Loans | Love's Real Stories

September 18, 2020

Good Government

The Reverse Mortgage has shifted into a new gear. The loan program that allows people to tap their home’s equity for income can now be used to either buy or refinance a home. The program has a new name, too. It is now the Home Equity Conversion Mortgage, or HECM. In the past, the Reverse Mortgage gained a questionable reputation for some elements of the loan terms that have now been removed.

The HECM is a government-sponsored loan, and was created for people over 62 years old to refinance the equity in their home, or buy a new home, eliminate monthly payments, and use the money as a cash advance or monthly income. The loan terms now contain a guarantee that a borrower will never owe more than their house is worth.

The program now also allows for people over 62 to buy a home and finance the debt as a HECM so they have no monthly payments and receive money instead. They can tap into their equity for expenditures on anything they want.

“The HECM completely changed my life,” says Carol Hennison. “After my husband passed, I couldn’t keep our home. The payments and upkeep were too much. I called my Realtor to prepare to sell my house and find a rental to move into. Bless her heart, my Realtor told me about this opportunity, and now I live in comfortably in a new home of my own without stress.”

Carol sold her home and with the proceeds made a down payment on her newer, smaller place. She financed the purchase with a HECM, which allows her the choice of taking cash advances or receiving monthly payments. So, Carol receives the monthly payments, with the option of taking cash advances, as well.

“I have no loan payment and I receive monthly income,” she said. “I can’t believe it!”

The catch is that Carol’s loan balance grows over time, as she receives payments, and the loan balance could eventually exceed the value of Carol’s home. If that were to occur, though, the lender can never pursue her or her heirs for anything. The HECM program is designed to keep people like Carol in their homes and the payments she receives will continue until she moves or dies. If there aren’t enough proceeds from the sale of the house to pay off the loan, the government takes the loss.

John Baxton was behind on taxes and insurance for his house, and late on his mortgage payments. “The last thing I wanted to do was sell my house, but it looked inevitable,” he says. “Then my son heard about this program and I was saved.” Baxton refinanced into a HECM which ended his house payments and gave him monthly income, as well as cash to bring his taxes and insurance current.

“Now I can stay here in the home I love and live very comfortably.” he said. “It’s quite a reversal!”

Here’s the capper: The HECM now has an interest rate of 2.9%. Because it’s a unique government program, the interest rate levels for a HECM are exempt from the usual market controls and influences, so the government can set the rate at the lowest level within the marketplace.

Spread the word to anyone and everyone over 62 years old and tell them the government got this one right!

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July 26, 2015

Luck o’ the Irish

Good news! Today’s newspaper says interest rates will be cut nationwide. Every single homeowner with a home loan will receive a reduction on their interest rate and therefore, a lower house payment. I looked up from the newspaper to my wife; and from my wife down to the newspaper. “Lassie, you’ll not believe what I’m seein’ with me own two eyes,” I said.

She glanced nervously around the tea shop, and whispered, “Stop using that fake Irish accent. It’s embarrassing.”

“I’m thinkin’ I sound perfectly natural,” I said, continuing with my best Irish brogue, rolling the r’s and rounding the vowels.

She rolled her eyes and raised her eyebrows.

“Ach! You’re a bonny lass!” I exclaimed.

“Stop it!” she whispered. She lowered her head, as if she could hide from the other patrons in the tea shop by disappearing into the tabletop.

“Anyway,” I said in my flattest American accent, “can you believe the entire nation is getting a loan modification? For free? And apparently, with no hassle!”

I quoted from the newspaper: “Today the Finance Minister announced victory over the lenders in a long-running dispute over the interest paid by homeowners. A source said the banks have committed to giving customers a better deal within the next two months. Ultimately all borrowers will be able to access a mortgage interest rate of below 4 percent, and all will receive a cut of at least ¼ percent, and up to ¾ percent.”

“Wow,” I said, “we should be so lucky.”

“That will never happen to us,” said my wife.

It will never happen for us because we are Americans, and you see, the tea shop we occupied and the newspaper I was reading were in Ireland.

The newspaper article continued: “’There was a game of chicken going on and it seems the banks broke first,’ said the source.”

Ireland experienced the same boom and bust cycle the United States did a few years back, with shady lending practices by banks as part of the blame.

“Well, the Irish deserve it after all they’ve been through,” said my wife. “It’s amazing they’re so friendly and good-natured. But the Irish heart is a tender one.”

It’s true. We received a crash course in Irish history during our recent trip there, and it’s a violent history, despite the calm beauty of the watery green island today. A guide who set us up with a boat trip over the Lakes of Killarney gave us a detailed description of the slaughter, famine and displacement of his clan. Tears rolled down the face of this Viking-looking Irishman as he described the brutality suffered by his people at the hands of foreign oppressors. The Irishman’s tears were fresh, though the events he described took place in the year 1601.

“The Irish do deserve this, Lass. Truer words were never spoken,” I said, reverting to my finest Irish accent. “But I envy the luck o’ the Irish when it comes to their good fortune with this interest rate bit.”

“I wouldn’t be so embarrassed if your accent wasn’t so lousy,” said my wife, looking warily around the tea shop.

“Bless your heart, Lass,” I said, “let’s go kiss the Blarney Stone.”

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May 22, 2014

Out of the Shadows

A “shadow inventory” of new buyers is infiltrating the real estate market.

This “shadow inventory” of buyers is made up of people who lost their homes through distress sales, such as foreclosures or short sales, and are ready to jump back into homeownership. These buyers have worked hard to get back on their real estate feet, but they are also lucky. New loan programs have sprung up recently, allowing them to qualify to buy again, despite the heavy hit they took on their credit when they lost their homes.

Traditionally, if you lost your home through foreclosure your credit would suffer enough damage that you couldn’t qualify for a real estate loan for up to seven years afterward. A short sale would set you back at least three years. If you also declared bankruptcy, your credit damage was that much worse.

Now lenders are giving new consideration to distress-related credit damage. The hard times in the Great Recession were so bad, and so many people lost their jobs and their homes, that lenders have created new loan programs to accelerate their re-entry into the market.

FHA launched the “Back-to-Work-Extenuating Circumstances” loan program which cuts the waiting period for loan-qualifying down to one year after a foreclosure, a bankruptcy or a short sale. The borrower has to prove that they suffered a 20 per cent drop in income for six consecutive months due to job loss or another economic event, and they must have 12 months of on-time rent payments.

Sean and Anita Burkes recently bought a new home through the FHA Back-to-Work-Extenuating Circumstances loan program.

“It’s a great program,” said Anita, “but it’s not easy.” She made hair-pulling motions as she described the amount of paperwork involved in getting the loan. Then she held her hand two feet above the table top. “A stack this high,” she said.

Sean laughed. “The only worse paperwork nightmare I’ve seen was our short sale when we lost our house a year and a half ago,” he said. He held his hand as high as he could reach above the table. “A stack this high,” he said.

“We’re so thankful, though,” said Anita. “We were really down and out. But Sean got a new job, and now we own our new home. It feels good that a lender will take a chance on us again.”

Sean nodded. “And it feels good to come out of the shadows.”

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May 2, 2014

Real Short

“People have been going through hard times and I feel kind of guilty that we lucked out,” said Jena Scott. “The house we bought just a year and a half ago for $180,000 is now worth $260,000. Our Realtor says he hasn’t seen anyone else come out so far ahead so quickly.”

Jena shrugged her shoulders. “We just got so lucky,” she said.

It wasn’t all luck. Ron and Linda Jameson, the sellers of the house, were going through hard times. “I was down so long it looked like up to me,” said Ron Jameson. Ron is a building contractor and was hit hard by the economic crash.

“We bought when the market was swinging and my business was rolling, he said. “I put a bunch of remodel work into that house right outta the chute, but everything dumped right after,” he said.

Ron and Linda were selling via a short sale and would receive nothing from the sale, no matter who bought it or how much they paid. So, they could choose their buyer. They chose Jena and Jack.

“We chose the Scotts because we liked them,” said Linda. “We passed up an all-cash buyer who would have been more of a slam-dunk, but we wanted to give the Scotts a chance though they were first-time buyers with the possibility of loan difficulties.”

As it turned out, there was loan difficulty. The appraiser for the Scott’s lender turned in a low appraisal, $20,000 less than the sales price. The appraiser wouldn’t give value to Ron’s unfinished remodel work.

“It was all good work,” said Ron, “but I ran out of money and time before I reached the finish line.”

A low appraisal, especially $20,000 low, is typically a death blow to a sale. Banks won’t usually approve a short sale at that kind of discount. Cash buyers were on the sidelines waiting to jump in when this sale died, but the bank ignored common sense and didn’t look at any other offers.

“Through some kind of glitch in the red-tape process, the short sale was approved. Real short,” said Jack Scott.

The Jamesons were okay with it because they got nothing anyway. “We were just glad to have our loan debt forgiven,” said Linda Jameson.

“We bought way below value,” said Jena Scott, shrugging her shoulders. I’m so glad the Jamesons were our sellers.

That’s lucky.

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March 20, 2014

Gifted

There came a knock upon Ryan’s door. He and his fiancée, Sylvia, looked at each other in a mixture of perplexity and alarm.

Ryan told me later, “Nobody knocks on the door. Our friends call or text before they just show up at the door, you know what I mean?”

Ryan and Sylvia lived in an apartment building at the time, on the second floor.

Sylvia answered the door.

“There was this guy wearing a tie standing in the hallway with some papers in his hand,” she said. “He mumbled something about buying a house, and I’m like, ‘He must be at the wrong place’, right?”

The guy was a Realtor and he was prospecting for apartment dwellers who might be interested in owning a home instead of renting.

“The dude talked about the FHA loan program, and before you know it, he has us in his car showing us houses,” said Ryan, “Buying a house was like the furthest thing from our minds. We found one we loved, though, and went for it.”

The Realtor took Ryan and Sylvia to see a lender, who informed them they did indeed qualify for an FHA loan. The only catch was they needed cash for a down payment.

“We didn’t have any money, right?” said Ryan, “But the lender told us that FHA allows ‘gift funds’ for down payment money. Like from family members, you know?”

That’s where Ryan’s grandpa came in.

“I hit up my grandpa for six thousand dollars,” said Ryan. “My grandpa said: ‘Considering your customary rate of pay, I should be paid off in, let’s see…….. six thousand years.’”

Actually, Ryan’s grandpa won’t receive anything at all in return, at least as far as the Federal Government is concerned, because FHA required him to sign a statement swearing the money is a gift and he expects no repayment, under penalty of perjury and statute of fraud.

“Ryan’s grandpa is a sweetheart,” said Sylvia, “and now we like, own a house!”

Ryan said, “My grandpa said to me: ‘It has to be a gift, huh? I guess I get repaid with your good looks and a song?’ Then he says: ‘I sure wish you were better looking and could sing worth a darn.’”

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