $390,000 a year earlier - a sales price drop of almost one-third.
That's translating into burgeoning sales since the beginning of the year, local real estate agents and brokers report.
"It's almost like someone threw a switch - and it is because of the foreclosure crisis," said John Cowgill Sr., an agent in the Stockton office of PMZ Real Estate.
It's a measurably improved sales market. So far this year, he's been involved with the sales of about 50 homes, he said, compared with a total tally of eight for the same period last year.
"We're getting just droves of first-time buyers, young families, and they're buying their first home," said Cowgill, who with daughter Jennifer represented the Toths in their purchase. "For the first time in a long time, it makes sense to buy."
Prices have fallen low enough now that mortgage/insurance payments often are running less than house rents and encouraging home purchases, he said.
Terry Hull Sr., whose family owns and operates Property Management Experts in Stockton, reported that lower prices in a foreclosure-dominated market are now enabling investors to buy houses for rental properties and generate enough rent to cover monthly mortgage payments and even some positive cash flow.
The building industry trade group distributed the results of a quarterly National Association of Home Builders/Wells Fargo Housing Opportunity Index. That survey uses annual median family income estimates for metropolitan areas published by the Department of Housing and Urban Development and assumes that a family can afford to spend 28 percent of its gross income on housing.
Robert Rivinius, the home building association's president and chief executive officer, said the survey found significant increases in affordability statewide, in which a median-income family could have afforded 31 percent of the new and existing homes that were sold during the first quarter.
But he noted that the bulk of those affordability gains were in communities most affected by the subprime mortgage and foreclosure issues, especially
Central Valley communities.
Affordability in most major metro areas, he said, remains at or below 25 percent - depressingly low. He expects prices to rise again once the large supply of foreclosed homes is sold off.
Gopal Ahluwalia, vice president of research for the National Association of Home Builders, said he expects affordability to decrease in California when the market turns around.
"With declining home prices, lower mortgage interest rates and higher household income for 2008, affordability has improved," he said. "We expect the market to stabilize in the third quarter of 2008 and start picking up in 2009. With a decline in housing inventory and rising demand, home prices are likely to start moving up in 2009, thereby impacting affordability."
Of 223 metro areas in the country, seven California metro areas were in the 10 least affordable.
Los Angeles County was the nation's least affordable market, with 10.5 percent of the homes sold affordable to a median-income family, up from 6.2 percent in the fourth quarter of 2007.
Following in the least affordable ranks were New York City (12.5 percent), San Francisco, San Mateo and Marin counties (12.7 percent), Monterey County (13.1 percent) and San Luis Obispo County (13.8 percent).
The Sacramento metro area became California's most affordable market with 49.7 per-cent affordability, up from 27.2 percent in the fourth quarter of 2007.
San Joaquin County improved in the least affordable ranks nationally, from 23rd in the fourth quarter of 2007 to 39th last quarter.
Nationwide, 53.8 percent of new and existing homes sold in the first quarter were affordable to families earning the national median income of $61,500. Kokomo, Ind., remained the nation's most affordable major housing market with an affordability ranking of 95.3 percent, followed by Lima, Ohio, with a 95 percent ranking.
Contact reporter Bruce Spence at (209) 943-8581 or bspence@recordnet.com.