Reverse mortgages help seniors stay afloat

Avoid depleting your savings when home prices fall

Jeff Taylor, the former longtime leader of Wells Fargo’s reverse mortgage division, had a stock answer when applicants declined a reverse mortgage because they felt the rates and fees were simply too high. Taylor had done the research for his own mother and decided the reverse mortgage was the best strategy to keep his mother comfortable in her later years.

“Too high compared to what?” Taylor would say. “Selling your home, paying the closing costs, and then attempting to find another acceptable place? Have you ever tried to find a senior an acceptable place — especially if that person is a member of your family? If you did, good luck on being able to afford it.”

I thought about that answer the other day when a recent AARP study (the group formerly known as the American Association of Retired Persons) revealed that 31.6 percent of seniors have experienced a substantial decline in their homes’ values in the past three years, and a fourth have exhausted their personal savings.

Among the findings in “Recovering from the Great Recession: Long Struggle Ahead for Older Americans” was that 66.6 percent of the 5,027 respondents at or approaching retirement age have had to tap into their retirement savings accounts during the past three years. A quarter of those polled had exhausted their personal savings, making them even less prepared for retirement.

If those older borrowers had taken out a reverse mortgage three years ago, chances are they would not have exhausted their personal savings or tapped as much into their retirement accounts. They could have had a lump sum reverse mortgage, a monthly draw, a line of credit, or any combination of those, yet have made no payments.

A reverse mortgage historically has enabled senior homeowners to convert part of the equity in their homes into tax-free funds without having to sell the home, give up title, or take on a new monthly mortgage payment. Reverse mortgages are available to individuals 62 or older who own their home.

The maximum amount of funds received is based on age, current interest rates and a current home appraisal. Funds obtained from the reverse mortgage are considered tax-free.

The biggest lift to reverse mortgage credibility came in 1989 when the Federal Housing Administration agreed to insure the Home Equity Conversion Mortgage (HECM), which not only allowed owners over 62 to stay in their homes for as long as they wished, but it also protected the owner in the event the lender went out of business.

HECMs now account for nearly every reverse mortgage written today. Last year, AARP reported that approximately 93 percent of applicants were satisfied with the process.

The Housing and Economic Recovery Act of 2008 approved the HECM for Purchase program, allowing older homeowners to make a large down payment on a new home and then utilize the reverse mortgage as permanent financing.

The same law reduced the maximum loan fee on reverse mortgages to 2 percent on the initial $200,000 of the home’s value and 1 percent on the balance thereafter, with a cap of $6,000. Previously, HECM fees were capped at 2 percent of the home’s value or the county lending limit, whichever was lower.

Look at the cost of obtaining a reverse mortgage this way: Let’s assume the three-year decline in home values cited by the AARP report is lost — whether with a reverse mortgage or not. However, without the reverse mortgage, also lost are all/some of the owner’s savings and retirement funds. What also needs to be considered is the loss of any increase in the share price of stocks and bonds and interest paid on retirement funds.

For those who depleted savings, had the reverse mortgage been completed three years ago, only the loss in home value, amount spent and interest would be gone. Little, if any, other assets would have been touched.

The homeowner can never owe more on the reverse mortgage than the value of the home. If the home continues to go down, and/or the senior spends more than the home is worth, the senior will never have to come out of pocket to repay the lender.

Never owing more than the value of the home is one of the reverse mortgage’s “four nevers.” The three others are: payments are never required; the use of funds are never restricted; and the lender never takes title to the property.

Most seniors want to age in place, staying in the home they have now. How do you put a price tag on the anxiety of leaving their longtime home and the fear of finding a new one that meets their needs and expectations? Reverse mortgage funds can help them stay put and close to their friends, church and familiar environment.

Tom Kelly’s book “Cashing In on a Second Home in Central America: How to Buy, Rent and Profit in the World’s Bargain Zone” was written with Mitch Creekmore,  senior vice president of Stewart International, and Jeff Hornberger, the National Association of Realtors’ international market development manager. The book is available in retail stores, on Amazon.com and on tomkelly.com.

Avoid credit dings when mortgage shopping

How to steer clear of ‘borrower in distress’ label

Borrowers in distress often contact many lenders hoping to find one who will approve them. For this reason, multiple inquiries can have a negative impact on a consumer’s credit score. But multiple inquiries can also result from loan applicants shopping for the best deal. The challenge to the scoring system is to distinguish borrowers in shopping mode from borrowers in distress mode.

Hard inquiries vs. soft inquiries

Consumers need not be concerned about inquiries they make, such as ordering a credit report. Self inquiries don’t affect the credit score. Neither do inquiries from your existing creditors, potential employers, or businesses considering whether or not to solicit you. These are sometimes called “soft inquiries.”

The inquiries that may affect your credit score are those by new credit grantors to whom you have given your Social Security number along with explicit authorization to check your credit. These are “hard inquiries.”

Distinguishing borrowers in shopping mode from those in distress: The ignore rule

Two credit-scoring rules developed by Fair Isaac Corp., which pioneered the development of credit-scoring models, are designed to protect the scores of borrowers who shop multiple lenders for the best deal. The quotes below are from www.FICO.com.

The “ignore rule” is that “the score ignores mortgage, auto, and student loan inquiries made in the 30 days prior to scoring.”

The 30 days includes the day of the score, which is not evident from the wording. It is a good rule, but borrowers are not warned about other types of credit that are not ignored. A very important one is credit cards. Because I happened to need a new business card while researching this article, I decided to see what impact my card shopping would have on my score.

I had a mortgage lender friend make a credit inquiry to obtain my score, then I shopped two card issuers and had my friend inquire again. My score had dropped 13 points. All credit card inquiries are treated as indicators of distress.

Mortgage borrowers today face the hazard that the 30-day period can expire while their loan is still being processed. If the lender decides to recheck the borrower’s credit, which some do as a standard practice, the mortgage inquiries that had previously been ignored will then hit the score.

Distinguishing borrowers in shopping mode from those in distress: The consolidation rule

The “consolidation rule” is that “the score looks on your credit report for mortgage, auto, and student loan inquiries older than 30 days. If it finds some, it counts those inquiries that fall in a typical shopping period as just one inquiry when determining your score.”

The consolidation rule is expressed in such a way that most readers interpret it to mean that mortgage, auto and student loans are consolidated together. That is how I read it originally. In fact, what it means is that all mortgage loans are consolidated, all auto loans are consolidated, and all student loans are consolidated. If you shop for one of each type, they constitute three inquiries.

The shopping period during which inquiries are consolidated is 15 days in one version of the scoring model and 45 days in another. Because borrowers don’t know which model is being used by their credit grantor, they should assume the period is 15 days.

But the most serious concern about the consolidation rule is whether the scorers can accurately associate inquiries with the correct loan type, especially in the case of mortgages.

Does consolidation always work?

One of the motivations for this article was a claim made to me by Jack Pritchard, a long-term mortgage veteran, that mortgage inquiries were not always consolidated because the reporting system did not always identify them accurately.

I posed this issue to Fair Isaac Corp. and was told that “the credit reporting system is a voluntary one and … lenders report what they choose to report to the bureaus, and each bureau represents that information a little differently on its credit reports.”

While this reply confirmed that proper identification could be an issue, Fair Isaac claims that their systems work around this problem by giving the borrower the benefit of any doubt. If the system is not sure, it consolidates.

But this leaves open the possibility that the system has no doubt but is wrong. Pritchard pointed to mortgage inquiries from credit unions and finance companies as particularly prone to misclassification because other types of loans are originated out of the same offices. At his suggestion, I asked Fair Isaac what would happen if a mortgage shopper generated an inquiry from a credit union and a finance company?

The reply was that “the credit inquiries would in all likelihood be de-duplicated by the FICO scoring algorithm. Inquiries from both credit unions and finance companies are eligible for de-duplication.” The italics are mine, and clearly suggest that there is no assurance that “de-duplication” (Fair-Isaac-speak for consolidation) will occur.

Bottom line for now

A case can be made that loan inquiries should be added to the list of borrower characteristics, such as sex, race and ethnicity, that, as a matter of public policy, can’t be used in developing credit scores. The information could continue to be compiled and provided to lenders, but could not be used by the credit-scoring algorithm.

Meanwhile, borrowers shopping for credit should minimize the number of hard inquiries by ordering their own score, which does not count as an inquiry, providing that score to all the vendors they shop. You tell them that they can check your credit when you are ready to authorize it. This will reduce the number of hard inquiries to one, from the vendor you finally select. And do not seek new credit cards during the period you are shopping for a loan.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

Aug 01 2011

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Google Launches Experimental Hotel Finder

It seems that Google is re-committing to travel search features. The search giant released an experimental hotel finder that gives advanced hotel search options for U.S. cities.

Details of the Hotel Finder

The Google Hotel Finder differentiates itself from competing tools with four key features:

1. A visual map of the area that highlights the most popular tourist locations and allows you to specify which areas you plan on visiting. Hotels are then found based on proximity to your exact destination.
2. A comparison tool that lets you compare the rates you’re getting to the historical average for the area.
3. The comparison tool compiles rich, detailed information from Google Places, including reviews, images, and key information on the hotel. The tool is also designed to allow you to quickly “flip through” different hotel results.

• Google Hotel Finder has a “shortlist” feature that lets you save the results you like for easy organization and comparison in the future.

This tool is in many ways comparable to other travel search features, both from competing search engines (especially Bing, who has largely monopolized travel search features until recently) and more niche travel sites. The essentially unique feature to be aware of is the visual map.

Using the Hotel Finder for Local Advertising

If you’re trying to promote a hotel, then it should be obvious that this tool is good for you – but how can you take advantage of it? The simple answer is that optimizing for this experimental tool entails the same key components as optimizing for Google Places. By loading the hotel’s Places page with attractive images, soliciting reviews, and providing a full-fledged description on your Places page, you’ve already done much of the necessary work.

It’s also wise to explore the tool itself and see how the venue you’re pitching stacks up, especially when it comes to the “compared to typical” pricing tool. It’s also a great way to “R&R” (research and rip off) the tactics of competing hotels who have already optimized for Places.

[Sources include: the Inside Search blog & Google Hotel Finder]

Written By:

Rob D Young | @RobDYoungWrites

Rob has been insatiably obsessed with Google, search engine technology, and the trends of the web-based world since he began life as a webmaster in 2002. His move into SEO work in 2006, and subsequently to writing for technology and internet-focused publications, has done nothing but fuel this passion.

More Posts By Rob Young

• http://homeremediesmd.com Home Remedies MD

  This is an interesting play for Google, I would like to see how this plays out for them

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  Thank Admin For Google Launches Experimental Hotel Finder Article

• http://www.facebook.com/jims.pat123 Jimi Patel

  Nice interface of Hotel finder. Actually after Google hotpot, it is the best tool specially for accommodation.  As per the google news they are planning for flight search tool with the accommodation search facilities. So they have started with the first step. Though it is limited for US yet but still I must say “Amazing concept”

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New York’s law granting marriage rights to same-sex couples has only been in effect for a week, but advocates on both sides of the issue have wasted no time taking their arguments to court.

Attorney General Eric Schneiderman has filed court papers charging that the federal Defense of Marriage Act (DOMA), which defines marriage as being between a man and a woman, is unconstitutional on a number of fronts, including an “unprecedented intrusion” on the right of states to regulate marriage.

DOMA, passed in 1996, has been under heightened scrutiny since the Obama administration announced in February that it would no longer uphold the part of the law that bars the federal government from recognizing legal same-sex marriages.

According to the General Accounting Office, married same-sex couples do not receive more than 1,100 federal rights extended to straight couples. These include an exemption from estate taxes when a spouse dies, social security and veterans benefits, and the options to file joint federal income tax returns and bankruptcy petitions, among others.

In a brief filed in the case Windsor v United States of America, Schneiderman argued that DOMA violates the Fifth Amendment by failing to provide equal rights to all Americans and the Tenth Amendment by impeding the right of states to regulate marriage.

He also says DOMA blocks New York and other states from extending full equality to same-sex couples.

“Without such equal treatment by the federal government, New York’s statutory commitment to marriage equality for all married couples will be substantially unrealized,” Schneiderman wrote in the brief.

The Windsor case was brought by a New York woman, Edie Windsor, who was hit with a substantial estate tax after her partner of 44 years died in 2009. The women had been married in Canada in 2007. Under federal law, widowed spouses in heterosexual marriages can inherit money and other assets without facing the tax.

Meanwhile, conservative Christian lobbying group New Yorkers for Constitutional Freedoms has filed a lawsuit against the state Senate, essentially alleging that gay marriage supporters thwarted democracy by bending legislative rules and promising big campaign contributions to Republican lawmakers who supported the measure.

“It is unfortunate that state senators chose to protect their personal interests, rather than the people they were elected to represent,” said the head of the group, the Rev. Jason McGuire.

The suit also claims that Gov. Andrew Cuomo should not have issued a “message of necessity” that allowed lawmakers to waive the required three-day waiting period between a bill’s introduction and a vote.

Senate officials are not commenting on the suit, and a spokesman for Cuomo said the charges are “without merit.”

Sen. Greg Ball, a Putnam County Republican who voted against the marriage bill because it did not include enough protections for religious objectors, defended his colleagues.

“This group apparently would have liked to see old Albany rear its ugly head, where a small minority controlled by the extreme and petty interests could have killed democratic action,” Ball said. “Rarely has democracy been as active or alive as it was the day of that vote.”

Way back in 2010, Rob Astorino vetoed the spending plan of the Super Majority. Their accounting gimmicks were seen for what they were, gimmicks. Astorino sent a letter to the Legislators stating that ‘Never in the history of our County has a C.E. or B.O.L. used any funds, surplus or reserve from the current ongoing fiscal year in an attempt to cover the cost of additional spending in budget being adopted for the very next budget year.

Harckham and crew added $32.5 MILLION in spending back into the budget. To cover their expenses they raised our reserves and misrepresented their accounting by increasing the sales tax projection by $2.3 MILLION; added back $2.6 MILLION in nonexistent federal aid; took $5 MILLION from the general fund balance; they deleted $10 MILLION in funds that were set aside to pay for unsettled union contracts; and now they are ‘befuddled’? The Super Majority was warned about using our reserve funds as their private piggy bank to trick the voters.

The rooster has come home to roost. Time to vote them out!

Lisa Douglas
Candidate for Westchester County Board of Legislators
North Salem

If you’re planning on putting your home on the market, determining your asking price is one of the most important decisions you will make. Don’t be fooled into thinking you can start off with a high asking price, and then just cut the price later if you need to. If you want your house to sell quickly, overpricing is not a good strategy.

When you price your home too high, potential buyers will likely ignore the listing. Then, when you eventually drop your price, buyers will see just how long the house has been on the market and they’ll assume you’re a desperate seller (which you may be at this point). It sends the signal that there is room for even more negotiation. And if you price too low, well, no one wants to leave money on the table. So how do you go about determining a fair price?

Local market research

Sellers need to take the time to understand what’s happening in their local market. A recent survey from Zillow found that 17 percent of sellers who bought in 2007 or later were more likely to base their asking price on the price they paid for the home. But what sellers may not realize is that nationwide, home values are back to 2003 levels. So if you’re basing your sale price on what you paid in 2007, that’s likely too high a price. That’s why it’s important to look at what’s happening with home values in your area. Sites like Zillow enable you to search for and find recently sold homes, comparable to your own and check home value trends, foreclosure stats, and price-cut information so you can set your price based on local market conditions.

Check out your competition

When you drive around town, check out the active competition. Are a lot of homes for sale?  At what price point and in what condition? (A real estate mobile app can help you easily obtain this information.) If you find a home similar to yours that has been for sale for a long period of time, it likely means buyers don’t think the home is priced correctly for the market. Once you see the “Sold” sign, find out how much above or below the list price it sold for. This will give you a good idea of how the market is behaving and how aggressive you can be in setting a price

Use your agent

This may seem like a no-brainer. But rather than just listening passively to what your agent recommends, or on the flip side, insisting that you know best, engage in a real conversation about what buyers are looking for in this market and how your home stacks up. Are there improvements you can make so buyers would be willing to pay a higher price? Discuss your timeline to sell and if you should price differently based on that timeline.

Have your home inspected

Yes, buyers will most likely hire a home inspector, but sellers should, too. Hire a licensed inspector to evaluate your home’s major systems (electrical, plumbing, heating, cooling, roof, etc).  Nobody’s home is perfect, yet sellers are often blindsided by demands for costly repairs they didn’t anticipate on systems they have never had issues with.  Often, sellers feel stuck after possibly agreeing on a purchase price of less than they originally asked. Then, once their home is under contract and off the open market for 10-20 days, they are asked to make costly repairs or reduce the price even more.  On the positive side, if systems show up as being in good working order after a pre-inspection, sellers can use this information as a marketing tool.

Reality check

Once you think you’ve come up with a good price, put yourself in the buyer’s shoes and see what else you could get for the asking price of your home.  Often sellers are too emotionally attached to their homes to objectively place a value on the property.  Once you start looking around to see what else is selling for that price, you might have a better idea of how appealing your house is in the current market.