December 1, 2016
Thursday’s Advocacy & Think Tank Roundup
- An article by the Build Healthy Places blog titled, Staying Healthy: The Role of Aging in Community, discuss how significant financial barriers remain to older adults who want to age in place and stay connected to their communities.
- Could the post-Great Recession drop in housing demand have been driven in part by an increase in mortgage credit spreads across borrowers? Stephanie Lo, a doctoral student in economics at Harvard who is also a 2016 Joint Center Meyer Fellow used proprietary data on the spread of mortgage rates across borrowers with different credit scores to try and answer this question. Her results, which will also be published as a Joint Center working paper, suggest that mortgage demand does react to mortgage interest rates in significant ways.
- An article, titled CDFIs Collaborate to Send More Capital to Low-Income Communities, discusses how early results of the PRO Neighborhoods program suggest that new ways of deploying capital can help improve the lives of Americans who live in low-income communities.
December 1, 2016 | Permalink | No Comments
November 30, 2016
Credit Reporting Complaints
The Huffington Post quoted me in The Real Reason Everyone Complains About Credit Reporting Agencies. It opens,
The most complained-about financial institutions aren’t banks or credit card companies. They’re credit reporting agencies — and by a wide margin.
In fact, the big three credit agencies topped the latest Consumer Financial Protection Bureau (CFPB) monthly report. Equifax attracted an average of 1,470 complaints during a three-month period from May to July. Experian took second place with 1,272 complaints, and TransUnion had 1,202 complaints. As a category, all of the credit reporting agencies are up by about 30 percent from the same period a year ago.
By comparison, the most complained about bank, Citibank, had only an average of 922 complaints during the same period.
So why all the gripes? To answer that question, you have to take a closer look at a society that’s heavily dependent on credit and at the companies that determine how much credit each member of society gets. But the answer also reveals a broken system and a few workarounds that could help you avoid becoming another statistic.
The CFPB did not respond to a request for a comment about its complaint data. Neither did two credit reporting agencies, Experian and TransUnion. Equifax deferred to the Consumer Data Industry Association (CDIA), the trade association for the credit reporting industry.
Decoding the numbers
A CDIA representative suggested the government’s complaint numbers are inflated because they fail to distinguish between complaints and “innocuous” disputes.
“For example, consumers who are reviewing their credit reports for the first time might question an item they don’t recognize or understand and then lodge a complaint,” says Bill Mashek, the CDIA spokesman. “A consumer might also lodge a complaint against one of the credit reporting agencies when their issue is actually with another entity such as a lender.”
The credit agencies also say the government fails to verify any of the complaints; it simply reports them. And it has no way of weeding out potential errors, such as when consumers question an item they don’t recognize or understand on their credit report.
Consumers have a different perspective. They’re people like Peter Hoagland, a consultant from Warrenton, Va., whose homeowner insurance bill rose unexpectedly this year. He hadn’t made any claims, but soon discovered the reason: His credit rating insurance score taken a hit. He contacted his credit reporting agency. ” I could find no one to give me a credible explanation,” he says.
Hoagland contacted his insurance company and explained the problem, but the company stuck with its rate increase anyway.
“It feels to me that insurance companies are using these ratings as contrived reasons to raise rates,” he says. “They can’t cite claims I have made or increased risk with my home. So they hide behind these dubious insurance score ratings as justification to raise rates.”
It’s complicated
David Reiss, a professor at Brooklyn Law School , says stories like Hoagland’s are common because credit scores affect almost everyone. They’re also difficult to explain.
“The credit reporting agencies have a big impact on whether someone can get a mortgage to buy a house as well as on setting the interest rate that they will ultimately pay,” he says. “At the same time, they often act in mysterious ways in terms of what they include and do not include on their reports.”
Wednesday’s Academic Roundup
- This paper, titled Transparency in the Mortgage Market, studies the impact of transparency in the mortgage market on the underlying real estate markets. It shows that geographic transparency in the secondary mortgage market, which implies geographic risk based pricing in the primary market, can limit risk-sharing and make house prices more volatile. Ex-ante, regions prefer opaque markets to enable insurance opportunities.
November 30, 2016 | Permalink | No Comments
November 29, 2016
Properly Insuring a Home
Realtor.com quoted me in 3 Types of Insurance You Need to Buy a Home (and 4 You Don’t). It reads, in part,
When you buy a home, you will be showered with offers to buy insurance—and not just one type, but many types. Such awesome deals! So which ones do you really need?
There are a few that are downright essential, and others are nice but not necessary. Furthermore, others are total rip-offs to avoid at all costs.
To help you differentiate among them all, here’s a rundown of the types of insurance you’ll likely encounter on your home-buying journey and a reality check on whether you need them.
Title insurance
Do you need it? Absolutely!
Normally, this isn’t even a question because it’s almost always mandatory when you’re getting a mortgage. But if you’re paying all-cash, you have the option of skipping on title insurance. You shouldn’t.
Title insurance “ensures both the lender and the owner’s financial interests in the home are protected against loss due to title defects, liens, or other matters,” says Liane Jamason, a Realtor® and owner of the Jamason Realty Group at Smith & Associates Real Estate in Tampa, FL.
It’s especially important to get title insurance in transactions like short sales and foreclosures, which often carry the high risk of some kind of tax lien being attached to the property. Title insurance is going to safeguard against your needing to pay for liens, and will ensure the title is clear so no one down the road could claim they own the property and file a lawsuit.
If for some reason you’re dead set against getting title insurance, Jamason suggests you should at least get a lawyer to “thoroughly check the property’s history to ensure there could be no future claims to title.”
Homeowners insurance
Do you need it? You bet
Like title insurance, this is another one that’s not required if you own the house outright (you’ll need to have it with a mortgage), but this is necessary. Homeowners insurance covers you for a variety of things like fires and storms. You’ll want it even if you aren’t legally required to have it.
Eric Kossian, agency principal of InsurePro, a Washington state insurance agency, cites an example of a wealthy homeowner who had paid off his house and “figured since he had never had an insurance claim he would save himself the $700 a year in premium.” Then some kids near his home started a fire, which got out of control and burned down several houses—including his. It cost the homeowner about $450,000 in damages. Consider this a cautionary tale.
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Mortgage protection life insurance
Do you need it? Not really.
In case you die while you’re still paying off a mortgage (bummer, we know), this insurance is supposed to make sure your family is financially covered when it comes to paying your mortgage. But it’s basically pointless.
“I would say as a general rule that mortgage life insurance or mortgage protection insurance is unnecessary,” says David Reiss, a law professor specializing in real estate at Brooklyn Law School. Reiss says consumers “are generally better served by a cheap term insurance policy from a well-rated insurance company,” and “you will generally get more protection per premium dollar with a term life insurance policy.”
Umbrella insurance
Do you need it? Usually not.
Umbrella insurance is basically insurance for your insurance. It vastly expands the amount of damages your insurance will cover. But it’s not necessarily worth it.
“One common rule of thumb is that an umbrella insurance policy should equal the net worth of the insured,” Reiss says. So for the average middle-class American homeowner, Reiss notes that an umbrella policy is generally “less relevant,” probably because your regular insurance covers enough. For the rich, or those who are “reasonably expecting” a rise in income, Reiss says it can be a good idea and worth researching further.
November 29, 2016 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- Airbnb Inc and the state of New York agreed Tuesday to end their fight over a recent law that bans advertising of short-term rentals on sharing economy websites, just a month after the company filed suit and Gov. Andrew Cuomo signed the bill into law
- The speculation is now over as sources close to the appointment confirm to HousingWire that Ben Carson will officially accept the role of United States Secretary of Housing and Urban Development (HUD)
November 29, 2016 | Permalink | No Comments
November 28, 2016
Reverse Mortgages and Your Health
Bankrate.com quoted me in With Health Concerns, Is a Reverse Mortgage Loan a Good Idea? It opens,
The cost for medical treatment continues to rise, especially during the decades of retirement.
A 65-year-old couple retiring in 2016 can expect to need approximately $260,000 to cover health care costs in their nonworking years, according to Fidelity, a financial services company.
If you currently live in your own home and are at least 62 years old, a reverse mortgage loan provides an option to cover ongoing expenses, including medical fees.
This type of mortgage acts as a loan that allows you to convert some of the equity of your home into cash. The loan won’t need to be repaid during your lifetime as long as you remain in the residence.
While a reverse mortgage loan offers the appealing opportunity to age at home, “you’ve got to understand the fine print,” notes Jason Eichmiller, a branch manager at Open Mortgage, LLC in the Philadelphia area.
Before opting for one, you’ll want to make sure it’s a good fit for your health situation, your home and financial future.
The most common type of reverse mortgage is known as the Home Equity Conversion Mortgage (HECM). This kind of loan is insured by the Federal Housing Administration and is issued by lenders.
You have several options for how you’ll receive the money from a reverse mortgage loan, including the following:
- Lump sum: You’ll receive a single amount of cash.
- Tenure: You’ll have fixed monthly payments while you live at home.
- Term: Expect to receive fixed monthly payments for a set period.
- Line of credit: You’ll be able to withdraw the amount of cash you need when you need it until you’ve reached the line of credit’s limit.
- Combination: You’ll receive a combination of monthly payments and a line of credit.
To qualify for a reverse mortgage loan, you’ll need to meet certain requirements, including that you own the home completely or have a low mortgage balance. You’ll have to live in the home and pay property taxes and insurance.
The loan usually doesn’t have to be repaid until after you move out or die. Then, the home may be sold to repay the balance. If the place sells for more than the loan balance, you or your heirs will receive the difference. If it sells for less, the bank will take the loss.
Also, your children or heirs could arrange for the loan to be paid if they wish to keep the home.
“While a reverse mortgage doesn’t affect Social Security or Medicare benefits, it can adversely impact Supplemental Social Security and Medicaid,” notes Eichmiller.
This is because Supplemental Social Security and Medicaid are designed to help individuals that meet specific requirements, including income levels.
For instance, if you take the proceeds for a reverse mortgage loan in a lump sum, that dollar amount would count against you for Medicaid, says Greg Cook, vice president of Reverse Lending Experts. This is because a lump-sum reverse mortgage loan creates a nest egg that would most likely have to be spent down to qualify for Medicaid assistance.
For those who want to improve their chances of qualifying for Medicaid, “the better solution is to take the line of credit option of a reverse mortgage,” Cook says. “It’s tax free but doesn’t count as income because they’re borrowing against their equity.”
Paying for medical expenses and maintaining a home can be difficult, even though most Americans want to do both. Eighty-three percent of retirees and those close to retirement want to stay in their home as they age, according to the Home Equity and Retirement Income Planning Survey released this year by The American College of Financial Services.
“Many people think that they’ll only be able to stay in their home temporarily,” Eichmiller says. But a reverse mortgage might allow them to modify their homes or get the care they need to stay in their homes indefinitely.
You might use the cash from the reverse mortgage loan to add safety features such as grab bars, low-pile carpeting to avoid tripping, or a stair lift chair.
Other modifications to lengthen the amount of time you can remain at home include putting in a shower and entryway that have no curbs or high steps, kitchen countertops at different levels so you can work at them while sitting or standing, wider doorways, better lighting and walk-in tubs.
One of the key benefits that a reverse mortgage loan brings is the opportunity to increase your current income. The cash you receive from the loan can be used however you feel fit, and if you have health conditions, the money could be put toward paying these expenses.
However, using the proceeds from a reverse mortgage loan for medical bills can create risks. If you face high, unexpected fees such as a trip to the emergency room or a long hospital stay, the costs may add up quickly and be hard to cover.
“Medical bills are personal, unsecured debt,” says David Reiss, professor of Law at Brooklyn Law School. “If you do not pay them, you may be sued and a judgment may be entered against you.”
To reduce your risk, consider ongoing health expenses, such as prescriptions or medications, before getting a reverse mortgage loan. Evaluate your income and plan a budget to cover the basics.
If you face unexpected charges, “you may be able to negotiate them down to a manageable level,” Reiss says.
November 28, 2016 | Permalink | No Comments
Monday’s Adjudication Roundup
- A New York federal judge on Tuesday ordered Wells Fargo Bank NA to produce documents from a pair of databases in a proposed class action accusing the bank of mishandling residential mortgage-backed securities investments, but denied the investors’ request concerning two other databases.
- A Pennsylvania federal judge on Tuesday tossed a proposed class action accusing Bank of America Corp. of unlawfully referring borrowers to private mortgage insurance providers in exchange for kickbacks, saying the Racketeer Influenced and Corrupt Organizations Act claims were time-barred.
- The U.S. Department of Justice has opted not to appeal the Second Circuit’s May dismissal of a roughly $1.3 billion penalty against Bank of America for a financial crisis-era mortgage program, as prosecutors did not lodge an appeal by Monday’s deadline.
November 28, 2016 | Permalink | No Comments
