Lately, reverse mortgages have been getting some negative media attention. This is because, as of last year, an estimated 30,000 of these loans have fallen into default. This means that around 5% of borrowers are at risk of losing their homes unless they can get their loans back into good standing. While the number of actual foreclosures is unknown–and likely very small–, this threat is scaring some seniors away from these loans.
Are Seniors Suffering Due to a Lack of Reverse Mortgage Information?
In the past several years, there has been a rise in reverse mortgage defaults. While these loans eliminate seniors’ mortgage payments, borrowers are obligated to keep up with their insurance payments and property taxes. Seniors must also maintain the structural integrity of their home and keep the home from falling into disrepair. However, it is usually taxes and insurance payments that get seniors into the most trouble. If these expenses go unpaid, the Federal Housing Administration (FHA) will label the loan as being in “technical” default. If the loan is not brought out of default, lenders have the right to foreclose on the home and eventually evict the homeowners.
There are two possible reasons for seniors defaulting on their loans. Either they cannot afford to make their insurance and tax payments, or seniors are not getting the reverse mortgage information they need. In many cases, it is probably a combination of the two reasons. Perhaps seniors are accepting loans that they cannot realistically afford to maintain. Either that, or seniors are getting loans without fully understanding the importance of keeping up with their insurance and property taxes. In the haste to get a reverse mortgage, it is clear that some seniors are not getting the necessary reverse mortgage information.
What Reverse Mortgage Information Do Seniors Need to Know Before Getting a Loan?
Before pursuing a loan, seniors should do some research on these loans. Reverse mortgage information is widely available through several government agencies including the U.S. Department of Housing and Urban Development (HUD) and FHA. Many senior protection groups, like the National Council on Aging and the Administration on Aging, also work hard to provide seniors with unbiased reverse mortgage information. To make an informed borrowing decision, seniors should begin educating themselves before even beginning the loan process.
Lenders are another great source of reverse mortgage information. Before seniors really begin considering a loan, they need to determine whether they can afford to keep up with the necessary expenses. When speaking with their lender, seniors should discuss whether their loan proceeds will enable them to pay their property taxes and homeowners insurance.
To further protect seniors, borrowers are also required to complete housing counseling in order to qualify for a loan. During this session, counselors will discuss the senior’s options, the loan process and what is expected of them after closing the loan. The fact is there is no shortage of information available. Seniors simply need to take their time evaluating their finances and educating themselves before making such a huge financial commitment.
US Bank home mortgage may be one of the companies that might be approached for a mortgage. The US Bank?s home mortgage information might be easily found on the internet from their website. It might be amazing to find that the mortgage process would be mostly done via the internet. The US Bank?s home mortgage enables one to check one?s mortgage online, make online mortgage payments and review mortgage payments history, thereby allowing one to access one?s home mortgage information instantly as and when one requires. This facility would be useful as one would clearly be able to understand one?s mortgage and to clearly know the number of payments made, the tenure left, the rate of interest being paid in case of ARM, the time when the ARM would be ready to adjust in case there was a fixed rate term period in an ARM.
The US Bank home mortgage offers various mortgage products under the fixed rate mortgages and adjustable rate mortgages. The fixed rate mortgages may be divided into three categories namely conforming fixed rate mortgages, fixed FHA mortgages, VA fixed mortgages and Jumbo fixed rate mortgages. The fixed rate mortgages in each category offer varied products. The conforming fixed rate mortgage may be of 10 years, 15 years, 20 years or 30 years fixed tenures. The fixed FHA loans on offer might be of 30 years or 15 years fixed tenure and the VA fixed mortgage also has the option of 30 years or 15 years tenure. The option for Jumbo mortgages available might be either 30 years tenure or 15 years tenure.
Before deciding on availing a home loan, the US Bank home mortgage might allow one to avail the use of their pre-approval program. A US Bank home loan pre-approval program would enable a prospective home-buyer to know what the possible amount of loan that may be advanced, given one?s financial conditions and credit report. Apart from the pre-approval program, US Bank home mortgage allows for an individual to use the pre-qualification method to determine whether one would be eligible for a loan approval before the actual loan approval process might begin on one?s application. Since most of the application and approval process of the home loan application would be online, it might be beneficial to check with one of the bank?s loan officers for the date and place where the loan documents might be handed over. Usually, the US Bank would determine a closing agent?s or attorney?s office on a date convenient for all parties concerned and signatures on the closing deeds would need to be done. All legal documents pertaining to the home loan would be handed over there itself.
While opting for the US Bank refinancing of one?s mortgage, the procedure would be similar to the one followed for a mortgage. One might take advantage of the bank?s pre-approval program to get an estimate as to what amount of refinancing for one?s home might be advanced, given all relevant information regarding one?s credit scores, equity built into the home, etc. Apart from conventional loans, US Bank home mortgage also might provide balloon mortgage where the borrower would have to make monthly payments at a fixed rate of interest for the first five to seven years and then make the balance amount payment as a lump sum as a single payment. The bank also might allow one to convert one?s adjustable rate mortgage to a fixed rate mortgage for a fee during a specific time period. It certainly might prove to be advantageous to go through the bank?s website, use the mortgage calculators provided and possibly take advantage of the pre-approval program before deciding to avail a home loan from the bank.
One large mortgate lender has taken a unusual approach to dealing with negligent mortgage borrowers. Citigroup (Stock Quote: C) has rolled out a new plan that would allow borrowers to stay in their homes – free of charge – for six months. All the borrower has to do is sign over ownership of the home to the bank.
How is this possible? In short, banks are getting fed up over delinquent mortgage borrowers. According to a 2009 national survey from Reecon Advisors, 9.2% of U.S. homeowners would opt for default if their homes were underwater (i.e. when the loan value exceeds the home’s value).
A breach line is starting to emerge on such mortgages, and banks have likely taken notice. A First American Logic study shows that when a home’s value falls to 75% of what’s owed on the mortgage, homeowners begin thinking about mailing those house keys in to the lender and walking out the door. The report estimates there are 4.5 million U.S. homeowners who have their mortgages underwater through the third quarter of 2009.
Banks have also no doubt seen the January study from Transunion that shows Americans place a higher priority on paying their credit card and auto debt than they do their home mortgage. If banks can bail, the thinking goes, then homeowners increasingly consider they can, too.
Well, Citi has seen enough. A pilot program called “Foreclosure Alternatives” launched on Feb. 12 will enable underwater Citi mortgage borrowers to evade foreclosure, and still live in their homes as long as they sign over the deed to the bank. It’s called a “deed-in-lieu-of-foreclosure” program and it’s now available for Citi borrowers in Ohio, New Jersey, Illinois, Michigan, Texas and Florida.
Citi views the “legal squatting” program as a helpful “transition” for troubled borrowers. In fact, that’s the exact term used by CitiMortgage chief executive officer Sanjiv Das. In a press statement, Das said “The goal of the program is to help homeowners make a smooth transition into the next chapter of their lives.” He called the Foreclosure Alternatives Program a “creative, innovative” way to “help our customers across a variety of complex financial situations.” He also calls it a firewall against a “negative impact on house prices.”
Here is a brief overview of how the new program by CitiGroup will work:
1. Borrowers contact Citi and says they’re underwater on their mortgage loans.
2. Citi reviews the mortgage and examines the borrower’s financial situation.
3. Before green-lighting the pilot program, Citi evaluates the borrower for a loan modification or even a short sale.
4. If those options don’t pan out, Citi can declare the borrower eligible, but only if the homeowner is at least 90 days late on their mortgage payments.
5. Homeowners must agree to relinquish their home (via the deed transfer) after six months.
6. Citi will help out with relocation expenses, providing at least $1,000 in moving expenses to program participants. Professional relocation counseling may also be provided.
So what’s in it for Citi? Primarily, the bank earns big savings by avoiding foreclosure. A Congressional report estimates the cost of foreclosure to mortgage lenders to be about $78,000. But the Citi pilot program should only cost a few thousands dollars per household, thus potentially saving the bank millions of dollars.
By avoiding foreclosure, City also hopes that thankful homeowners won’t trash the place on their way out the door. By controlling the situation – and having an occupant over the six-month period, the bank also reduces the chances of vandals damaging the home. That’s a big problem, especially in big city neighborhoods.
Is legal squatting a “win-win” for both banks and borrowers? No. But it’s also much further away from the “lose-lose” proposition that foreclosures provide. And right now, that’s good enough for both parties.