KTS Message

Dear Friends,

We are pleased to announce that we have new closing locations in Providence and Warwick, RI. In addition to our locations, we will perform closings at a time and place that is convenient for you and your clients.

As always, we welcome all of your comments.

Sincerely,

Jason Kane

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Last Months Trivia:

Who lived at 4222 Clinton Way?

Answer: The Brady Bunch

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HUD Lifts Cap On Reverse Mortgages

Federal legislators are divided on numerous topics in the nation's capitol, but expanding the possibilities for senior citizens to live more comfortably is not one of them. Members from both sides of the aisle are finally seeing the light on reverse mortgages, the once-controversial program that allows seniors to draw from the equity in their home without making payments or outliving their home's value. The first step was the recent passage of the Reverse Mortgage to Help America's Seniors Act by the U.S. House of Representatives, eliminating the cap on the number of reverse mortgages that can be insured by the Department of Housing and Urban Development.

The bill, sponsored by Reps. Michael Fitzpatrick, R-Pa., and Jim Matheson, D-Utah, amends the National Housing Act by removing the existing cap of 250,000 reverse mortgages that HUD can insure at any given time. Right now, there are about 150,000 Home Equity Conversion Mortgage (HECM) loans outstanding, according to the National Reverse Mortgage Lenders Association.

A Senate version of the bill, introduced by Sen. Rick Santorum, R-Pa., is pending approval and will be considered earlier this year. Both bills enjoy bi-partisan support in Congress and are endorsed by consumer groups, such as AARP, formerly known as the American Association of Retired Persons.

During the most recent federal fiscal year, ending Sept. 30, 2005, HUD insured a record number of reverse mortgages -- 43,131 -- for a fifth consecutive year. The federally insured HECM accounts for 90 percent of all reverse mortgages made in the United States.

When Congress created the HECM program in 1988, a cap was imposed so lawmakers could periodically monitor the program's performance and costs to the government. Now that the program has a track record, there's no continuing need for a cap because the HECM program generates sufficient funds to cover its costs through mortgage insurance premiums paid by borrowers.

After eliminating the cap on the number of HUD loans, lawmakers plan to take aim on raising the amount of cash seniors can pull from their homes. Two privately funded national studies showed that Puget Sound area participants were frustrated with the inability to fully tap their large and growing equity. Respondents noted their increasing property values and living expenses, as well as their difficulty in making ends meet with the current HECM loan limits.

Rep. Jay Inslee, D-Wash., who co-sponsored the elimination of the loan cap, said he plans to introduce a bill where the location of the home is not as big of a factor in determining the amount of a government-insured reverse. Lenders have been pushing for a single national limit so that home equity would be the main variable.

"I am working on a bill I hope at some point will pass, that will also go to a unified limitation in the dollar amount, the cap that now exists and limits the amount of equity that our seniors can get out of their homes," Inslee said. "Seniors are equity-rich but cash-poor in a lot of circumstances. We are also finding that seniors are using these reverse mortgages in new ways, to help their grandchildren with their college education, for their recreation, as well as the obvious reasons, for health care and assisted-living facilities and the like. So this has tremendous opportunity."

A reverse mortgage is a loan that enables homeowners 62 or older to borrow against the equity in their homes, without having to sell the home, give up title, or take on new monthly mortgage payments. Loan proceeds can be used for any purpose, and taken out as a lump sum, fixed monthly payments, line of credit, or a combination. The loan amount depends on the borrower's age, current interest rates, and the value and location of the home.

A reverse mortgage does not have to be repaid until the borrower moves out of the home permanently, and the repayment amount cannot exceed the value of the home. After the loan is repaid, any remaining equity is distributed to the borrower or the borrower's estate. A senior's home does not have to be owned free and clear to qualify for a reverse mortgage. Reverse mortgages are often used to retire existing debt on a home.

The early reverse mortgage programs got a poor reputation because some were flawed and contained huge appreciation shares for the lender coupled with big-time upfront fees. Now, with the federal government insuring a majority of the reverse mortgages with no lender equity shares, the concept has become more acceptable and recognized by consumers. Some of the negativity of the early reverses also was a result of the risk-adverse GI Generation, still the prime target for the next several years before the early boomers, or Silent Generation, come around the senior corner.

Source: The New York Times

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Is It Time For A New Kind Of Mortgage?

The lending industry has a lot of products including energy-efficiency, interest-only and VA and FHA loans to make homebuying easier for first-timers. Almost all mortgage loans are related to the value of the house, yet most refinance products are used by homeowners not to put back into their houses, but to eliminate credit card debt, send kids to college, and pay other expenses.

It's easy to understand that refinancing is a different kind of loan and a purchase loan, except that the same lenders offer both kinds of loans. That begs the question -- why can't lenders consolidate debt into purchase loans?

This may be the next step as the industry watches the fragile first-time homebuyer struggle to qualify for a mortgage loan with a mountain of student debt on their backs.

Finding accurate figures for student debt loads is frustrating. A 2002 survey of recent graduates by student loan company Nellie Mae found that the average student loan burden for a bachelor's degree was $18,900, up 66 percent from five years earlier. Yet, another survey found that the average cost of college increases at twice the rate of inflation, which means that public colleges cost an average of about $13,000 a year and private schools cost about $28,000. Add medical, law or other post-graduate studies, and student debt can reach the six figures.

That's a concern, but not one for mortgage lenders, suggests David Reed, author of Mortgages 101 and Who Says You Can't Buy A Home! "Well ... at first glance, a refinance will typically have some equity in the property," says Reed, "and most only allow up to 80 percent of the value of the home to be refinanced into a new mortgage. Equity is important for first lien lenders for lots of reasons and one of them has to do with the ability to recover their asset should the borrowers default."

Value: + $100,000
Current loan amount: - $50,000
Max cash out loan amount: - 80 percent of $100,000 (or $80,000)

"The lender still has some breathing room, albeit reduced to only a 20 percent equity position," says Reed.

Now look at this scenario:

Sales price: $100,000
Student loans: $20,000
Loan amount: $120,000

"The lender has no equity, and if something bad happens like foreclosure ... ," says Reed.

"Granted, there are equity lines that can go up to 100 percent of the value of the home, but they're in a second lien position. Should a foreclosure occur, the original lien holder would get first dibs at recovering their equity. Even still, both liens are secured by real property, typically up to 100 percent of the sales price of the home. A loan issued above the value of the house against secure and non-secure property is a horse of well, a different color."

Bottom line? "If I were a loan designer at a mortgage operation, I would not make a purchase loan above the sales price," says Reed. "On the other hand, I might not have a problem with a loan that had 20% down payment, the lender paid off the student loans with that amount and issued a 100 percent loan."

Source: Realty Times

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FSBO Mortgage Lead Generation

One of the best ways to generate mortgage leads is through working with home sellers who are going it alone as a For Sale By Owner or FSBO. 

The key to FSBO marketing is creating partnerships with home sellers. Since almost every buyer needs a mortgage, you provide a necessary service that will enable a seller’s home to be sold. Real estate agents traditionally refer buyers to loan officers during the home-selling process, but with FSBOs, there is no agent. That means the seller assumes the role of referring buyers to loan officers and that’s where you come in.

Most sellers are not very familiar with the process of selling real estate and won’t know that they should require interested buyers to be pre-qualified prior to accepting an offer. Helping sellers understand that you can save them oodles of time by pre-qualifying their potential buyers is a literal gold mine. You could also prepare a flyer on a variety of loan types and payments for a mortgage on that seller’s home. FSBOs want to sell their home and, therefore, they will give your business card to everyone that comes through. That means fresh mortgage leads for you, whether for this property or another one.

The most effective way to secure relationships with for-sale-by-owner sellers is to offer more than pre-qualification services. FSBOs need marketing help like a free ad on a for-sale-by-owner website and promotion to buyer lists. They also need sample contracts and disclosures, industry contacts like title companies and appraisers, yard signs, and even home flyers. These items can be bundled together into a “for-sale-by-owner kit,” which can be offered to sellers in exchange for the opportunity to pre-qualify all buyers showing interest in the home.

You can use a variety of sources to locate FSBOs in your area, including:

• Local Newspapers
• Yard Signs LandVoice.com (a paid service that emails you FSBOs info)

Some of the popular methods of contacting FSBO sellers are:

• Phone
• Direct Mail
• Door Hangers
• Web Links

Most FSBO sellers will be very enthusiastic about the services you can offer them and will gladly refer buyers to you. Additionally, the sellers themselves will most likely need a home loan to purchase their next home, and, having established a professional relationship of trust with them, you put yourself in a great position to provide that loan. Remember the sellers are another great source for mortgage leads.

Source: FSBO3K.com

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