Selecting the Right Mortgage

By : Rosy

The right mortgage to select is crucial somewhat much, because with so vielem housing loan and mortgage elections in the market of real estates open, you requires the confirmation of the right mortgage is usable for your requirements.

For the fact that you go away fulfilled with your mortgage you confirm must per finds a research to do and must catch up as much information as possible. The points, which are further down mentioned, can support you, if they select the right mortgage: First when selecting the mortgage, your present financial condition examine and the condition of your future financial status also estimate.

Number of days calculate, which you plan to remain and examine out in the house whether you do not feel uncomfortable with mortgage payments, for which holds, to change according to the market. Determine after this, how much you from the credit-giving place expect can, by associating mortgage with a computer.

Since, mortgage computer you short idea over function financial organization give, is it very much important that you in living expenditure, insurance regard, because mortgage computer a general outline give of, how much a financial organization lends to you, is it vital that you can to have to return also factor in living expenses, in the insurance, in supporting and in all possible other debts you, in order a more conventional approximate value from, which you can obtain afford, in order on a mortgage each month without any difficulty to spend.

This supported guarantee the right mortgage choice. Confirm over the quantity of the deposit in advance, which you will form to avoid the later controversies. Normally by laying down large quantity on the purchase of the house you lower the mortgage expenses and the interest percentage, which you will pay during the long period. If you must less as if disburse, 20% of the expenses of your house, which pays then for mortgage insurance, to be considered. It is always suggested, in order to do little research, before one terminates your decision. By Internet or by other information desks find out, which different taxpayer for different kinds of Hypotheken are. Different institutes offer varied rate and drafts, are good it to buy around in order to look, who provides the best rate with the finest and simple repayment conditions. A house to buy can be exciting and irresistible.

By preselecting the right mortgage, you can hold away you from pressure caused because of the very large financial decision, which you can make in your life at all.

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Adjustable Rate Mortgages - the Sad Truth

By : Jeremy R

The mortgage of recordable rate is equally the new phenomenon for the mediators of mortgage and the companies of mortgage. They know that a your rate is going to go in on and that you will have to refinance your domestic loan before too much along, therefore they come to swoop within and they are the hero here.

I bet that those 90% of the mortgage mediators who call them were those that put their customers in these types of mortgages, therefore in the reason for they that call them and of the customers they have not worked with in the past. Unfortunately the schools in America do not have a code category standard of finance in order to instruct our citizens approximately the domestic property, the credit cards and other obligation that financial we take over while we develop ourselves.

That not only holds account affinchè we is profited for but moreover that it allows that the so-called the professionals are profit you for from the companies work As an example in order to, some years ago the means and other advanced civil employees of place in the mortgage industry were saying to everyone that to take a mortgage of recordable rate, but because? If you behind asked it they then to bet that they would say because the rates are low.

The truth is, mortgages of generally fixed rate has a higher interest rate confronted to the ARM, usually half of the point to a point on your interest rate. On a mortgage $200,000, 6.75% a recordable damped mortgage and rate of fixed rate to 7.75% in 30 years have one difference of payment of $136 a month. My conjecture is, if your debit to the yield relationship is to the high on the mortgage of fixed rate but characterized to you for the mortgage that of recordable rate been watching a center that is over your estimate.

Hour that found attacked in this dilemma, to find an escape is not impossible as thoughts. You must begin to try the sense of options before that your rate is going to record. The problem that more common I see today must be taken care more of editions than accreditation rather than of the fairness lack. A true professional of mortgage is not going to only discard it because that not characterized to you today for a loan, he or is going to work with you in order to resolve in advance payment your problem 3 months, 6 months or 9 months in order to even prepare them for a new loan before that your rate mortgage you record.

If begun to try one new mortgage enough soon you will be able to really determine which mediating of mortgage he preoccupies for you and which mediating of mortgage he only preoccupies himself for if same. To make a favor and to begin to deepen into that possibilities are on hand today you therefore when the time come affinchè your mortgage of recordable rate them registries are prepared.

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The Science of House Buying

By ; Ajeet Khuran

Buying a house is quite a demanding task. There are many things which can be bought in a few minutes. Batteries, pens, pencils, and even books and gadgets can be picked up off the shelf within a matter of minutes. However, when it comes to buying houses, you cannot avoid doing some research on your own. After all, there is nothing remotely "use and throw" about an investment of this kind. This is a place that you will be living in for a long while now. So you should make it a point to become aware of all the necessary concepts when you are going about buying a house.

Now, the first thing to do is to make up your mind with regards to the location. Would you like to live in amidst the noise and bustle of a city? Or would you prefer to put up in some relatively quiet suburban area? What are the things that you would have to have close to your home? Are you a shopping and movies buff who needs a mall and a theatre? Are you looking for a school for your child? Would you like a library close by? List out the things that are must-haves when it comes to finding a house. Then you think about things like whether you want an airy apartment or a big bungalow or just a one bedroom flat.

You really should try to take advice from a house broker or a real estate agent to help you narrow down your search. A broker will have several great bargains that you might not have found on your own. So it would be a good idea to consult someone who has adequate knowledge of house-buying if you are not well-acquainted with the required procedures. Once you have found some properties that you will manage to pay for as well as your other needs, you will have to go about finding suitable mortgage plans.

If you would just on the Internet you would find a whole lot of websites that have mortgage calculators. These mortgage calculators take into account questions like your current income, the loan amount you are seeking, and your current debts to decide what kind of a mortgage loan amount should be given to you. Try out a few mortgage calculators from a few different websites and you should be well aware of what to expect when you actually decide to go and apply for a loan. Never go to a loan provider without first trying to learn about the loans that are available. This will allow your loan provider to facilitate your finding quickly the best possible loan.

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Why Real Estate is Still the Best Investment You Can Make

By ; Grant Eckert

Though there's no such thing as a "sure thing," real estate is still considered the best investment you can make for your financial future - and with good reason. With the favorable housing market for buyers and for sellers, real estate is an almost guaranteed way to increase your income as well as your net worth. Here are the top four reasons why you might want to make real estate your business too.

The first reason for investing in real estate is common sense - everyone needs a place to live or work. When you need to have a space for a certain function, you turn to the real estate market, whether you're renting or buying. Because this demand is never going to go away, investing in real estate is a move that is certain to pay off in the future. Even as housing prices rise and buyers are more hesitant, there is still a market for renting. And when the housing prices go down, the buyers will be ready to buy again. No matter what the market is doing, real estate still sells.

The next reason for making real estate your main investment is that it can continue to increase in value over the years. By adding additions to a property or installing new features, you can continue to make the piece of property valuable. The initial price that you paid for the property can be recouped as well as turn a profit if you've made substantial improvements. If you're looking to make a profit from the selling of properties, you will want to continue to make improvements and repairs on the home so that it's in good repair for future sales. In addition, if you are constantly making improvements to a rental property, you can increase the rental rates to compensate for these features.

You will also find that real estate is a great investment because it is so simple to get into. In many cases with option ARM mortgages, you won't have to pay a lot of money to buy a property and then can turn around to sell to someone else. Known as flipping houses, this has become common practice with many real estate investors. While you will need to make the initial investment and then wait for someone to buy your home, you will be able to make a large amount of money in exchange. Buy properties in popular areas and you will be able to make even larger amounts of money.

Finally, real estate is a worthwhile investment when you're in an area of development. Cities and suburbs outside of bigger metropolitan areas are often much more likely to have a favorable housing market because most people don't want to live inside the city, but do want to live near the city as that's where they work. But as a result, these houses are less expensive to buy in the outer regions of the busier areas, making it simple for you to invest when the housing market is new.

The flexibility of real estate is also something that makes it a great investment. While it used to be difficult for the buyer to buy a home, it's easier than ever with a wide range of mortgages, making it easier for the seller to sell. If you are a homeowner that's not looking to sell, but owns your own home, you can use the equity in your home to add value to your home as well as to your life. The investment you've made will continue to pay off for years to come.

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Get Deals on a Home Equity Line of Credit , Home Equity Loans and More

By: Doug Bane

The massive growth of the internet has meant a win-win situation for both loan companies and the public. Financial companies get access to a huge nationwide market of millions and millions of potential customers; while consumers have a ton more choices. Those choices also mean a lot more competition among the online home and other loans companies, which means the average person may well be able to get a home equity loan or home equity line of credit at lower interest rates then if they just had local options.

This proliferation of home equity loan companies also means that people with less than stellar credit ratings (or even bad credit ratings) have a much greater chance of getting a loan. In fact since many loans for people with perfect credit are handled by their local banks, the internet has attracted many firms who specialize in offering home loans to those with less than perfect credit.

There are two main types of home equity loans:

Fixed Rate

These loans are a single, lump-sum payment to the borrower, which is repaid over a set period of time at an agreed-upon interest rate.

Home Equity Lines of Credit (HELOC)

This is a variable-rate home loan that works much like a credit card and occasionally comes with one. Borrowers are pre-approved for a certain spending limit and can withdraw money when they need it via a credit card or special checks. Monthly payments vary based on the amount of money borrowed and the current rate of interest.

Both types are available with terms that generally range from between five and 15 years, and both must be repaid in full if the home on which they are borrowed is sold.

Many other types of loans are available online:

Debt consolidation loans - they will pay off your existing loan or credit card debts and then you pay them back - but at a lower interest rate than your old debt. It's especially beneficial for people with credit card debt, since those interest rates are typically extremely high.

Payday Loan Companies are also common on the internet. It's good news if you need one, since there's so much competition among the companies competing for your business. Just remember to always pay back a payday loan in full when you get your paycheck; since payday loan fees start to get steep if you renew the loans.

Whatever type of loan you're looking for, the best bet is to visit many financial companies web sites and request rates for the loan you want. Then simply do a comparison and pick one with a competitive interest rate; preferably a company you have heard of. Otherwise you can just google the company name and learn more about each company.

If you take advantage of the huge marketplace provided by the internet, and compare interest rates carefully, you can get great deals with online loans.

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Home Equity Loans - How to Squeeze Money From your Home

By  Jim Wilson

Equity loans were designed to assist homeowners to raise the equity on their home in order to make profit, or else set up a new loan on the house. Home prices escalate as time goes by, making the house worth more each day that it is around. A House's equity then is the complete value of the property, minus the amount the homeowner is paying on the home.

If you take out an equity loan, you must keep in mind that the loan is configured to pay out your first mortgage and then commence regular payments on the pending loan. Lenders need borrowers to pay five to ten percent upfront deposits, as a guarantee. The greater amount of deposit will decrease your interest rates and mortgage payments in most situations.

Equity loans then are borrowed money and the homeowner puts up collateral, which usually is the home. There are advantages of signing up for equity loans, particularly if the borrower is in debt and needs cash to pay off his home. The collateral,however, is the garnishing product if the borrower cannot repay his mortgage. Said another way, if the borrower fails to make repayment on the equity loan, then the bank may possibly take back the house.

Consequently, the tactic for homeowners is to borrow cash by establishing an equity loan to reduce the monthly mortgages. Some homeowners may possibly pay $500-$600 per month on their mortgage; and if they uncover the perfect lender, they will create an equity loan to repay $180 per month. The reduction is big, but what the homeowner is doing is choosing a 30-year term loan, paying under $200; thus the homeowner is really paying twice for the same home.

Mortgages come in various types; as a result if you are contemplating refinancing your home, it pays to shop around for rock bottom rates and greatest deals. If you are choosing an equity loan, you may want to query about overpay and underpay loans, where you may possibly get huge sums of cash back on your mortgage. As well, you will most likely want to print out contracts and compare them beside each other to find out what benefits you will derive by choosing one legal contract over the other.

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Secure Home Loans Help Procuring Amount

By Andrew Baker |

Home is place where one lives in with dignity and pride. But when one comes across with some unexpected financial emergency, the home always stands by in good stead. This is the equity of the house that provides the required sum at the need of time. For the purpose, the finance-needed individuals can take stoke of the market situation. The market is nowadays full secured home loans.

The Secure Home Loans are collateral based. So for that, the individuals have to place house as collateral for their guarantee. On the market value of the house i.e., home equity, the amount is sanctioned. Equity is current market value of a home minus the outstanding mortgage balance amount on money. For instance, the market value of one’s house is £ 200, 000 and owes £ 70, 000 on one’s mortgage. Now, the individual will easily have £ 130, 000 equity available on own home.

With the help of the equity, individuals can easily apply for a good amount of loans. However the amount offered by the lending authority and corporate are up to £ 100, 000, it can be upgrade further for the convenience of the borrowers. This amount will be availed by the borrowers for a period ranging between 5 to 25 years.

Thing that always keep in mind is of the equity. That is as the equity increases due to market force, likewise the sanctioned amount increases proportionately. The advisable part of the secure home loans is that the borrowers may remain always watchful to the ups and downs of the finance market.

Secured home loans qualify all the requirements of the borrowers. The offered sum can be utilise for any kind of purposes whether it be a matter of home improvement that ultimately upgrades the market value of the equity or children’s education or wedding purpose. Moreover, these loans help in consolidation of many loans and provide opportunity to improve credit scores too.

Importantly, it good to visit the lenders in person, but if the individual is not smart enough to understand the hidden terms and conditions then it can be detrimental for the borrowers. Online accessing, for this kind situation, is deemed fit. The internet helps study comparative analysis of the market on the one hand and provides different loan quotes on the other.

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Paying off credit cards with home equity loans has pluses, minuses

When facing mounting credit card balances, taking out a home equity line of credit can sometimes allow borrowers to get back on solid financial ground while paying lower interest on their debt.

However, financial experts warn it is not the best option for everyone.

Transferring debt to a home equity loan, which typically has much lower interest rates than credit cards, can help consumers pay off their credit cards more easily, according to Bill Hardekopf, CEO of LowCards.com, a Web site that ranks credit cards and lets consumers compare various cards based on interest rates, annual fees and other criteria.

Depending on their credit status, the loans could let consumers borrow 75 to 85 percent of the appraised value of their homes, he said.

"In the right situation, a home equity line of credit can be a good option for reducing credit card debt," he said, but the loan comes with its own risks and may not be the best fit for everyone.

"The first thing you should do is review your past experiences with debt," he said. "If you chronically have problems paying down your credit card balance, going over the limit, managing your debt, or continuing to add to your balance, then a (home equity loan) may be much more harmful than good for you."

According to Hardekopf, the advantages of a home equity line of credit are:

It converts debt from a high-interest credit card to a loan with a lower interest rate.

Consolidating credit cards into a single home equity loan shows fewer outstanding loans on consumers' credit reports.

Depending on the circumstances, borrowers may be able to deduct the interest for taxes because the debt is secured by their home.

But the loans also pose risks, putting borrowers' homes on the line, said Diane Mull, education specialist at Consumer Credit Counseling Service of Southern New England in Milford.

"Certainly, it's not the ideal way to handle debt," she said. Transferring debt from credit cards to home equity may tempt borrowers to begin using those paid-off credit cards again. "It opens the door to increasing all of those balances on the cards again."

Defaulting on a home equity line of credit could have a catastrophic effect on homeowners, Mull said. "It could put your home in jeopardy because your line of credit is secured by your home."

Hardekopf agrees that home equity lines of credit can be detrimental to some borrowers. Among their risks, he said:

Home equity credit is still a debt that must be paid off, and should be viewed as a one-time fix. Consumers who don't have the discipline to stop using their credit cards should not take out home equity loans because if they get into deeper financial trouble, they are putting their homes at risk.

The loan is based on a home's value, which is variable. Borrowers should not assume that the value of their home will never drop. If the value of a home drops, so does the equity.

As with a mortgage, there are fees and paperwork for a home equity loan. They include property appraisal, application fees and closing costs, including attorney fees, title searches and mortgage preparation.

The loan should not be used to live beyond one's means, or to purchase travel or leisure products. Use it only for expenses with long-lasting benefits, such as education, home improvements or debt reduction.

In most cases, there are penalties to paying off the loan early, so those who plan to move from their house in less than five years should seek another option.

Shifting debt from one source to another does not alleviate the central financial problem, Mull said. A better strategy is for consumers to determine how much debt they really have and then devise a plan to address it, she said, and a key component to that often is setting and living within a budget.

"They have to have their spending under control," she said.

By ; Cara Baruzzi, Register Staff

Via : www.nhregister.com

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Use A California Second Mortgage Home Loan To Your Benefit

A California second mortgage home loan can provide financing for home improvements, credit card debt or other needs.

Taking out a California second mortgage home loan used to carry some stigma with it - a sign that you were in financial trouble. But today, the ability to borrow money against your California real estate is considered one of the biggest advantages of owning a home.

A California second mortgage home loan is essentially secured by your home or

another piece of property with a first mortgage. The California second mortgage allows the homeowner to tap the home equity to pay for college tuition, essential home improvements, pay off credit card balances or other pressing financial needs.


Because there is more risk involved with a California second mortgage, the lender's conditions are usually more stringent, the term is shorter and the interest rate is higher than for the first mortgage. In the event of default, the holder of the second mortgage is subordinate to the first.


To qualify for a California second mortgage, your credit must be in good standing and you must be able to document your income. An appraisal will be required on your home to determine the home's market value.

By definition, a California second mortgage is any loan that involves a second lien on the property, but you generally have two options: a home equity loan or a home equity line of credit.

Both options combine your first and second loan, so your loan will be limited to 75 to 80 percent of your home's appraised value. With a California home equity loan, you borrow a lump sum of money to be paid back monthly over a set time frame, much like your first mortgage. However, the closing costs (often 2-3 percent of loan amount) are often higher than your first mortgage and the rate - usually fixed - is also higher.

A California home equity line of credit (HELOC) is an open line of credit tied to an equity-based maximum loan amount. You may use the account for a set period of time (5, 10 or even 20 years) as long as there are funds. Once your predetermined time period is up, you will be required to pay off the loan, making monthly payments on the principal and interest. The interest rate can fluctuate month to month on a home equity line of credit, which makes this option appealing when interest rates are low, but risky when interest rates increase.

When deciding what type of loan is best for you, it is important to consider how you will use the money and how you intend to pay it off. Do you need money in one lump sum or intermittent over several months or years? Do you want a fixed interest rate so you can repay your loan in precise monthly installments or would you rather have the flexibility to make any size payment above the interest-only minimum? In today's competitive market, there are many options available. I will help you find the right mortgage product for your lifestyle and financial needs.

For more information about a California second mortgage home loan please call 866 398 4664 or go to www.GoldMedalMortgage.com

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Home Loans: Building Dreams Houses for You

By Renita Vaughan

Home is the basic requirement and also everyone longs for a home of their own. Like others, you also desire to have your own home but the main hindrance is the lack of sufficient finance. If this is so, then home loans are always there to aid you with the amount that you required. The home loans are structured in a manner which aid monetarily persons from every financial category to build the home they dream to live in.

The finance of home loans can be obtained in two forms secured and unsecured. If you decide to opt for the secured one, then pledging of collateral becomes mandatory and in turn facilitates borrowers to borrow large amount of loan. The unsecured form is the alternate option of secured form, and can be opted when an individual does not has property or reluctant to place it against the loan. The secured and unsecured forms are the two sides of the same coin whose objectives are to provide finance for building homes.

Home loans can be borrowed for multiple purposes as it is designed so. To build a home is the primary objective, and along with it individuals can borrow to renovate or repair the house and even borrow it to make extensions of rooms. Home loan is easily available in the market and lenders also do not hesitate to approve the loans if proper documents are furnished. By producing the data in a precise manner, bad creditors can also approve the loans and borrow the finance despite their poor credit or adverse credit. Home loans come at marginal rate of interest and also one can borrow it according to their repayment ability. To make the repayment burden more rational the repayment tenure are stretched to long durations which graces from 5-25 years.

The sophisticated technology has made it possible to approve home loans by sitting at home. The process is in complex and reliable which saves time and effort despite providing instant results. The online device reduces the period gap between the person and his dreams of having a home of their own.

Dina Wilson is an expert loan adviser at online home improvement loan. She has done MSc Management and Finance from University of Whales.To find Home loan, home loans, home equity loan, approve home loans, home equity loan UK visit http://www.online-home-improvement-loan.co.uk

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JPMorgan Takes Home-Equity Hit

JPMorgan Chase (JPM - Cramer's Take - Stockpickr) stumbled in early trading Wednesday after the banking giant posted better-than-expected second-quarter earnings but said profits were hit by troubles with home-equity loans.


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In the quarter, JPMorgan Chase made $4.2 billion, or $1.20 a share, up from $3.5 billion, or 99 cents share, in the year-earlier period. Revenue rose 25% to $18.9 billion.

Analysts were expecting the New York bank to earn $1.08 a share on $17.6 billion in revenue.

Revenue from JPMorgan Chase's investment bank rose 34% in the quarter to $5.8 billion. The jump reflected solid investment advisory fees, strong debt underwriting and "record" equity underwriting fees, the company said.

But JPMorgan Chase's retail financial-services business was another story.

While revenue from the unit rose 15% to $4.4 billion, its profit slid 10% to $785 million as the company sharply increased its provision for credit losses.

The provision for credit losses in the businesses jumped to $587 million from $292 in the first quarter and $100 million a year earlier.

The provision includes a $392 million increase in the allowance for loan losses related to home-equity loans. Home-equity net charge-offs more than tripled to $98 million in the quarter from $30 million a year earlier.

"The increase in provision reflects weak housing prices in select geographic areas and the resulting increase in estimated losses for high loan-to-value home equity loans, especially those originated through the wholesale channel," the company said. "Home equity underwriting standards were further tightened during the quarter, and pricing actions were implemented to reflect elevated risks in this segment."

The stock was down 70 cents, or 1.4%, to $49.22 in early trading.

"Our strong earnings benefited from solid performance in the investment bank, record results in asset management and treasury and securities services, and very strong results in private equity," said Jamie Dimon, its chairman and CEO. "In addition, during the quarter we strengthened our reserve for the home equity lending portfolio. Although we remain at a relatively benign point of the credit cycle, we continue to focus on being prepared for a less favorable environment. Given the diversity of our business mix, improving operating margins across our businesses and the strength of our balance sheet, the firm is well-positioned for the future."

By ;   Laurie Kulikowski

Via : www.thestreet.com

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HDFC enters home equity business

MUMBAI: HDFC, the country’s largest housing finance company, has made a big move in the home equity business by offering loans against property at 13.25%. This could turn out to be big business opportunity for the lender since most of its borrowers pre-pay home loans.

The finance through the home equity route makes available finance at a cheaper rate than, say, auto finance or personal loans with easier repayment schedules. HDFC expects a big demand for this product from borrowers who have cleared their mortgage dues. This loan would also be available to existing borrowers, if the market value of the property is much higher than the outstanding home loan. The advantage of this loan over the existing top-up loans is that there is no Rs 5-lakh ceiling, which is applicable on top-up loans.

Renu Sud Karnad, executive director, HDFC Ltd, said, “Asset Plus is not a new product from HDFC in the true sense. However, it is now structured differently, and is aimed at assisting customers to meet their immediate financial requirements while they continue to occupy their homes. Also, if compared to a personal loan, the interest rate on Asset Plus is lower and loan term is much longer. This gives a borrower the option to spread the loan repayment over a longer period of time, in effect reducing the immediate financial burden.”

Interest rate for Asset Plus loans will be charged from 13.25% onwards on floating rate loans and the loan term against residential premises is 15 years while the term for non-residential property is 10 years, subject to the age of customers. The product entitles customers to loan sizes beginning from 50% of the market value of the property. Subject to the market value of the property and loan eligibility criteria, HDFC’s customers can have a total exposure of up to 70% of the market value of the property and at the same time get an interest rate, which would be lower than non-HDFC home loan customers.

The eligibility criterion for Asset Plus is that the property needs to be freehold, self-owned and fully-constructed, with a clear and marketable title. One can also mortgage a joint property by having all owners as co-applicants for the loan. Although a small business in India, loans against home equity are big business in developed market like the US. However, since this involved increased leveraging, the loan product increases the market sensitivity to interest rates and real estate risks.

Via : economictimes.indiatimes.com
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Credit-card delinquencies decline in first quarter

Credit card loan delinquencies declined in the first quarter of 2007, according to the latest American Bankers Association Consumer Credit Delinquency Bulletin, released July 3. Late payments on credit cards were 4.41 percent of all accounts in the first quarter, compared to 4.56 percent in the fourth quarter of 2006 (seasonally adjusted).

“The good news is that credit card delinquencies fell during the first quarter of 2007,” said ABA Chief Economist James Chessen in a news release. “The improvement in credit card late payments is somewhat remarkable, given that the economy was not operating on all cylinders.”

Chessen noted, however, that consumers’ overall financial positions were worsened by slow job growth, falling home prices and weak economic growth.

“There are still signs of consumer financial distress, which will continue throughout most of this year as the worst of the housing problem works its way through the economy,” Chessen said, referring to the sharp increase in the composite ratio, particularly for items directly related to housing.

The number of delinquent accounts in the composite ratio, which tracks eight closed-end installment loan categories, increased to 2.42 percent from 2.23 percent. This ratio moved upward for the past year, reaching levels not seen since 2001.

“The increase in the first quarter of 2007 was driven in part by double-digit increases in home-equity loan delinquencies,” Chessen said.

By ; SBJ Staff
Via : www.sbj.net

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Credit-scoring system is about to undergo change

In September, the FICO credit-scoring system is set to undergo a major overhaul. Fair Isaac Corp., the Minneapolis company that creates the formula used to calculate the score, is downplaying the change, saying that it won't have much of an effect.

But 40 of the top 50 financial institutions in the country rely on FICO scores to determine whether to approve a loan and what rate to charge. Retailers, landlords, insurance companies, employers and utilities also use it to decide how to do business with you -- or whether they should.

So any change in the way that scores are decided affects millions.

Because Fair Isaac doesn't want rivals to copy its formula, it isn't giving out too many details about the changes, but spokesman Chris Watts did say this: Fair Isaac divides the population into 10 segments based on credit history and applies a different formula to each. Eight segments include people with good credit, and two are for people with serious problems. Under the new system, the population will be divided into 12 segments: eight for people with good credit and four for people with bad credit. That could result in a slight change -- up or down -- in many scores.

"This new system will give lenders more dependable scores for those higher-risk consumers and those who have little history," Watts said.

Now, that's not really a bad thing if your credit is pretty good, but if you're on the margin or trying to establish your credit, it could mean trouble.

Because businesses interpret scores differently, a slight change could be the deciding factor in whether a landlord decides to rent to you or whether your bank decides to increase the interest rate on your mortgage or home-equity loan.

For example, according to Fair Isaac's Web site ( www.myfico.com), the difference between a score of 620 to 659 and one in the range of 660 to 699 can result in a $163 difference in the monthly payment on a 30-year mortgage.

Watts concedes that certain groups will feel the effect far more than others.

People with thin credit history or poor credit will likely see their score either jump or drop significantly, he said.

As it goes with most change, some people are going to be hurt through no fault of their own.

One adjustment to the current credit scoring system will be to stop giving credit points to those who are authorized users on someone else's credit card.

This change will affect about 30 percent of people with credit reports, or about 60 million consumers, said John Ulzheimer, president of educational services for Credit.com and a former manager with Equifax and Fair Isaac.

"When they close this loophole, it will eliminate millions of authorized users and their scores will go down," Ulzheimer said. "This is a very, very big deal."

This change is going to affect young adults trying to establish credit by attaching themselves to their parents' credit cards, spouses -- mostly women -- who are authorized users on the family credit card, and people who are trying to re-establish credit by coat-tailing a family member's good credit history.

Fair Isaac has closed this loophole because the lending industry has complained about abuses and said it was distorting borrowers' true credit risk.

So what can consumers do?

First, those who became authorized users to help build up credit should consider switching to a joint account. That will allow the joint member to continue to reap the benefits of the primary cardholders' strong credit history.

But this option poses more risks to the primary holder of the credit card.

For example, if an authorized user abuses the card, the primary cardholder simply has to make a phone call to revoke the user's card.

It's not as easy to remove a joint user. The primary cardholder would have to close the account and open a new one to remove the user from the account.

Most of these rules apply in determining ways to improve or maintain your credit score, Watts said.

BY ; VICKI LEE PARKER

VIa : www.star-telegram.com

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How to Break Into the Housing Market, Even Now

It was about as far as you could get from Jeff Langholz's and Karen Lowell's idea of a dream house and still have four walls and a roof: a ramshackle double-wide on a weed-infested lot in rural Monterey County. A trailer for $169,000. Was this a joke? Had real estate grown so cartoonish that two Ph.D.-packing graduates of Cornell were scrambling to move into a green-shag-carpeted mobile home in a community nicknamed "Prunetucky"?

Well, yes, it had. It was 1999, the beginning of the real estate boom, and with just $7,000 from Karen's parents for a down payment and prices on the coast edging toward $500,000, the couple realized the Prunedale property was their only way in. So they bought. Three years later, with two kids in tow, they traded up to an 1,100-square foot house on 2 acres on a sunny hillside a mile away.

It was a critical step up. With a white-hot market on their side, they were well on their way to realizing the kind of wealth that real estate brings to those lucky enough to get a piece of it.

That might have been the end of their concern with the brutality of the California housing market. But at the Monterey Institute of International Studies, where Langholz teaches environmental policy, he was hearing housing horror stories from far beyond the West Coast. Newly minted graduates who'd landed highly prized jobs in New York, Washington and Geneva were facing even more hostile conditions than he and Karen had.

"They're destined to be renters for life," Langholz says. "And it's just not right. If you're a hard-working, educated person with decent credit, you should be able to buy a house."

What was missing, he reasoned, was the leg up to the bull's back -- the down payment. In most Bay Area markets that had become a formidable barrier to entry. To get an 80 percent loan on a $500,000 condo meant pulling together $100,000 -- which was flat-out impossible for most first-time buyers. Langholz knew real estate has always been viewed by investors as an attractive bet, although one that generally requires more time and effort than other types of investments, not to mention tenant-induced headaches. Couldn't something be worked out between the people with no cash for a down payment and those looking to invest a little money in a relatively hassle-free way?

The concept already existed in a little-used financing tool called equity sharing. The problem was nobody knew about it. Langholz arrived at a seemingly obvious solution: the Internet. What if a priced-out buyer in Oakland could log onto a site and find an investor from Palo Alto -- or Miami, for that matter -- who could supply the down payment in exchange for a piece of the equity down the road?

Thus was born the idea for www.homequityshare.com, what Langholz calls "a housing affordability program for the middle class." It started in March with a matchmaking database for buyers and investors.

"All of life's big transitions usually come in stages," he says. "Before you get married you get engaged; before you get your driver's license you get your learner's permit. Well, with real estate there's no stepping stone between 0 percent ownership and 100 percent ownership. We're creating that intermediate stage."

Ordinarily, people get the down payment for a first house in various ways: They inherit it, they cash in stock options or they scrimp and save for years. Equity sharing is a way around the waiting, the penny-pinching and the role of luck.

"It's people helping people," says Frank Ricci, who started putting together equity-sharing deals in the Sacramento area in the early '90s before moving to Oregon to continue the process. He says it pays intangible dividends for investors tired of the adversarial landlord-tenant dynamic. "You talk about humanitarian feelings. It just goes on and on."

When Sharon Lunn stepped into the three-bedroom condominium in Martinez overlooking the pool and tennis courts, she knew immediately it was the place for her.

"The color of the tile they'd put in blends in with the colors in my dining set," she says. "All my furniture is oak; the cabinets were oak, the door was oak, the railings are oak. It was as if my furniture belonged in here."

A former homeowner, Lunn had the money for a down payment on the $500,000 condominium. But having recently divorced, she was reluctant to spend it all and leave herself without a financial cushion.

One day over lunch her friend Denise Holley suggested she call Ken Beasley, a partner with the Danville-based Home Equity Group. In short order, Lunn had entered an equity sharing arrangement with an investor who put in 10 percent down to match her own 10 percent contribution. They agreed to revisit the deal after three years.

"If the market is good at that time, then I'll refinance," she says. "If it's not so good, then we'll extend the agreement so it benefits both myself and the investor."

Denise Holley had firsthand experience with equity sharing. She and her husband Mike had bought a house in San Ramon with Beasley's help 15 years earlier. Back then, as newlyweds with a blended family, they were eager to leave behind their old towns -- Antioch in her case, Hayward in his -- for what they were convinced was a better community.

"Basically, it allowed us to live where we wanted to live and have a home we would not have been able to afford otherwise," Mike Holley says.

As he watched the value of his house skyrocket during the late '90s and early 2000s, Holley became so enamored of the equity sharing concept that he became an investor himself. He's chipped in on eight properties in the last five years, he says.

"I was able to buy my wife a new Lexus, right? I paid for the car with cash. I bought myself a new Harley-Davidson. And I got no complaints."

In another typical arrangement, Dottie and William Mattos contributed a 20 percent down payment of $35,000 on a new house in Portland for Michael and Tina Ferguson. Listed as co-owners with the Mattoses, the Fergusons lived in the house and paid the mortgage. Per the terms of the contract, after three years they reassessed: Refinance and buy out the Mattoses, or sell the house and split the profit? In either case, the Mattoses stood to triple their money and the Fergusons stood to gain full ownership of the house they were in or about $40,000 cash for a new down payment. Like most people who have bought through equity-sharing agreements, they've decided to try to refinance.

Equity sharing works best, of course, when the market is strong and both parties can realize a considerable return on their investment. But because lending practices have been so loose, equity sharing hasn't been that popular in the most recent boom cycle.

San Francisco real estate attorney Andy Sirkin says home equity sharing becomes more attractive when the buying gets tougher, like it is now with the zero-down hangover.

"When down payments are higher and underwriting guidelines are stricter, then buyers who are financially weak need more assistance," he says. "In those periods we see higher volume with equity sharing."

Trouble comes when the market is too hot or too cool. When prices are climbing too rapidly, homebuyers can't afford to buy out investors and are forced to sell instead -- in which case they almost certainly cannot afford to buy in the same neighborhood. That can be disruptive, especially with kids in the picture.

On the other hand, if homes are appreciating too slowly, a homebuyer will find insufficient equity in the house to buy out the investor, while selling yields too small a return to be of much use.

In the absolute worst-case scenario, housing prices fall, leaving homebuyer and investor yoked together in misery.

Langholz acknowledges that buying a house with a stranger and hoping to ride the market to riches in tandem is hardly a risk-free venture. But in almost all cases it beats the alternative.

"Even if they equity share for five years and the market stays flat and they get zero price appreciation, they're breaking even," he says. "That would still be better than if they were losing it on rent."

The newly divorced, the self-employed, buyers with shaky credit, renters who want to buy the house they're in and homeowners who face default are prime candidates for home equity sharing. What they all have in common is that their limited incomes or credit histories make banks nervous.

Those things make individual investors nervous, too. So a watertight agreement that protects both parties is key.

Marilyn Sullivan, a Pismo Beach (San Luis Obispo County) attorney and partner in Langholz's venture, has done 5,500 successful equity-sharing agreements since stumbling onto the concept in 1981 as she was trying to buy her own first home. A loan calculator she created, plus a model contract, are available at homeequityshare.com.

Sullivan has long been a big believer in home equity sharing, but she feared it wasn't getting the attention it deserved. When Langholz called her last November with his idea for the Web site, she was ecstatic.

"I said, 'Oh, my God, this is exactly what I needed to do,' " she recalls. "I felt I had taken this to a certain place, but people were missing out on the whole marketplace of being able to hook up with each other."

Langholz compares his Web site to Prosper, the person-to-person lending Web site that started in February 2006. It allows people, regardless of credit rating, to post the amount they'd like to borrow so lenders can bid on it, eBay-style. Prosper has facilitated more than 11,000 loans totaling $61 million.

Prosper co-founder and Chief Technical Officer John Witchel says these community-based models of doing business have important implications for the economy.

"The thing we talk about internally, it's kind of schlocky, but we talk about that great scene in "It's a Wonderful Life" where Jimmy Stewart is at the teller window and there's a run on the bank, and he's saying, 'The money's not in a safe or in a vault or in the basement, it's in your neighbor's house, it's in the farm down the road, and we all have to work together to make it work. And if not, Mr. Potter's coming to town.'

"We'd like to see a return to a way of life where people are standing up for each other," Witchel says, "and they're not naïve about it and they're not idealistic about it. We believe people are good."

Truthfully, it doesn't take a heart of gold to lend a stranger a hand when it's going to double or triple your money. One of the more slippery aspects of equity sharing is its contribution to the rich-get-richer cycle; it works disproportionately in favor of investors simply because it takes money to make money, and they have it. They can compound their advantage by playing hardball in negotiations with desperate first-time buyers; for example, by demanding a 60 percent share of the house and equity. Indeed, 50 percent is quite common.

So it comes back to the agreement, hammering one out that rewards the investor for taking a risk and rewards the homebuyer for taking on the burden of fixing toilets and maintaining a lawn.

Langholz warns that even under the best agreement, homebuyers might wince when it comes time to split the equity on a house where they've been living, decorating and gardening. But as a first step it's worth it, he says: Statistically, people who buy real estate are worth seven times as much money at the end of their lives as those who don't.

It's his way of trying to bridge the widening gap between the classes.

"We want to democratize real estate wealth," he says, "because we're becoming a country of haves and have nots."

Traci Hukill is the managing editor of Metro Santa Cruz. She lives in a rented house in Monterey with her boyfriend and their cat.

BY:Traci Hukill

VIA:www.sfgate.com

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After paying off house, seniors increasingly let it pay them

WASHINGTON — With an estimated 77 million baby boomers about to hit their golden years, the move toward reverse mortgages has begun.

Though less than 2% of seniors have decided to turn the equity in their homes into cash by taking out a mortgage that pays them instead of the other way around, half of those reverse loans were written in the last two years. Plus the lending community has embraced the loan product — big time.

Reverse mortgages, also known as home-equity conversion loans, enable homeowners age 62 or older to convert their equity into tax-free proceeds. The amount you can receive is based on the age of the youngest owner, the value and location of your home and current interest rates. Generally, the older you are, the more you can get.

The house (mobile homes and cooperatives are not eligible) must be your primary residence. If there is any outstanding debt, it must be paid off with proceeds from the loan.

Reverse-mortgage borrowers can take their money in a lump sum, as monthly payments, as a line of credit that can be tapped as needed or in any combination of the three choices. Interest accrues on the borrowed amount, but no payments are necessary until the home is no longer owned. Consequently, the loan does not have to be repaid until you sell, move out or die.

In the last few months, Bank of America and Countrywide Financial have entered the home-equity conversion market. Wells Fargo already lays claim to being the nation's No. 1 retail reverse-mortgage lender. A number of smaller companies also are joining the hunt with new reverse-mortgage products.

Although all this activity holds the promise of lowering costs and increasing consumer choices, it also raises the question of rip-offs. Fortunately, reverse mortgages are loaded with consumer protections. One of the most important protections is a requirement that all borrowers must agree to attend an independent counseling session with a government-approved agency to make sure the product is the right financial tool for their situation. If anyone suggests you don't need to seek outside advice, run — don't walk — to the nearest exit.

Two key loan features also serve as consumer protections:

• Reverse mortgages are nonrecourse loans, meaning you'll never owe more than the value of the house. You'll owe the sum of what you borrowed plus the accrued interest. If the house is worth more than you owe when you leave it, you or your heirs will receive the difference. But if it is worth less than what you owe, the difference is not your problem or that of your estate.

• Mortgage insurance guarantees you will continue to receive your money if the lender goes out of business or otherwise defaults on the loan. There are other safeguards built into the product as well, according to Cheryl Chapin MacNally, who runs the senior products group at Wells Fargo in Bourne, Mass. Interest rates on adjustable loans are capped, meaning they can never rise above a certain level. There is no prepayment penalty, and borrowers can change their minds up to 72 hours after signing the papers.

Despite these protections, reverse mortgages have been a tough sell.

"It's a 20-year-old business that's still in its infancy," says Barton Johnson, president of Irvine-based Financial Freedom Senior Funding Corp., a dominant player in the field. Wells Fargo's MacNally agrees: "We haven't even scratched the surface yet. It is still a very underserved market."

But Johnson and others believe that's about to change. "The boomers are coming!" says MacNally, noting that cash-strapped senior homeowners can use reverse mortgages as financial planning tools to supplement their retirement incomes, maintain their houses, pay their property taxes, cover healthcare expenses or take care of their children and grandchildren.



Peter Bell, president of the National Reverse Mortgage Lenders Assn. in Washington, D.C., predicts that within the next few years, as many as a million reverse mortgages a year will be written.

"It's going to be a real monster product," agrees Financial Freedom's Johnson.

By ; Lew Sichelman, United Feature Syndicate

Via:www.latimes.com

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How to get best student loan deal

Wading through the hype makes it tricky to choose a lender

Where do you find generous deals on federally sponsored loans? Schools that participate in the Federal Direct Loan Program give you direct access to Uncle Sam's largesse; the government funds the loans, and the school administers them.
The majority of schools, however, leave it to you to choose a lender, and that's where the process gets tricky. Commercial lenders vie for your business by offering to waive processing fees, pare the fixed rate and bestow rebates on borrowers who pay electronically or on time for, say, 24 or 36 consecutive months. Comparing those sweeteners can drive you crazy, says Thom Hunzicker, a college financial planner in San Dimas, Calif. "There should be a way to quantify the moving parts."
Financial-aid offices try to do just that by vetting deals and sending families a list of preferred lenders. "In most cases, the price the student gets through the preferred-lender list is better than what the student would get directly from the lender," says Keith Landis of Collegiate Advisors, which provides technical backup to college financial planners.
Cover your bases by checking a few other programs (you can find a list of lenders and their discounts at www.finaid.org). Investigate nonprofit lending agencies in both your state and the state where your child will attend school. Such agencies use low-cost loans to encourage students to study — and stay — within state borders.
Wherever you shop, look for up-front benefits, such as an interest-rate reduction at the start of repayment, rather than future perks — say, for making 36 on-time payments. "That's like saying, if I make the 260th through the 290th payments on my mortgage on time, I'll get a discount," says Landis. "No one does that." Plus, many students consolidate their loans early in repayment, rendering future discounts meaningless.
If you're a homeowner, you've probably already considered using home equity to cover some of the college bills. Borrowing against home equity makes sense if you earn too much to qualify for the student-loan interest deduction. You can deduct interest on up to $100,000 of home-equity loans.
Some college financial planners recommend going with a home-equity line of credit, which lets you borrow money as you need it, rather than taking a second mortgage and paying interest on the whole amount. But the line of credit's variable rate, currently at almost 9 percent, puts you at risk, says Hunzicker. He prefers second mortgages with fixed rates, lately about 8.2 percent.
One more consideration: A home-equity line of credit can enhance your chances for financial aid, whereas a second mortgage can hurt them, depending on whether the school counts home equity as an asset.

By ; Jane Bennett Clark

Via :  deseretnews.com

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TAPPING HOME EQUITY

Like millions of Americans, Bill and Helen Bluett's greatest financial asset is their home, a Spanish-style dwelling just a quarter of a mile from the ocean in San Clemente, Calif.

Selling the place and buying a cheaper one elsewhere could have brought the couple hundreds of thousands of dollars in extra money for their retirement years. But there was one problem with that idea.

"We love our home," said Bill Bluett, 67, a retired mechanical engineer. "We love our neighborhood. As long as we're physically able, we want to stay right where we are."



So this year, the Bluetts signed up for a reverse mortgage, a type of loan that allows older borrowers to tap their home equity without making payments as long as they live in the house.

With the money, the Bluetts are more than able to take on projects such as remodeling the kitchen and bathrooms.

More important, Bill Bluett said, the reverse mortgage makes them financially prepared for "any emergency, whether it's medical or whatever, that might come up" in the years ahead.

"My wife and I decided it would give us a lot of peace of mind," he explained.

Reverse mortgages have been criticized for high upfront costs. Lenders may charge 2 percent of the loan amount in origination fees, and most borrowers also pay 2 percent for mortgage insurance, along with other fees that can far exceed those in conventional home loans.

Loan amounts often are subject to strict limits, which vary based on location, and many financial planners still are not familiar enough with reverse mortgages to guide their clients.

But in an era when legions of older homeowners are sitting on vast amounts of untapped equity, reverse mortgages seem to be catching on.

Competition has started to push down costs, and lenders are beginning to offer loans on unlimited amounts, a noteworthy shift in an industry that has mostly relied on federally insured mortgages with strict caps.

In recent months, Countrywide Financial Corp., Bank of America Corp. and BNY Mortgage Co. have scaled up their efforts in the growing field.

After years on the sidelines, Wall Street has entered the game, with investment banks for the first time purchasing such loans in a secondary market, which may further stir innovation and encourage more lenders to offer reverse mortgages.

At the current rate, lenders could sell more than 100,000 reverse mortgages this year, more than double the number from 2005.

"The significant thing in the last several months is that the big boys are coming in," said Bart Johnson, president of Irvine, Calif.-based Financial Freedom Senior Funding Corp., a leading provider of reverse mortgages. "The last six months to a year have been incredible."

Housing and Urban Development Secretary Alphonso Jackson recently described reverse mortgages as "the bright spot in today's housing market," adding that "their significance will only increase as more baby boomers reach retirement."

In a conventional mortgage, the lender lends you money to buy a house, and you gradually pay down the debt and build up equity as you make monthly payments.

In a reverse mortgage, the lender gives you the money - as a lump sum, in monthly installments or as a line of credit - and takes your home equity as payment.

Typically, reverse mortgages don't have to be paid back until you sell your home, move or die. People must be at least 62 to qualify for a reverse mortgage.

As with all loans, reverse mortgages have fees and charge interest. For example, a 78-year-old borrower whose home is worth $200,000 might end up with a reverse mortgage of $123,000, based on his age, interest rate levels and other factors.

In this case, the borrower might pay about $13,000 in upfront fees, including a $4,000 loan origination fee, $4,000 in mortgage insurance and a $4,000 "set-aside" to cover servicing costs for the life of the loan, according to Fannie Mae, the federally chartered lender.

Based on recent interest rates, such a loan might come with an adjustable interest rate of about 6 percent, with interest charges compounding during the life of the mortgage.

Given that, homeowners should carefully weigh their options, experts say.



Home-equity loans can be a cheaper way to come up with cash for people willing and able to make payments in retirement.

Selling the house and downsizing to a cheaper dwelling is another alternative, depending on the borrower's priorities.

If the goal is simply home repair, seniors should explore whether their communities have low-cost loans available for that purpose, said John Rother, director of policy and strategy for AARP.

"It's good to have the option," Rother said of reverse mortgages. "But it's not an option appropriate for everyone."

But for people who are long on home equity and short on cash, the reverse mortgage offers a key advantage: Borrowers don't have to pay back the loan as long as they stay in the house.

Indeed, a reverse mortgage may be the only way that some people can afford to stay in their own home.

"People who are using them, by and large, have a huge degree of satisfaction," said Peter Bell, president of the National Reverse Mortgage Lenders Association, whose membership has more than doubled during the past few years, to 540 firms.

"For a senior with a fixed income, taking on a loan with monthly payments doesn't make a lot of sense."

Most reverse mortgages are insured by the Federal Housing Administration, but loans insured by the agency are capped at $362,790 in higher-cost regions, such as southern California. In lower-cost areas, the cap is as low as $200,160.

In some cases, older borrowers seek reverse mortgages to gird for future medical bills.

Malcolm Greenhill, a financial planner in San Francisco, recalled a 72-year-old client with emphysema who feared that his health would decline further, but lacked the income to pay for in-home care. The man's home was worth $1.2 million.

"I put his mind at rest and said there's a way here that you can tap into your equity," Greenhill said. "A reverse mortgage would be a good option for somebody like that."

Increasingly, big lenders are stepping up efforts to market the loans and starting to offer some breaks in their cost.

They are motivated, in part, by the high level of home ownership among older people.

And they are aware that aging baby boomers will be making big-ticket retirement decisions in the coming years.

As some see it, reverse mortgages are destined to become increasingly popular as the more than 75 million baby boomers head into old age.

Boomers may prove much more comfortable with accepting debt in old age than today's seniors.

Beyond that, many could face financial hardship because of a squeeze on pension benefits and increases in health care costs.

"In the future we'll see new vehicles, new pricing, new ways of pulling out just the amount of money that you need," said Michael Boone, a financial planner in Bellevue, Wash.

"I fully expect a reverse mortgage to be as normal as a 30-year fixed."

By ; JONATHAN PETERSON

Via : www.courant.com

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Reverse mortgage taps home equity

The loan doesn't have to be repaid until retiree sells the house, moves or dies.

Like millions of Americans, Bill and Helen Bluett's greatest financial asset is their home, a Spanish-style dwelling just a quarter of a mile from the ocean in San Clemente, Calif.

Selling the place and buying a cheaper one elsewhere could have brought the couple hundreds of thousands of dollars in extra money for their retirement years. But there was one problem with that idea.

''We love our home,'' said Bill Bluett, 67, a retired mechanical engineer. ''We love our neighborhood. As long as we're physically able, we want to stay right where we are.''

So this year, the Bluetts signed up for a reverse mortgage, a type of loan that allows older borrowers to tap their home equity without making payments as long as they live in the house.

With the money, the Bluetts are more than able to take on projects like remodeling the kitchen and bathrooms. More important, Bill Bluett said, the reverse mortgage makes them financially prepared for ''any emergency, whether it's medical or whatever, that might come up'' in the years ahead.

''My wife and I decided it would give us a lot of peace of mind,'' he explained.

Reverse mortgages have been criticized for high upfront costs. Lenders may charge 2 percent of the loan amount in origination fees, and most borrowers also pay 2 percent for mortgage insurance, along with other fees that can far exceed those in conventional home loans.

Loan amounts often are subject to strict limits, which vary based on location, and many financial planners still are not familiar enough with reverse mortgages to guide their clients.

But in an era when legions of older homeowners are sitting on vast amounts of untapped equity, reverse mortgages seem to be catching on. Competition has started to push down costs, and lenders are beginning to offer loans on unlimited amounts, a noteworthy shift in an industry that has mostly relied on federally insured mortgages with strict caps.

In recent months, Countrywide Financial Corp., Bank of America Corp. and BNY Mortgage Co. have scaled up their efforts in the growing field.

After years on the sidelines, Wall Street has entered the game, with investment banks for the first time purchasing such loans in a secondary market, which may further stir innovation and encourage more lenders to offer reverse mortgages. At the current rate, lenders could sell more than 100,000 reverse mortgages this year, more than double the number from 2005.

''The significant thing in the last several months is that the big boys are coming in,'' said Bart Johnson, president of Irvine, Calif.-based Financial Freedom Senior Funding Corp., a leading provider of reverse mortgages. ''The last six months to a year have been incredible.''

Housing and Urban Development Secretary Alphonso Jackson recently described reverse mortgages as ''the bright spot in today's housing market,'' adding that ''their significance will only increase as more baby boomers reach retirement.''

In a conventional mortgage, the lender lends you money to buy a house, and you gradually pay down the debt and build up equity as you make monthly payments.

In a reverse mortgage, the lender gives you the money -- as a lump sum, in monthly installments or as a line of credit -- and takes your home equity as payment.

Typically, reverse mortgages don't have to be paid back until you sell your home, move or die. People must be at least 62 to qualify for a reverse mortgage.

As with all loans, reverse mortgages have fees and charge interest. For example, a 78-year-old borrower whose home is worth $200,000 might end up with a reverse mortgage of $123,000, based on his age, interest rate levels and other factors. In this case, the borrower might pay about $13,000 in upfront fees, including a $4,000 loan origination fee, $4,000 in mortgage insurance and a $4,000 ''set-aside'' to cover servicing costs for the life of the loan, according to Fannie Mae, the federally chartered lender.

Based on recent interest rates, such a loan might come with an adjustable interest rate of about 6 percent, with interest charges compounding during the life of the mortgage.

Given that, homeowners should carefully weigh their options, experts say.

Home-equity loans can be a cheaper way to come up with cash for people willing and able to make payments in retirement.

Selling the house and downsizing to a cheaper dwelling is another alternative, depending on the borrower's priorities.

If the goal is simply home repair, seniors should explore whether their communities have low-cost loans available for that purpose, said John Rother, director of policy and strategy for AARP.

''It's good to have the option,'' Rother said of reverse mortgages. ''But it's not an option appropriate for everyone.''



But for people who are long on home equity and short on cash, the reverse mortgage offers a key advantage: Borrowers don't have to pay back the loan as long as they stay in the house. Indeed, a reverse mortgage might be the only way that some people can afford to stay in their own home.

''People who are using them, by and large, have a huge degree of satisfaction,'' said Peter Bell, president of the National Reverse Mortgage Lenders Association, whose membership has more than doubled over the last few years, to 540 firms. ''For a senior with a fixed income, taking on a loan with monthly payments doesn't make a lot of sense.''

Most reverse mortgages are insured by the Federal Housing Administration, but loans insured by the agency are capped at $362,790 in higher-cost regions. For the Allentown-Bethlehem-Easton metropolitan area, including Carbon County, the limit is $305,666. For Bucks and Montgomery counties, which are included in the Philadelphia region, the limit is lower: $292,685.

In some cases, older borrowers seek reverse mortgages to gird for future medical bills. Malcolm Greenhill, a financial planner in San Francisco, recalled a 72-year-old client with emphysema who feared his health would decline further but lacked the income to pay for in-home care. The man's home was worth $1.2 million.

''I put his mind at rest and said there's a way here that you can tap into your equity,'' Greenhill said. ''A reverse mortgage would be a good option for somebody like that.''

Increasingly, big lenders are stepping up efforts to market the loans and starting to offer some breaks in their cost. They are motivated, in part, by the high level of homeownership among older people. And they are aware that aging baby boomers will be making big-ticket retirement decisions in the coming years.

As some see it, reverse mortgages are destined to become increasingly popular as the more than 75 million baby boomers head into old age. Boomers may prove much more comfortable with accepting debt in old age than today's seniors. Beyond that, many could face financial hardship because of a squeeze on pension benefits and increases in health-care costs.

''In the future we'll see new vehicles, new pricing, new ways of pulling out just the amount of money that you need,'' said Michael Boone, a financial planner in Bellevue, Wash. ''I fully expect a reverse mortgage to be as normal as a 30-year fixed.''

Jonathan Peterson is a staff reporter for the Los Angeles Times, a Tribune Publishing newspaper.
 
By ; Jonathan Peterson

Via :  www.mcall.com

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Where to invest if your home equity evaporates

If you can't depend on your home equity increasing during a U.S. housing downturn, where do you turn for growth?

U.S. bonds offer cold comfort. With ultra-safe six-month Treasury Bills yielding as much as 5 percent, your real return is paltry after inflation and taxes.

What about U.S. stocks? The specter of a housing recession, consumer slowdown and more ugly surprises in the subprime mortgage market weighs heavily on Wall Street now. That leaves a compelling investment typically neglected by most investors: non-U.S. stocks with high dividends.

Since the U.S. home market may get blistered further by a general economic decline, more houses coming on the market or bond yields surging, you will need to find growth elsewhere. If you haven't considered how the global economy is propelling emerging markets, it's time to take a hard look.

China and India, of course, grab the headlines with gross domestic product growing at 11 percent and 9 percent, respectively.

Then there's Argentina, at 8 percent and Taiwan at 4 percent. Even at 4.3 percent, Brazil's economy is accelerating twice as fast as the U.S. with a healthy 2.25 percent budget surplus to boot.

Before the case is made for cash-rich companies overseas, there needs to be an honest accounting of the state of the U.S. residential real-estate market.

Unsustainable debt


Massive equity deflation may be taking place. Fueled by cheap mortgage money, low lending standards and the willingness of Americans to plunge ever deeper into unsustainable debt, the housing market was due to hit the brakes.

Banks and brokers lent with abandon, including to millions who were one interest-rate increase away from foreclosure in subprime mortgages.

As Peter Schiff, an investment adviser and president of Euro Pacific Capital Inc., in Darien, Conn., says: "Wall Street may be able to buy some time by bailing out troubled hedge funds to keep their worthless subprime mortgage investments off the market, but no such safety nets exist for strapped consumers looking down the barrel of resetting adjustable rate mortgages."

"Inventories will continue to balloon," adds Schiff, "until reluctant homeowners come to their senses and slash prices."

When supplies exceed demand in a time of rising rates, it could be years before the housing market grows again.

State of housing


Home prices in 20 metropolitan areas fell 2.1 percent in the year ended in April, the largest year-over-year decline since record-keeping began in 2001, according to S&P/Case- Shiller. New-home sales dropped 1.6 percent in May and were down 16 percent from the same time last year. The supply of unsold homes reached a record 7.1 months of inventory.

While home financing is still relatively cheap by historical standards, it has climbed over the past year. The average 30-year loan rate was 6.6 percent through July 5, according to Freddie Mac, the quasi-public mortgage company.

If you were fortunate to lock in a mortgage in June 2003, you could have received a 5.2 percent, 30-year fixed-rate loan, the lowest rate in a generation. As recently as June 2005, a five-year adjustable mortgage averaged about 5 percent.

In addition to the higher rates, Americans took cash out of their house from sales, home-equity loans or refinancing. From 1991 to 2005, property owners extracted about $530 billion annually, spending about $66 billion a year on personal expenditures, according to a Federal Reserve study. Millions who were banking on endless appreciation are now finding they are deeper in debt, with little equity.

Looking abroad


What if your home equity doesn't grow through market appreciation? Wouldn't that damage nest eggs for those whose largest source of wealth is the value of their house?

Diversifying away from the U.S. home, stock and bond markets is a reasonable alternative to build wealth.

With non-U.S. stocks, you can also profit from the falling value of the dollar relative to other currencies.

Companies that pay consistent dividends in growing economies are worth considering. Dividends are earnings that are paid back to shareholders and are bonuses only from the healthiest, established corporations.

The Alpine Global Dynamic Dividend Fund invests 80 percent of its assets in companies that pay dividends. This year, the new closed-end fund has beaten the Standard & Poor's 500 Index by about 11 percentage points through July 5, with a 12 percent return.

No guarantees


A more established choice is the Fidelity International Discovery Fund, which focuses on non-U.S. stocks that pay dividends and show potential for capital appreciation. The fund, which is part of my 401(k), was up 14 percent through July 5.

None of these returns is guaranteed and you need to understand they carry additional currency and market risk. They should be long-term holdings.

Who would have thought that building home equity in the U.S. was risky?

Yet millions believed that their domicile's nest egg was assured and provided a firm foundation for retirement. It's still likely that in many markets, you won't lose much, if any, home equity, provided the current downturn isn't prolonged or severe.

The best strategy is to ensure you are getting growth from somewhere. For that, you may have to look far from home.

By ; Asbury Park

Via : www.app.com

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Reverse mortgage is not for everyone

Brenda and Bob: We are seeing a lot of advertisements for reverse mortgages. We own our house outright and are in our late 70s. What is your opinion of these products?

Elaine: Let's talk about these products and who qualifies for them, then discuss the benefits and things to consider when deciding on them.

A reverse mortgage is a home loan for senior homeowners who have substantial equity in their homes. (The minimum amount varies among lenders, but many will not consider loans of less than $60,000). The lender loans you money based on the value of your home, the amount of equity you have in your home and your age at the time of the application. The lender pays you in one of three ways: a lump sum, in monthly installment payments or as a line of credit. This loan differs from a home equity loan or second mortgage because you do not repay the loan unless you sell your home, move out permanently or die.

Most seniors take these loans with the intention of being paid until their deaths. This may be what you are thinking about. But if your circumstances change and for some reason you sell your home, you will need to repay the loan. The amount will be more than you borrowed because you did not make any payments.

You seem to meet the required criteria for a reverse mortgage. The borrowers must be over 62, which you are. And your mortgage must be completely or nearly paid off, which you stated yours is. Because there is no income criterion, this is not something we need to address.

Here are the questions you should ask before you apply for a reverse mortgage.

How much will the fees be for the reverse mortgage, and what part of these will I need to pay in cash? Be sure you know the complete amount in fees you will be charged for the loan. Ask for all of this in writing. You can get "good faith estimates" from several lenders. You are not obligated to use any of them, if you change your mind.

How much money will I receive monthly or in a lump sum from the loan? Again, get this in writing from several lenders. Just like anything else, do some comparison shopping. This is a big decision, so take your time making it.

There are a few things to remember when considering a reverse mortgage. You will retain the title to your home. This means you are still responsible for the property taxes, insurance and general upkeep of the property. These expenses will not go away and mostly probably will increase annually with inflation. If the expense of maintaining a home has been difficult in the past, the funds generated by a reverse mortgage may not solve this problem. You may need to consider other options.

A reverse mortgage may affect your continued eligibility in need-based government programs such as Supplemental Social Security (SSI) and Medicaid, especially if you take the payout as a lump sum. Make sure you understand the implications these funds could have on your eligibility to these programs before you agree to take this type of loan. If you take the payout in monthly amounts, you may have to spend the funds within the month you receive them so they are not considered "income," which also may negatively impact your eligibility.

As with any important document, do not sign anything you do not understand. And never sign a loan application with blank spaces.

With a federally insured "Home Equity Conversion Mortgage" (HECM) you will probably receive the most funds. Let's assume you have $200,000 in equity in your home. As a lump sum you will receive about $110,831. Or you may receive a credit line of $110,831 that may grow by 7.17 percent each year (worth about $221,409 in 10 years if untouched). Or you can take monthly payments of $774 for as long as you live in your home. Or you take a combination of all three of these.

Check with your accountant and your family members to see if a reverse mortgage is the best option for you.

Have a question for Elaine? Write her at Elainezimm@aol.com

By ; Elaine Zimmermann

Via :  www.commercialappeal.com

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Lenders eye baby boomers in reverse

Baby boomers in their 50s and 60s who took out low-rate mortgages during the 2002-05 refinancing boom now hold home loans that many won’t pay off for another quarter-century.

Tens of thousands of these people will still be paying monthly mortgage bills in their 70s or 80s - unless they take advantage of new loan products now entering the marketplace.

Bank of America and other lenders will soon offer souped-up “reverse” mortgages to help people pay off existing loans, pull out equity, establish credit lines or even buy second homes.

Reverse mortgages are special home loans in which the bank generally sends you a check each

month instead of the other way around (hence the name “reverse.”)

Offered to those age 62 or older, reverse mortgages give you either a monthly payout or a one-time lump sum of cash.

You (or your heirs) don’t have to pay this money back until you either move or die and the house is sold. At that point, the lender gets the loan’s principal back - plus fees and deferred interest - out of the sale’s proceeds.

The most popular reverse mortgage around is the “Home Equity Conversion Mortgage,” which is insured by the Federal Housing Administration.

Last year, banks wrote some 72,000 such loans - a 49 percent increase from 2005.

But HECMs have one drawback: Loans by law can’t exceed $363,000.

That’s too low to cover even median-priced homes in high-cost housing markets like the Northeast or West Coast.

Congress is currently weighing a proposal to raise the FHA’s loan limits.

But in the meantime, banks are filling the void by rolling out new “jumbo” and “super-jumbo” reverse mortgages.

Recently, Countrywide unveiled its “Simple Equity” program in 46 states, offering reverse mortgages with no set limit on how much money you can borrow.

BofA plans to soon roll out a similar product: the “Senior Equity Maximizer” jumbo reverse mortgage.

Under this program, BofA will write reverse mortgages for as much as $10 million, depending on factors like your age and how much equity you have in your home. Borrowers can get either lump-sum payouts, monthly checks or lines of credit to draw on as needed.

However, these programs have significant costs to consumers.

For openers, reverse mortgages charge higher interest rates than traditional home loans do.

Reverse mortgages also usually include substantial origination and insurance fees - typically 4 percent on HECM loans. (Countrywide and BofA say they plan to charge much less.)

Reverse loans are also inherently complicated for estate planning.

As such, I suggest pre-application counseling for any homeowner interested in these programs.

Harney is a nationally syndicated real estate columnist.

By ; Kenneth R. Harney/ The Nation’s Housing

Via : business.bostonherald.com

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S&P Warns on Subprime-Backed Issues

On July 10, Standard & Poor's Ratings Services placed its credit ratings on 612 classes of residential mortgage-backed securities [RMBS] backed by U.S. subprime collateral on CreditWatch with negative implications. The affected classes total approximately $12.078 billion in rated securities, which represents 2.13% of the $565.3 billion in U.S. RMBS rated by Standard & Poor's between the fourth quarter of 2005 and the fourth quarter of 2006. A list of the issuers of the RMBS securities in question appears at the end of this article.

Beginning in the next few days, we expect that the majority of the ratings on the classes that have been placed on CreditWatch negative will be downgraded. We will lower our rating:

-- To CCC on any class that does not pass our stress test scenario [a class is expected to experience a principal write-down or, with respect to the senior classes, a principal shortfall] within 12 months, regardless of its current rating;

-- To B on any class that does not pass our stress test scenario within 13 to 24 months;

-- To BB on any class that does not pass our stress test scenario within 25 to 30 months; and

-- To BBB on any class that does not pass our stress test scenario within 31 to 36 months.

The CreditWatch actions are being taken at this time because of poor collateral performance, our expectation of increasing losses on the underlying collateral pools, the consequent reduction of credit support, and changes that will be implemented with respect to the methodology for rating new transactions. Many of the classes issued in late 2005 and much of 2006 now have sufficient seasoning to evidence delinquency, default, and loss trend lines that are indicative of weak, future credit performance. The levels of loss continue to exceed historical precedents and our initial expectations.

No Signs of Abating We are also conducting a review of collateralized-debt obligations [CDO] ratings where the underlying portfolio contains any of the affected securities subject to these rating actions.

We have been watching these transactions on a regular basis and have been monitoring market trends. At this time, we do not foresee the poor performance abating. Loss rates, which are being fueled by shifting patterns in loss behavior and further evidence of lower underwriting standards and misrepresentations in the mortgage market, remain in excess of historical precedents and our initial assumptions.

New data reveal that delinquencies and foreclosures continue to accumulate at an increasing rate for the 2006 vintage. We see poor performance of loans, early payment defaults, and increasing levels of delinquencies and losses.

Total aggregate losses on all subprime transactions issued since the fourth quarter of 2005 is 29 basis points, compared to seven basis points for similar transactions issued in 2000. Transactions from the 2000 vintage are used as a comparison because they were, until now, the worst performing vintage of this decade. When recent transactions with the same seasoning are compared on a quarterly basis with similar transactions issued in 2000, we find that both mean losses and standard deviations are running in excess of the 2000 book for the fourth quarter of 2005 through the fourth quarter of 2006.

Weakness in Property Market Seriously delinquent loans [90 days-plus, foreclosure, and real estate-owned] on average also exceed the 2000 book of business for each quarterly comparison except for the fourth quarter of 2005.

On a macroeconomic level, we expect that the U.S. housing market, especially the subprime sector, will continue to decline before it improves, and home prices will continue to come under stress. Weakness in the property markets continues to exacerbate losses, with little prospect for improvement in the near term. Furthermore, we expect losses will continue to increase, as borrowers experience rising loan payments due to the resetting terms of their adjustable-rate loans and principal amortization that occurs after the interest-only period ends for both adjustable-rate and fixed-rate loans.

Although property values have decreased slightly, additional declines are expected. David Wyss, Standard & Poor's chief economist, projects that property values will decline 8% on average between 2006 and 2008, and will bottom out in the first quarter of 2008.

Fewer Refinance Options While our LEVELS model assumes property value declines of 22% for the 'BBB' and lower rating-category stress environments [with higher property value declines for higher rating-category stress environments], the continued decline in prices will apply additional stress to these transactions by increasing losses on the sale of foreclosed properties, as well as removing or reducing the borrowers' ability to refinance or sell their homes to meet debt obligations.

As lenders have tightened underwriting guidelines, fewer refinance options may be available to these borrowers, especially if their loan-to-value [LTV] and combined LTV [CLTV] ratios have risen in the wake of declining home prices.

The Mortgage Asset Research Institute [MARI] reports that alleged misrepresentations on credit reports were up significantly as a percentage of total submissions received in 2006. MARI, which was recently commissioned by the Mortgage Bankers Assn. [MBA] to conduct a mortgage fraud study, reported that the current findings of fraud were in excess of previous industry highs. Data quality concerning some of the borrower and loan characteristics provided during the rating process has also come under question. Therefore, key risk variables that have historically influenced default patterns, such as the borrowers credit score under the widely used FICO scoring system, LTV, and ownership status, are proving less predictive.

Quality of Data in Question It is expected that the ongoing weakness in both national and regional property markets will exacerbate losses with little prospect for improvement in the near term. Also many of these transactions will likely encounter additional credit stress from upcoming interest rate and payment resets.

Data quality is fundamental to our rating analysis. The loan performance associated with the data to date has been anomalous in a way that calls into question the accuracy of some of the initial data provided to us regarding the loan and borrower characteristics. Reports of alleged underwriting fraud tend to grow over time, as suspected fraud incidents are detected upon investigation following a loan default.

In addition, we have modified our approach to reviewing the ratings on senior classes in a transaction in which subordinate classes have been downgraded. Historically, our practice has been to maintain a rating on any class that has passed our stress assumptions and has had at least the same level of outstanding credit enhancement as it had at issuance. In the future there will be a higher degree of correlation between the rating actions on classes located sequentially in the capital structure. A class will have to demonstrate a higher level of relative protection to maintain its rating when the class immediately subordinate to it is being downgraded.

Increasing Review For transactions that close on or after July 10, 2007, we will incorporate several changes to our ratings methodology that will result in greater levels of credit protection for rated transactions. Our cash flow methodology assumptions will include a simultaneous combination of faster voluntary and involuntary [default] prepayments.

Given the level of loosened underwriting at the time of loan origination, misrepresentation, and speculative borrower behavior reported for the 2006 vintage, we will be increasing our review of the capabilities of lenders to minimize the potential and incidence of misrepresentation in their loan production. A lender's fraud-detection capabilities will be a key area of focus for us.

Issuers of the RMBS in question include:

Aames Mortgage Investment TrustABFC TrustACE Securities Corp. Home Equity Loan TrustAegis Asset Backed Securities TrustArgent Securities TrustAsset Backed Securities Corporation Home Equity Loan TrustBear Sterns Asset Backed Securities I TrustBravo Mortgage Asset TrustCarrington Mortgage Loan TrustCitigroup Mortgage Loan TrustCWABS Asset-Backed Certificates TrustEncore Credit Receivables TrustFBR Securitization TrustFieldstone Mortgage Investment TrustFirst Franklin Mortgage Loan TrustFremont Home Loan TrustGE-WMC Mortgage Securities TrustGSAA Home Equity TrustGSAMP TrustHome Equity Asset TrustHome Equity Mortgage Loan Asset-Backed TrustHSI Asset Securitization Corp. TrustIndyMac INDB Mortgage Loan TrustIXIS Real Estate Capital TrustJ.P. Morgan Mortgage Acquisition TrustLehman XS TrustLong Beach Mortgage Loan TrustLuminent Mortgage TrustMASTR Asset Backed Securities TrustMerrill Lynch Mortgage Investors TrustMorgan Stanley Capital I Inc. TrustMorgan Stanley ABS Capital I Inc. TrustMorgan Stanley Home Equity Loan TrustMorgan Stanley IXIS Real Estate Capital TrustNew Century Home Equity Loan TrustNomura Home Equity Loan Inc.NovaStar Mortgage Funding TrustOption One Mortgage Loan TrustOwnit Mortgage Loan TrustPopular ABS Mortgage Pass-Through TrustRAMP TrustRASC TrustSecuritized Asset Backed Receivables LLC TrustSG Mortgage Securities TrustSoundview Home Equity Loan TrustSoundview Home Loan TrustSpecialty Underwriting and Residential Finance TrustStructured Asset Investment Loan TrustStructured Asset Securities Corporation Mortgage Loan TrustStructured Asset Securities Corporation TrustTerwin Mortgage Trust

Source: Business Week

Via : www.builderonline.com

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Opposition: Extend home loan scheme

The Opposition wants the State Government to extend its First Start home loan scheme for low income earners.

The scheme announced in February offered a shared equity home loan to 3,000 West Australian families over three years to help them build their own home.

The Opposition's Treasury spokesman, Troy Buswell, says in the three months to May 3,865 people had applied for the loan.

He says the figures show the scheme is popular and the government must extend it.

"It's a serious issue for the government. How are they going to determine who gets access to the grants and who doesn't and are they going to extend the scheme or bring forward monies into this year that may have been spent in other budgets?," he said.

"I mean the housing affordability crisis is one of the single most important factors facing the long term future of this state."

"It would appear from the massive early response that if they don't do that they're going to be turning away first homebuyers. How do you say to a young West Australian look put your aspirations on hold for a year, come back next year and you may be lucky enough to win the lottery and win a handout from the government? That approach is not fair."
 
Via :  abc.net.au

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Financing options for aging baby boomers

WASHINGTON - How are baby boomers who are still carrying hefty first and second mortgages going to pay them off?

Millions of homeowners refinanced during the "refi boom" years of 2003-04 and took out new loans with 15-year or 30-year terms. Some boomers now in their late 50s and early 60s have big mortgages with terms running for another quarter-century.

When monthly payments on those mortgages begin to weigh heavily, will boomers need to sell their houses to relieve the debt pressure? The largest banks and mortgage companies in the country are readying creative new financial products designed to make the answer to that question a resounding no!

Tops on the list: Proprietary reverse mortgages that allow owners to pay off their existing home loans, pull out additional equity dollars for other expenses, establish credit lines or even buy second homes - all without producing monthly payment obligations.

In a pilot program in Arizona on its "Senior Equity Maximizer" jumbo reverse mortgage, Bank of America found that "the No. 1 usage" of funds was to retire existing first mortgages, according to Colin McCormick, the bank's reverse-mortgage product executive.

The "maximizer" allows reverse mortgages to go as high as $10 million, depending on available equity in the home, the borrowers' ages, and current interest rates. McCormick says the program is scheduled for a phased nationwide rollout later this year, probably beginning

in California and Florida.

Like other reverse mortgages, Bank of America's program is available solely for homeowners 62 or older, and permits them to receive lump-sum cash payments, monthly checks and credit-line drawdowns. No monthly payments to the bank are necessary during the lifetimes of the borrowers, as long as they remain in their houses. At their death or sale of the property, the accumulated balances paid out over time, plus interest and fees, become due and payable to the lender.

By far the most popular reverse loan product is the "Home Equity Conversion Mortgage" insured by the Federal Housing Administration. FHA's program is booming - total loans closed in the last year alone jumped by 49 percent to just under 72,000.

However, the FHA program has a major drawback for seniors who live in high-cost markets: FHA's congressionally mandated loan limits, which top out just under $363,000, are too low to handle even median-priced homes. That problem would be remedied in part by pending legislation increasing FHA's limits, but it would still not reach equity-rich homeowners in dozens of areas.

All of which leaves the door wide open to financial giants such as Bank of America and Countrywide Financial to offer new breeds of jumbo and super-jumbo reverse mortgages. Countrywide's proprietary "Simple Equity" program, launched earlier this year, is available to borrowers in 46 states, according to Steve Boland, the firm's managing director of reverse mortgages.

The program has no set dollar limit, and offers multiple options to tap home equity. Say you want to pay off your first mortgage but also take out some extra cash for travel or investment. On top of that, you'd like some monthly cash to supplement your retirement income.

Here's an example prepared by Countrywide for the owners of a home in Ventura, worth $1.5 million that has a $220,000 first mortgage. The borrowers could pay off the $220,000 balance immediately - ending their monthly principal and interest payment burdens - then take out another $100,000 in cash, create a 10-year monthly income supplement of $4,057, and still have hundreds of thousands of dollars in equity to use later if they choose - all without selling the house.

Bank of America's McCormick says that one intriguing option for seniors is to pay off their existing mortgage debt by converting it to a reverse mortgage, then pull out additional money to acquire a second or seasonal home for cash. To illustrate, say the owners of a $1 million house in the Northeast have a $250,000 first mortgage. They could pay it off with the first draw on a jumbo reverse mortgage, then take another $250,000 to make a 50 percent down payment on a house in Florida. They could then do a Bank of America reverse mortgage on the Florida home, transferring all debt obligations to some time in the future.

There are costs to all this - they're just not collected upfront or monthly. Interest rates on reverse mortgages are higher than on traditional "forward" mortgages. Lender origination and mortgage insurance fees can be substantial - 4 percent typically on FHA loans - but both Countrywide and Bank of America say their fees are much lower in relative terms.

Reverse mortgages are also inherently complicated for estate planning. That's why pre-application counseling is a must for most homeowners interested in participating.

Kenneth R. Harney is a nationally syndicated real estate columnist based in Washington, D.C. You can e-mail him at kenharney@earthlink.net.

BY ; Kenneth Harney

Via : www.mercurynews.com

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