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The Consumer Financial Protection Bureau (CFPB)released a report Thursday showing that although reverse mortgages are meant to help borrowers in retirement, they are in fact causing problems for many who don’t fully understand them.

A reverse mortgage is a type of home loan that lets older homeowners access the equity they have built up on their homes and defer loan payment until they sell the home, move out, or pass away. The original purpose of reverse mortgages was to allow these homeowners to convert home equity into an income stream or line or credit to use in retirement. Borrowers were largely expected to age in place with their loans, living in their current homes until they passed or needed skilled care.

Reverse mortgages require no monthly mortgage payments, but borrowers must still pay property taxes and homeowner’s insurance. The report showed that nearly 10 percent of reverse mortgage borrowers are at risk of foreclosure because they failed to pay those costs.

“Reverse mortgages are complex and have the potential to become a much more pervasive product in the coming years as the baby boomer generation enters retirement,” said CFPB director Richard Cordray. “With one in ten reverse mortgages already in default, it is important that consumers understand what they are signing up for and that it is the right product for them.”

The report found that many reverse mortgage borrowers do not understand how their loan balance will rise and their home equity will fall over time. In addition, the influx of new choices brought on by innovations and policy changes have made the matter too complex for many homeowners. The bureau further found that the tools currently available to help consumers understand the risks and tradeoffs are not enough. The report called for improved methods for housing counselors to help consumers understand their choices.

There are many other problems with reverse mortgages as they currently stand, the report pointed out. Many consumers are getting reverse mortgages before the age of 70 (with the most common age for a new borrower being 62, the first age at which reverse mortgages are available), and some are even getting them before retiring.

“These borrowers will have fewer resources to pay for everyday and major expenses later in life and may find themselves without the financial resources to finance a future move-whether due to health or other reasons,” said the report.

Another problem is that 70 percent of borrowers are taking out the full amount of proceeds as a single lump sum instead of treating the payment as an income stream. As a result, these borrowers have fewer available financial resources later in life. They may not be able to continue paying taxes and insurance on their homes, leading to potential foreclosure. The report found that borrowers who save or invest their money may earn less on the savings than they spend paying interest on the loan.

Finally, the bureau addressed the issue of deceptive or misleading marketing materials about reverse mortgages. The report cited examples of mailers that depict reverse mortgages as a government benefit or entitlement program in the vein of Medicare and use images resembling government seals to entice consumers. It can be difficult for consumers to tell that a reverse mortgage is a financial product, not a government benefit.

In order to address these issues and help consumers better understand reverse mortgages, the CFPB has released arequest for information.

 

The rental market appears to be doing more than just sustaining its health. After surveying property managers,TransUnion found that increasing prices aren’t keeping tenants away.

Overall, managers reported they are doing better than the year before and are having an easier time attracting in residents despite the increase in prices.

The credit bureau’s June survey included 1,248 property managers across the U.S. who represented a range of property sizes.

Almost half (48 percent) of the managers surveyed reported rental price increases on the majority of their units since last year in June.

Approximately 44 percent said rental prices remained the same. In TransUnion’s 2011 rental survey, 39 percent of respondents stated that prices increased while 48 percent said prices were the unchanged.

For large properties (more than 200 units), 70 percent of managers reported price increases this year compared to 64 percent last year. Among small property (200 units or less) managers, 46 percent reported price increase from last year, an improvement from 36 percent last year.

“Data throughout the last year has pointed to a healthier rental market, and our survey helps validate the current strength of the rental industry,” said Steve Roe, VP of TransUnion Rental Screening Solutions. “The rise in rental prices, coupled with a decrease in vacancy rates and the ability to attract new residents with less effort are all positive signs for the market and rental property managers.”

Even with rental prices increasing, property managers are having an easier time with finding tenants. Nearly 73 percent of managers said finding residents is not difficult compared to 67 percent last year.

The percent of respondents stating vacancy rates for their properties are between 0 percent and 5 percent increased to 83 percent this year from 81 percent in 2011. When dividing up respondents based on property size, large property managers saw an increase to 64 percent his year compared to 60 percent last year.

In addition, 70 percent of small property managers said their vacancy rates are at 0 percent, which is an increased from 66 percent in 2011.

Even with a healthier rental market, property managers still face the issues with finding quality residents.

Nearly 60 percent of respondents said they are concerned or very concerned with finding reliable tenants.

“Though this number is down from 65% in last year’s survey, it does point to the continued unease about the economy and a lingering question about the ability of tenants to make timely rental payments,” said Roe.

More than half of the respondents (53 percent) said they have had a renter leave the unit with unpaid rent or damages, and about 18 percent said a tenant has done so in the last year.

“Finding reliable tenants is critical as property managers can lose thousands of dollars in rent if a tenant skips out of a rental unit, or if the property manager must take action to evict someone from a unit,” said Roe.

The survey included 1,107 small property managers and 141 large property managers.

TransUnion offers two rental screening services to screen residents: CreditRetriever, which is for large property management companies and SmartMove, which targets small and independent property managers.

 

The deadline to request a free, independent foreclosure review has been extended for another two months, and so far, nearly 200,000 people have requested a foreclosure review, the Office of the Comptroller of the Currency(OCC) and the Federal Reserve Board announced Thursday.

The new deadline to request an independent foreclosure review is getting pushed back from July 31 to September 30, 2012. The review is for those who believe they have suffered financial harm as result of servicing errors during a foreclosure process between 2009 and 2010. The property must be the borrower’s primary residence and serviced by a participating servicer to be eligible.

The OCC first issued consent orders for the reviews on April 13, 2011 against 12 mortgage servicers, and so far, about 193,630 people have requested a free review. In addition, independent consultants have reviewed servicers’ portfolios and selected 144,817 files to review.

Currently there are 156,826 files under review, and 11,939 files have been completed, according to the OCC.

If financial harm did occur as a result of a faulty foreclosure process, relief may be available in the form of lump-sum payments, rescission of a foreclosure, a modification, or corrections on credit reports, deficiency amounts, and records.

Efforts from the OCC to reach out to borrowers have included 4.4 million letters sent to those who may be eligible for a review, and the agency also required servicers to pay for advertising announcing the review.

The IndependentForeclosureReview.com website has been visited 600,386 times, and 7,948 borrowers have submitted requests for review online as of May 31. The toll-free number, 1-888-952-9105, has received 241,048 calls, and 25,752 people have requested forms.

The independent foreclosure review is separate from the $25 billion servicing settlement reached between federal and state officials and five of the largest servicers.

As part of OCC’s agreements, four banks – Bank of America, Citibank, JPMorgan Chase, and Wells Fargo – received penalties totaling $394 million.

Examples of servicer actions that could lead to relief include Servicemembers Civil Relief Act violations; modifications that were not approved but should have been, lack of proper notification during the foreclosure process, and errors that did not result in foreclosure, but still led to financial injury.


 

 

Low Inventory Boosting Prices, Says HousingPulse

by Esther Cho

Home price purchases were mixed month-over-month in May, with non-distressed prices up and short sales down, according to the Campbell/Inside Mortgage Finance HousingPulse tracking survey.

From April to May, transactions reported by HousingPulse survey respondents revealed the average price for non-distressed properties rose 1.7 percent, while the average price for short sales fell 0.7 percent. For damaged REOs, the average price went up 1.8 percent and for move-in ready REOs, the average price dropped 1.5 percent.

The stabilization of home prices seen in some instances is due to a shortage of inventory, HousingPulse reported. These shortages are led by underwater homeowners who are holding onto their homes until home prices move up.

Also, for distressed properties, there’s a shortage of inventory due to slower processing of foreclosures by mortgage servicers, according to HousingPulse.

Move-in ready REO properties are in demand and sat on the market for an average of 10.6 weeks in May, the lowest of any property category.

Using a three-month moving average, the HousingPulse Distressed Property Index (DPI) revealed that the share of distressed properties in the housing market in May was 46.1 percent. This marks the 27th consecutive month in which the DPI hovered above 40 percent.

Anecdotal evidence also suggests that the shortage is especially prevalent in California.

One realtor in the state said that inventory in Orange County was “super low” and the months’ supply of unsold homes is down to just 45 days.

Another California agent said that inventory in the Santa Clarita Valley, which is 35 miles north of Los Angeles, is very low, and reported less than 500 listings, which is well below the 1,500-1,800 properties the agent stated is the average.

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey includes approximately 2,500 real estate agents nationwide each month.


 

 

Why Rental Activity Remains 'A Bright Spot' for Housing

by Tory Barringer

While the lights of the housing market continue to flicker, rental market activity has been a bright spot, said Freddie Mac’s U.S. Economic and Housing Market Outlook for June.

The Enterprise’s report, released Tuesday, showed that newly formed households seem more interested in renting over owning as the economy struggles to get back on its feet. Freddie Mac expects this trend to continue for the near future.

“Further increases in rental demand are likely in the coming year as newly formed households postpone homeownership decisions until the economy strengthens and they have accumulated sufficient savings,” said Frank Nothaft, VP and chief economist for Freddie Mac. “Overall apartment market trends may show further vacancy declines and rent gains, with property values improving as well.”

The report showed that over the year ending March 2012, an additional 1.5 million households moved into rental housing, a 4 percent increase in a year. The Census Bureau has also reported that rental vacancy rates in buildings with at least five apartments have dropped more than two percentage points over the past two years. In addition, both Reis and Axiometrics have reported increases in occupancy rates during the two years through the first quarter of 2012.

Rents have begun to rise in a number of metropolitan areas as rental markets tighten. A broad market measure prepared by the Bureau of Labor Statistics shows a rent increase of 2.5 percent during Q1 2012 compared to a year ago. Reis found a 2.8 percent gain in its markets during the same period, while Axiometrics reported a 4 percent rise in nominal rents. However, average rent adjusted for inflation stayed below where it was for most of the decade prior to the Great Recession.

The increase in rental demand has helped enhance property values, on average up about 25 percent during the past two years from the low during Q1 2010. This level is still 14 percent below the pre-Great Recession peak, but the increase has prompted a supply response from developers.

Starts of buildings with at least five apartments have increased 48 percent in the first five months of 2012 when compared to the same period in 2011. The National Association of Home Builders reported that its Multifamily Production Index jumped to its highest reading since 2005, and its index for market-rate rental construction reached its highest level since the series’ start eight years ago. Construction of rental apartments in buildings containing at least five dwellings is expected to add nearly 200,000 in 2012, the highest increase in one year since 2008.

 

Under a new guideline, military members with Fannie Mae and Freddie Mac loans will now have an easier time with short sales.

Federal Housing Finance Agency (FHFA) Acting Director Edward J. DeMarco announced in a release Thursday that military homeowners who receive Permanent Change of Station (PCS) orders can sell their homes via short sale without having to go into default first.

“It is in everyone’s interest for the men and women serving in our armed forces to focus on the important job they are doing defending our country, rather than worry about the maintenance and leasing of a property in another jurisdiction,” said DeMarco in a release. “These Fannie Mae and Freddie Mac policy changes, in combination with related guidance last fall, should now provide military homeowners with access to the immediate and automatic full range of foreclosure alternatives.”

Last year, Fannie Mae and Freddie Mac issued guidance to servicers to have PCS orders count as a hardship for military members seeking relief.

The new policy takes an even greater step forward and will allow military members with PCS orders to sell a primary residence purchased on or before June 30, 2012 for less than the balance on their mortgages even when current on their payments. Short sales transactions typically require homeowners to be delinquent on their mortgage.

The GSEs also won’t pursue a deficiency judgment or a contribution under the new policy. Typically, borrowers contribute to closing costs and can also be pursued for the remaining balance after a short sale is completed.

Since PCS orders require military members to relocate, they can create a hardship, especially at a time when millions are underwater and can’t sell their home due to negative equity. This led many service members to be stuck with two residences or to default on their mortgage.

In response to the new guideline, Freddie Mac’s Interim Head of Single Family Business and Information Technology Paul Mullings said, “We look forward to working with our servicers on this new short sale policy. Together we can help ease the challenge of relocation for military families when Permanent Change of Station orders are received.”

The guideline was issued by the Consumer Financial Protection Bureau, Fed’s board, FDIC, National Credit Union Administration, and the OCC.

The new rule is only applicable to military homeowners with a GSE-backed mortgage; this information can be checked by visiting Fannie Mae or Freddie Mac online.

 

Assembly Bill 2610, sponsored by Nancy Skinner (D-Berkeley), and Senate Bill 1473, sponsored by Loni Hancock (D-Berkeley), will require purchasers of foreclosed homes to give tenants at least 90 days before starting any eviction proceedings.

SB 1473 passed the Senate on a 25 to 13 vote and AB 2610 passed the Assembly on a 54 to 13 vote. The bills that were passed make up California Attorney General Kamala Harris’s proposed California Homeowner Bill of Rights.

“Tenants are unsuspecting victims in the mortgage and financial crisis,” Harris said. “They pay rent on time but may suddenly find themselves forced to move. These bills will give tenants important rights and fair treatment when they live in a rental that is under threat of foreclosure.”

Under the bills, if the tenant has a fixed-term lease, the new owner must honor the lease unless the owner demonstrates that certain exceptions intended to prevent fraudulent leases apply.

Currently, there are disparities within state law, and between state and federal law, regarding eviction proceedings following a foreclosure. AB 2610 and SB 1473 would correct these confusing laws.

All provisions in the bill will remain in effect through 2019.

“Too often, California tenants are the unwitting victims when a home they are renting is foreclosed on,” Hancock said. “The inconsistency between state and federal law has left renters confused and, at times, misled about their legal protections. This bill provides common sense solutions to help protect California citizens caught in the crossfire of the mortgage foreclosure crisis.”

Skinner said more than 200,000 Californians were impacted from complexities between state and federal laws in 2010. “The Renters Right Act of 2012 protects families in rental housing by providing basis protections and legal rights in the face of unjust foreclosure-related evictions,” she added.

Also last week, the state Legislature unanimously approved two bills for the Golden State’s homeowner’s bill of rights that will protect state residents from mortgage scams.

These bills allow Harris to call special grand juries to investigate and indict alleged perpetrators of financial crimes involving victims in multiple jurisdictions.

Other portions of the proposed bill of rights are being considered in a Joint Legislative Conference Committee, including elements to restrict unnecessary foreclosures and protect the due process rights of borrowers and homeowners.

 

Purchasing foreclosures also means discounts, but with the markdown is the price of repairs. According to RealtyTrac, foreclosures or REOs sold at an average discount of 27 percent compared to non-distressed properties in the first quarter of 2012. Through an FHA203(k) loan, potential buyers who want to purchase a discounted foreclosure but don’t have cash for the repairs may find a way to receive financing.

According to HUD, the 203(k) program is the department’s main program for rehabilitating and repairing single family properties, and it’s viewed as an important tool to revitalize neighborhoods.

In order to be eligible, the property must be purchased as a primary residence or it can be for a HUD approved nonprofit. Also, the property must be a one-to four-family residence that has been completed for at least one year.

Dan Green, loan officer with Waterstone Mortgage and author of themortgagereports.com, explained that FHA203(k) program can be used on any 1-4 unit residential property, and is not limited to just HUD properties or foreclosures.

The maximum amount that can be taken out for the property is based on the value or the purchase price of the property before rehabilitation (whichever is less), plus the estimated cost of rehabilitation or 110 percent of the property after improvements, according to HUD.

A down payment is required, and the minimal amount for a down payment is 3.5 percent of the accepted bid price plus the cost of financing additional repairs.

Since there is more “file” to underwrite for an FHA 203(k) loan, Green said the approval process takes longer than a standard FHA mortgage.

FHA 203k approvals take more time, but are no more difficult than any other mortgage type,” said Green. “Borrowers should expect to provide the documentation required, and should respond to loan officer requests in a timely manner.”

 

Asking Prices Flat in May While Rent Increases: Trulia

by Esther Cho

Asking prices fell flat in May after three consecutive monthly increases while also decreasing from the year before, according to reports from Trulia.

Asking prices on homes for sale were unchanged in May on a seasonally adjusted basis and fell by 0.2 percent year-over-year. However, when excluding foreclosures, asking prices actually rose 1 percent on a yearly basis, while foreclosure prices dropped 5.8 percent over the same time period.

According to Trulia, asking prices lead sales prices by approximately two or more months.

“Asking prices and employment both stagnated in May, yet one more reminder that the housing recovery depends on job growth,” said Jed Kolko, Trulia’s chief economist.

Due to the gains in April and March, asking prices rose 1.6 percent on a quarterly basis.

Out of the 100 largest metros, 41 saw yearly price gains, and more than double, 86, had quarterly price increases.

“Metros where prices rose the most have stronger demand from faster job growth and tighter supply from fewer foreclosed homes on the market,” said
Kolko.

Trulia named Seattle as a turnaround metro since prices rose 4.4 percent quarter-over-quarter (February to May) after seeing a dramatic 12.5 percent yearly drop (February 2011-2012). Cleveland, Las Vegas, Milwaukee, Tacoma, and Toledo were also counted as top turnaround metros for their quarterly increases after their yearly falls.

While asking prices did not show upward movement in May, rent was up 1.6 percent on a quarterly basis and up 6 percent from a year ago. In April, the year-over-year increase in rent was 5.4 percent and 4.8 percent in March.

Out of the 25 largest rental markets in the U.S., only Las Vegas saw a yearly decline in rent.

Ten Places with Greatest Yearly Rental Increases

  1. San Francisco (14.4 percent)
  2. Oakland, California (11.4 percent)
  3. Miami, Florida (11.3 percent)
  4. Denver, Colorado (10.5 percent)
  5. Boston, Massachusetts (9.8 percent)
  6. Seattle, Washington (9.6 percent)
  7. Houston, Texas (9.2 percent)
  8. Portland, Oregon (6.8 percent)
  9. Chicago, Illinois (6.4 percent)
  10. New York (5.9 percent)

 

More Homeowners' Rights Bills Pass in California Houses

by Tory Barringer

Attorney General Kamala Harris’ “Homeowner Bill of Rights” continues to work through the California Legislature as two more bills pass, the Office of the Attorney General announced Thursday.

AB 2610 and SB 1473 will require buyers of foreclosed homes to allow tenants at least 90 days before starting eviction proceedings. Under the bills, if the tenant has a fixed-term lease, the new owner must honor it unless they can demonstrate that certain exceptions apply. The bills are intended to correct incongruities within California law and between state and federal law.

“Tenants are unsuspecting victims in the mortgage and financial crisis,” said Harris. “They can rent on time but may suddenly find themselves forced to move. These bills will give tenants important rights and fair treatment when they live in a rental that is under threat of foreclosure.”

SB 1473 passed out of the Senate in a 25-13 vote. AB 2610 passed the Assembly in a 54-13 vote.

The Homeowner Bill of Rights, introduced by Harris in February following the National Mortgage Settlement, has been a topic of much debate on both a state and national level.

Advocates argue that the bills are necessary to protect homeowners and renters who have faced difficulties caused by the foreclosure crisis. Critics are calling attention to vague wording in some of the bills’ provisions, saying that they could potentially cause damage to lenders and servicers, further harming the state’s economy.

Some of the other bills in the package saw approval from their houses on Wednesday, including AB 1950, which would extend the statute of limitations on foreclosure-related scams from one to three years. AB 1763/SB 1474 also passed in their respective houses and would give the attorney general the power to form special grand juries for investigations of financial crimes in multiple districts. Two other bills regarding blight prevention (AB 2314 and SB 1472) have also passed in their respective houses.

SB 900 and AB 278, regarding due process and foreclosure reduction, are under review by a Joint Legislative Conference Committee.

Sen. Loni Hancock (D-Berkeley), author of SB 1473, explained her goal of protecting renters.

“Too often, California tenants are the unwitting victims when a home they are renting is foreclosed on,” said Hancock. “The inconsistency between state and federal law has left renters confused and, at times, misled about their legal protections. This bill provides common sense solutions to help protect California citizens caught in the crossfire of the mortgage foreclosure crisis.”

 

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