Do your homework on reverse mortgages

Ask the Experts: Do your homework on reverse mortgages

Our three new "Ask the Experts" writers have been busily answering financial questions this month from online readers.
Here's a sample of their advice on personal finance, wills/estates and investing.
To see more questions or to get advice from our other financial experts on taxes, banking and investment clubs, go to: www.sacbee.com/ask.
Pamela Christensen, Certified financial planner
I expect to retire in about four years and will have a small Sacramento County retirement. We also have about $150,000 in CDs to live on. My parents got a reverse mortgage a couple years ago for the extra cash to live on and to have no mortgage payment. It seems to be working for them and we are considering it as well. Is this type of mortgage safe?
As with most financial planning, these issues are very individual. I like reverse mortgages in some situations, although it's always wise to get lots of counsel on your particular circumstances and the ramifications. For instance, do you have heirs in line to inherit your house? Do they want or need it? How much equity do you have in the home?
Do your homework and learn as much as you can. Start by going to the federal Department of Housing and Urban Development Web site (www.hud.gov) and search for "Reverse Mortgages." There's also information on the state Department of Real Estate Web site (www.dre. ca.gov). Click on "Consumers", then "Home Buyers/Borrowers," then "DRE Publications and Resources." Talk to your estate planning attorney and other financial professionals to get their opinions. Talk with family and friends only if you know they are well educated in reverse mortgages.
Gina Lera Estate planning attorney
My brother passed away, with no assets other than his car, which has a salvaged pink slip. He has credit card debt of about $15,000. Do I have to sell the car to pay off his debt? He'd said he wanted my son to have the car if anything ever happened to him. A couple credit card companies have already cleared him of the debt he owed. He lived with me, has no children and no other assets. What do I need to do?
I am sorry about your loss. Since your brother died without a will, his assets will pass as provided by the laws of the state where he resided at the time of death. Assuming he died in California and was not survived by a wife, children or grandchildren, his estate would pass to his parents (or, if both parents are deceased, to his siblings in equal shares).
Because the estate's value is less than $100,000, the heir(s) can assume the vehicle's title by making an appointment with the DMV, completing a "small estate affidavit" form and providing a copy of the death certificate.
The heir can then assign the car to your son without gift tax consequences, assuming the car's value is less than $13,000. Your brother's statements about wanting your son to have the car after his death have no effect, since California does not recognize oral wills.
Be careful in this process. The credit card company can collect up to one year following your brother's death. You indicated some debts were voluntarily discharged by several card companies, which is common in more modest estates. Be sure to get this confirmed in writing, to ensure you are not taking on additional problems. Even after the car is transferred to your son, the heirs are still liable for any debt up to the value of the car.
Cameron I. Beck, Investment adviser
I've read that people with defined pension plans should consider them as the short-term or fixed part of their asset mix, in terms of an overall retirement portfolio.
For instance, if 60 percent of your retirement income was in a defined pension, the other 40 percent could be placed in more aggressive investments to round out the portfolio.
Because of the recent market meltdown where investments may have shrunk 40 percent or more, is it still wise to think that way? Or should the rest of the portfolio be invested totally separate from the pension? I guess it goes back to how much risk I should be willing to accept.
In this day and age, you are very fortunate to have a defined benefit pension plan. Many employers find them too costly and are switching to employee-directed plans or defined contribution plans. At retirement, most of those fortunate enough to have a traditional defined benefit pension plan can expect to receive a fixed-income stream for their lifetime. It can be considered a fixed-income part of an asset mix. Unlike stocks, which fluctuate in value, pension plan distributions usually remain steady.
Whether your income comes from a pension plan run by your employer or from interest-bearing investments like CDs, it is important to practice diversification, which includes both growth and fixed-interest investments. Diversification, if practiced wisely, can lead to a prosperous retirement regardless of where your income comes from.

For Mortgages, 620 is The New Magic Number

For Mortgages, 620 is The New Magic Number

Near historic low mortgage rates, favorable home prices, and the federal tax credit for first-time home buyers have contributed to home purchases in the past year. However, the onset of the credit crisis, new regulations for home appraisals, and more stringent guidelines for purchases and refinances have resulted in confusion for some potential home buyers.While using a mortgage broker to find the best loan may work for some buyers, it may not always be the best route. In the past, mortgage brokers could “shop” a loan to multiple lenders to help find the best deal. However, new practices and procedures under the Home Valuation Code of Conduct (HVCC) have hampered mortgage brokers’ abilities, namely that lenders may no longer accept home appraisals commissioned by brokers. As a result, consumers may have to pay for new appraisals with each lender, which costs time and money. However, consumers who are very busy or need guidance may find that working with a mortgage broker is the easiest solution.Qualifying for a mortgage under current lender standards is more difficult nowadays than in years past. Beginning Nov. 1 or Dec. 12, depending on the type of loan, Fannie Mae is tightening its lending standards to the 620 credit score benchmark—including loans backed by the Federal Housing Administration and Veterans Affairs. Borrowers with credit scores of less than 620 will find it very difficult to qualify for a mortgage. However, to qualify for the best rates, consumers generally need credit scores of 720 and must have verifiable, steady income.As for loan type, most real estate professionals agree that a fixed-rate mortgage is the best choice for buyers and refinancers.

Mortgage rates below 5 percent fuel re-fi boom

Mortgage rates below 5 percent fuel re-fi boom

Every dollar counts in this economy.
Homeowners hustled last week to refinance their mortgages after interest rates fell below 5 percent for the first time since May.
Refinance applications climbed 18 percent from the previous week, the Mortgage Bankers Association reported Wednesday, as rates on 30-year home loans dropped to their lowest level in four months to 4.89 percent.
With extra cash lining their pockets each month, homeowners could help the economy recover. Since the recession began, American consumers have reined in spending, which accounts for up to 70 percent of the economy. A refinance savings of a couple hundred bucks could go a long way in boosting household finances.
"A lot of people are thinking: "If I can get something right now, let's get it and run,'" said Pava Leyrer, president of Heritage National Mortgage in Michigan.
But more than 16 million homeowners owe more on their mortgages than their properties are worth. To refinance they would have to cover the difference and then some. In some cases, that could mean forking over tens of thousands of dollars. Others simply don't qualify under stricter credit and income standards. And requirements for refinancing certain government loans will get tougher in November.
The Federal Reserve started buying mortgage-backed securities in January to drive down mortgage rates. But it plans to slow its purchases of mortgage-related debt and extend the program through the first three months of 2010, which will likely push rates higher.
Still, current low rates helped borrowers like Kimberly Austin in Kalamazoo, Mich., cut her monthly payment by more than $300 to $934. Austin, a 40-year-old accounts receivable clerk, ticked off a list of where that extra cash will go. A new roof, updating the electrical system and other improvements on the older house she bought in June of last year.
"That money would be a huge help," said Austin, who is set to complete the refinance on Thursday.
For Tanya Schlicht in Greenfield, Wisc., refinancing her mortgage will help cushion the blow from her husband's job loss earlier this year. He's working at a temp agency now, but makes less than before.
Schlicht, who works in a nursing home, is in the process of qualifying with just her income and wants to roll a costly second mortgage into just one loan. The move will save them a much-needed $200 a month.
"We're going to need it for the electric bill," she said.
She's a lucky one.
Many calls mortgage brokers received last week came from borrowers who couldn't qualify for a new loan because of lower incomes, higher credit standards or falling home prices.
New rules designed to limit conflicts of interest in the appraisal industry also are scuttling refinance applications because appraisals are coming in low, said Les Berman of EB Financial in Beverly Hills, Calif.
Lenders are stricter too. Before, Berman said they would accept a refinance application if the mortgage payment, taxes, insurance and all other debt added up to half a borrower's income. Now, the magic number is 41 percent.
The Obama Administration launched a plan in April to help borrowers refinance, even if their home has lost value. Fannie Mae and Freddie Mac are accepting borrowers who owe up to 25 percent more than their home are worth. But so far, only about 85,000 homeowners have had their loans refinanced under the plan, well below original expectations of 5 million.
"I personally haven't seen one yet," Berman said.
And on Nov. 18th, new requirements go into effect for borrowers who want to refinance a loan insured by the Federal Housing Administration. The so-called "FHA streamline" loan will require at least six months of payments before a borrower can take advantage of the program, and verification of assets, job and income. Also, more borrowers will need to come up with more cash to refinance because of new rules to calculate the maximum loan amount relative to the home's value.
"That'll stop up to 85 percent of my streamline borrowers," said Leyrer of Heritage National Mortgage.
Mortgage brokers say a refinancing is worthwhile if you can shave off at least $100 from your monthly payment or get a full percentage point rate reduction.
That's why rates below 5 percent are so appealing. It's only the second time this year they dipped that low. Rates hit a record low of 4.78 percent in the spring.
"The experts say rates are going back up," said John Stearns, vice president at Robbins and Lloyd Mortgage in Mequon, Wis. "We're making hay while we can now."

Mortgage-relief program helps relatively few troubled homeowners

Mortgage-relief program helps relatively few troubled homeowners

WASHINGTON – Major mortgage service companies boosted the number of trial modifications they offered to distressed homeowners in August, the government reported Wednesday, but the workouts still cover only a small fraction of the delinquent loans that are eligible for help.The Treasury Department released its second monthly report on loan modifications under the Obama administration's Making Home Affordable Program. It said that servicers had started 360,165 trial modifications through August, up by 124,918 from the modifications reported through July. The number of offers for trial modifications rose by 164,812, to 571,354 through August.The total number of trial modifications started represented 12 percent of all loans that are 60 days late on payments and considered eligible for the Obama administration's program. That's up from 9 percent through the end of July. "We think all the servicers could do more than they are doing now," Assistant Treasury Secretary Michael Barr told the housing subcommittee of the House Financial Services Committee on Wednesday.The program is on track to meet its target of 500,000 trial modifications by November, Barr said. That number, however, is a small percentage of the more than 6 million potential foreclosures over the next three years that many analysts forecast.Mortgage servicers, many of them large banks like Wells Fargo and Bank of America, are essentially middlemen that collect mortgage payments on behalf of investors who own securities backed by pools of mortgages. Although borrowers negotiate with servicers as if they were the lenders, the servicers represent the interests of investors, not homeowners.From 2005 to 2008, servicers modified just 3 percent of all delinquent loans, according to documents reviewed by the House panel.That low number led the Obama administration to create the servicer performance report, dubbed "Name and Shame," in a bid to pressure investors and servicers to do more. Forty-seven servicers now participate in the administration's program, up from 38 in July.Wells Fargo and Bank of America improved on their July numbers but are still modifying a low percentage of eligible loans under the government program. Bank of America increased from 4 percent of eligible loans to 7 percent; Wells Fargo improved from 6 percent to 11 percent.CitiMortgage, part of troubled Citibank, boosted its trial modification numbers to 23 percent of eligible loans in August from 15 percent in July. JPMorgan Chase, thought to be the nation's healthiest large bank, improved to 25 percent of eligible loans in August from 20 percent a month earlier.The government's trial modification program seeks, through financial incentives to servicers and the investors they represent, to get borrowers into loans whose monthly payments are equivalent to 31 percent of their before-tax incomes.Industry representatives said in testimony that their modification numbers were much higher than the report indicated, but there are no reliable breakdowns of individual servicer numbers to distinguish between, say, allowing a borrower to skip a payment vs. modifying an adjustable-rate loan into a low-cost fixed-rate mortgage."There may be other things going on out there, but to comply with our program rules and to count as a real modification you've got to get people down to an affordable (payment) level," Barr told McClatchy.The administration will ratchet up pressure on servicers, he said, requiring new data on why loans weren't modified."We are requiring next month the implementation of denial codes by each servicer, and at that point we will be able to have good empirical data on reasons for denial," Barr said.Representatives of JPMorgan Chase, Bank of America and Wells Fargo acknowledged in testimony that they fold legal fees and other foreclosure-processing costs into reworked loans, upping the balance that borrowers owe.Only Wells Fargo said it had a special program to help borrowers with strong payment histories should they lose their jobs.Bank of America's executive in charge of credit loss mitigation, Jack Schakett, acknowledged to the panel something long suspected but rarely spoken about publicly. Distressed borrowers who have equity built up in their homes, he said, are more likely to get foreclosed on, because there's a greater likelihood that servicers and investors who hold pools of mortgages will profit from the sales of the homes."The more equity that is in the house, the more the market will actually walk away with money, the less likely you will actually modify the loan," Schakett confirmed in an interview after the hearing.