(Money Magazine)

If you're 62 or older, you've probably started getting reverse-mortgage solicitations in the mail, and it's hard to miss the aging actors singing the loans' praises on TV (hey, it's the Fonz!).

The pitch may sound appealing, especially if you're among the 83% of boomers who plan to stay in their home through retirement: Tap your home's equity now and receive a monthly payment, line of credit, or lump sum, regardless of your credit score or income.

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The mortgage will start accruing interest immediately, but you won't need to pay back a dime until you move out or die -- at which point you or your heirs must repay the bank in full.

Indeed, reverse mortgages can be a good option for seniors age 70 or older who are committed to staying in their homes and don't have the savings to cover their expenses, says elder-law attorney Janet Colliton of West Chester, Pa.

However, she adds that recent trends are making the loans a riskier proposition. For one, borrowers are younger: Last year 47% were in their sixties, more than double the percentage from 2001. A growing number (69%) are also taking their payout in a lump sum rather than a steady stream. And reports say predatory lenders have been pushing these mortgages on folks who can't afford them.

Related: Finding real estate opportunities in the New Year

The result: Borrowers who take the loan too soon, or spend the payout too quickly, could end up without a source of equity to fall back on -- and might even lose their homes.

If you or someone you love is thinking about a reverse mortgage, consider these questions. If you answer yes to even one, this type of loan is probably the wrong option for you.

Are you in your sixties?

You want to put off a reverse mortgage as long as possible. The amount you can borrow is based on the current interest rate (you can borrow more when it's lower), your home equity, and the age of the younger spouse. The older he or she is, the more you get.

On a $300,000 house with a $100,000 mortgage, for instance, a 75-year-old might receive a $574 monthly payment, while a 65-year-old would get just $411. (See reversemortgage.org for a calculator.)

Related: Your pension: Lump sum or lifetime benefits?

Younger borrowers also face more years of compound interest, which can quickly ratchet up the amount you owe.

There's also a greater chance that you'll run into unexpected medical bills or other expenses as you age, sapping your payout more quickly than you anticipated.

ill the costs be more than you can afford?

Reverse mortgages are a notoriously expensive way to tap equity.

For that borrower with the $300,000 home, fees would include $6,000 in upfront mortgage insurance, a $2,500 origination fee, and about $3,400 in traditional closing costs -- and that's before you get to the monthly mortgage insurance premium of 1.25% of the loan balance.

Related: Why home insurance costs so much

Plus, you'll still need to cover regular housing expenses such as taxes and maintenance.

Don't commit to the loan until you've met with an independent financial adviser to go over the total cost and discuss alternatives, says Steve Weisman, author of A Guide to Elder Planning.

Is there a better option?

Before turning to a reverse mortgage, homeowners should explore bolstering their finances by downsizing or working longer.

Those with good credit might also consider a traditional refinance or a home-equity line of credit (HELOC), where you draw only the funds you need and pay off interest as you go, says Waterford, Conn., financial planner Nancy Butler.

It's also a good idea to get your heirs involved -- particularly since they'll be responsible for paying off (or selling your house to pay off) the loan after your death. They may be able to provide a private reverse mortgage or become a part owner of the house now.

Ultimately, people should think very carefully before draining their home equity, says Margot Saunders, counsel at the National Consumer Law Center: "Once it's gone, it's gone." 

Timing It Right

Taking a reverse mortgage when you're too young -- especially as a lump sum -- can leave you with no home equity in your old age.

For a 65-year-old borrower with a $300,000 home and a $100,000 mortgage
Lump-sum payment	$79,233
Remaining equity
After 5 years	$103,255
After 10 yers	$85,496
After 20 years	$0

NOTES: Assumes an HECM standard loan on a home in Tulsa, annual appreciation of 4%. Interest rate is 5.06%. SOURCE: Urban Financial Group

First Published: December 20, 2012: 5:31 AM ET

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12 fire safety tips to heed during winter What you should remember about holiday decorations, boarding temporary guests

A cozy fire in the winter is something we all enjoy, but only when it's confined to the fireplace. The U.S. Fire Administration reports that winter residential building fires result in approximately 945 deaths and 3,845 injuries each year, along with an estimated $1.7 billion in property damage.

We're closing our homes up for the winter. We're cooking indoors more, and using fireplaces and heaters with greater frequency. Holiday decorations are going up. The potential for a fire in your home is no joke, especially this time of year. And statistically, the peak occurrences for residential building fires in the winter comes between 5 and 8 p.m., so it doesn't take a lot of reading between the lines to visualize the human error factors at work.

There's a lot you can do to keep your home fire-safe this holiday season and all winter long. Since most of it's simple common sense, you're probably going to want to skim over the rest of this. But please don't.

In several decades as a contractor, I've seen and worked on dozens of residential fires, and their aftermath is nothing short of tragic; preventing one is the best home improvement project you can ever undertake.

Simple awareness is the key

Extension cords: Don't use them if you can avoid it. Be sure they're of the proper wire size for the item being plugged into it, and don't ever exceed that. If what you're plugging into the extension cord has a grounded plug, then the extension cord needs to have a grounded plug also; don't ever alter or defeat the grounding leg on the cord. Don't put cords in front of fireplaces, heaters or cooking appliances, and don't drape them where they can fall down onto something hot.

Candles: Candles have a dangerous open flame, so be careful where you set them. A candle on a window sill can set a curtain on fire if a breeze pushes the curtain over the flame. Candles can ignite paperwork or books on shelves, or other nearby flammables. Always burn candles on a candle holder, not directly on a flammable surface. Jar candles are safer since the flame is contained, and the lid will completely snuff out the flame.

Holiday decorations: Water your Christmas tree regularly. It's no joke -- those dry needles will go up with incredible speed and burn with fierce intensity. Pay close attention to where the tree and other decorations are placed so that they're not too close to sources of ignition, such as a fireplace or a heater.

Hot ashes: Fireplace ashes are hot long after the fire has gone out. If you're going to clean out your fireplace, don't put the ashes in a paper bag, cardboard box, or plastic garbage can. Put ashes only in a metal can with an airtight lid that's approved for that use.

Space heaters: Be very careful with the use and placement of space heaters. Never point a space heater directly at anything flammable, such as a pile of newspapers or clothing. Never use a space heater with a worn cord, a missing safety guard, or a model that lacks a safety shutoff that automatically shuts the unit off if it gets tipped over.

Combustible materials: Having a stack of newspaper near the fireplace for starting the fire is an accident waiting to happen. Store newspapers, kindling and firewood a safe distance away from the fireplace. The same goes for other combustibles, such as clothing, dog beds, etc. If you have wall heaters, never allow clothing, cardboard boxes, newspapers or other combustibles to build up in front of them.

Leaves and needles: Don't let dry leaves and needles build up on your roof, especially a wood roof. Make sure the spark arrestor on your chimney is in place as well.

Preventing tragedies

Beyond these acts of simple awareness, there are some other things you need to be aware of when it comes to preventing a tragedy in your home.

Smoke alarms: Beyond the obvious of making sure you have an adequate number of smoke alarms and checking the batteries twice a year (daylight saving time is an easy reminder), remember that smoke alarms have about a seven-year life expectancy, and should be replaced periodically. The other issue with smoke alarms is that people tend to disconnect them due to nuisance alarms, such as those caused by cooking. Never disconnect your smoke alarm; instead, if nuisance alarms are an issue, consider upgrading to a new generation microprocessor alarm, such as the IoPhic Smoke and Fire Alarm. These types of alarms respond better to slow, smoldering fires and also virtually eliminate most types of nuisance alarms.

Never create a sleeping room that doesn't have egress: It might be easy to convert a room in the basement or perhaps an attic into a sleeping room for a temporary occupant, but if that room doesn't have an emergency exterior egress, then don't use it! In the event of a fire, it can become a literal death trap.

Have an escape plan: During the heat, smoke and chaos of a fire it's easy to become confused and disoriented, especially at night. Everyone in the family needs to know and practice an escape route from each room all the way to the exterior of the house. Once outside, have an agreed upon meeting spot safely away from the house, such as the end of the driveway or perhaps a neighbor's.

Have an escape ladder: If you have a multistory house, have an escape ladder for each sleeping room on the upper floors. The ladder needs to reach from the egress window all the way to the ground, and every family member needs to be trained on how to deploy and use it.

Renters insurance: Finally, if you or someone you know is a renter, get renters insurance immediately. It's inexpensive insurance against losing everything you own in the event of a fire, and it's simply foolish not to have it!

Are Foreclosures Increasing or Decreasing?

Are Foreclosures Increasing or Decreasing? Posted: 19 Dec 2012 04:00 AM PST Recent headlines have created tremendous confusion regarding the foreclosure situation in the country. Let’s give an example. Which of these two headlines are accurate? Foreclosure Starts Plunge to 71-Month Low Foreclosures Increase for the First Time Since 2010 The challenge is that both headlines are 100% accurate. How can foreclosures have increased for the first time in two years and, at the same time, be at a six year low? Each headline was reporting on a different measurement. Below are the explanations for each of the measurements as per RealtyTrac’s most recent Mortgage Foreclosure Report. Foreclosure Starts Foreclosure starts are the first steps taken by the bank after the borrower becomes delinquent on their mortgage payments (default notices or scheduled foreclosure auctions, depending on the state). They were filed for the first time on 77,494 U.S. properties in November. This was: Down 13% from the previous month Down 28% from November 2011 At the lowest level since December 2006 Foreclosures (Bank Repossessions) This is when the lender completes the foreclosure process and repossesses the property. This occurred on 59,134 U.S. properties in November. This was: An 11 percent increase from the previous month A 5% increase from November 2011 The first year-over-year increase in bank repossessions since October 2010, when the practice of robo-signing foreclosure documents came to light and caused a sharp slowdown in foreclosure activity in the following months In the report, Daren Blomquist, vice president at RealtyTrac, explained: “The drop in overall foreclosure activity in November was caused largely by a 71-month low in foreclosure starts for the month, more evidence that we are past the worst of the foreclosure problem brought about by the housing bubble bursting six years ago. But foreclosures are continuing to hobble the U.S. housing market as lenders finally seize properties that started the process a year or two ago — and much longer in some cases.”

Local Market Update Nov 2012

Time It Takes to Complete a Foreclosure [INFOGRAPHIC]

House Prices: Where Are They Headed This Winter?

In a blog post last month, we projected that home values might actually begin to soften on a month-over-month basis throughout the winter. There are other expert analysts that are also notifying their readership of this possibility. Calculated Risk, in a post last week explained:

“The monthly Case-Shiller house price indexes will show month-to-month declines soon, probably starting with the October report to be released in late December. The CoreLogic Index has already started to decline on a month-to-month basis.” 

Fiserv, another company that analyzes home prices, came to the same conclusion:

“We project a small, short-term price decline for many markets that recently experienced double-digit appreciation.”

This may seem counter to the headlines you have seen claiming home prices are on the rise. However, we must realize that there is seasonality to home price movements. Over the last few years, prices have increased in the spring through the early fall. They then soften throughout the winter. As Calculated Risk reveals:

“This is not a sign of impending doom - or another collapse in house prices – it is just the normal seasonal pattern.”

If you are thinking of selling your home in the next 6-8 months, you should realize that waiting may not ensure a higher price and perhaps may even result in a slightly lower sales price

Short sales jump ahead of tax hike

During the three months ended Sept. 30, short sales in which homeowners had fallen behind on mortgage payments soared 22% over last year, according to a report released Thursday by online marketing company RealtyTrac. By comparison, short sales by people current on their payments went up 17%.

In a short sale, homeowners sell at a price that is less than what they owe the bank, and the bank agrees to absorb the loss. The bank unloads the house and the homeowner gets out of a mortgage he can't afford.

And currently, homeowners don't have to pay federal tax on the unpaid mortgage debt because of a bailout-era law known as the federal Mortgage Debt Forgiveness Act.

But the act expires on Dec. 31 and, unless it is extended, the IRS in January will start treating unpaid mortgage debt as taxable income for many borrowers. The average amount of forgiven debt in a short sale is about $95,000, according to Blomquist. The tax on that could go as high as $33,250, even more if the Bush tax cuts expire.

Related: Perils of going over the fiscal cliff

So real estate agents are pushing to get short sales done by the end of the year, worried that if they don't, deals will fall apart with the prospect of big tax bills, according to Daren Blomquist, vice president of RealtyTrac.

"They're encouraging people to sell before the tax break ends," he said.

With the year-end deadline approaching, short sales could spike even more in the current quarter.

Related: Fiscal battle over mortgage deduction

"If that law expires, homeowners who agree to short sales could see their income tax jump significantly because the portion of the unpaid loan balance not covered by the short sale proceeds will be considered taxable income in many cases," Blomquist said.

This quarter, more homes in foreclosure were sold as short sales than repossessed by banks and resold.

Related: There' a home price recovery but it's really, really slow

"Both lenders and at-risk homeowners are realizing that short sales are often a better alternative than foreclosure," said Blomquist.

For banks, the calculation on short sales goes like this: Yes, they take a loss. But they also unload the property -- an attractive option given that banks must bear the costs of maintaining homes they repossess.

Foreclosures can be costly for banks. They get stuck with legal costs as well as taxes and maintenance expenses. The longer it takes to repossess a home -- and it can take years -- the more the expenses mount. Short sales can happen quickly.

In addition, homes in short sales go for higher prices than ones repossessed in foreclosure and resold by banks. The average sales price comparison: $191,025 for short sales vs. $161,954 for homes sold by banks in foreclosure.

Foreclosures down in October as housing market continues healing

WASHINGTON -- The number of homes in foreclosure dropped in October from the previous month and was down 9% for the year as the housing market showed signs of improvement.

About 1.3 million homes, or 3.2% of all U.S. homes, were in any stage of the foreclosure process in October, down from 1.4 million homes in September, according to data released Monday by Irvine research firm CoreLogic.

Quiz: How much do you know about mortgages?

The number of completed foreclosures also dropped in October, to 58,000 from 77,000 the month before, the company said. That marked a 25% decrease. Completed foreclosures were down 17% from October 2011.

Though the figures are encouraging, they're a far cry from normal as the housing market tries to recover from the collapse of the subprime bubble. From 2000 through 2006, there was an average of 21,000 completed foreclosures a month.

"A lower foreclosure inventory is a good indicator of improving housing markets," said CoreLogic Chief Executive Anand Nallathambi. "The downward trend in foreclosure inventories over the past year is yet another signal that a recovery in housing is gaining traction."

California led the nation in completed foreclosures for the 12 months ending in October, with 105,000. It was followed by Florida with 95,000, Michigan with 68,000, Texas with 59,000 and Georgia with 54,000.

Those states accounted for 49% of all completed foreclosures in the nation during that period.

The states with the highest percentage of homes in the foreclosure process were Florida with 11.% of all homes with mortgages in the state, New Jersey with 7.7%, New York with 5.3%, Illinois with 5% and Nevada with 4.8%.

If You are a Move Up Buyer...DO IT NOW!

Barbara Corcoran on the TV Show Fast Money:

“Right now, if you are upgrading to a bigger house, even if you’re selling at 10% off, you buy your new house at 10% off. Price appreciation is going to go much higher than people anticipate.”

Will the Mortgage Forgiveness Act Be Extended?

The Mortgage Forgiveness Debt Relief Act of 2007 is set to expire at the end of the year. The act allows taxpayers to be excluded from paying taxes on forgiven debt in certain situations. As their website explains:

“The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.”

The act also applies to debt forgiven in a short sale. The big question is whether or not Congress will extend it past the December 31st deadline. Forty-one state attorneys general signed a letter urging Congressional leaders to extend the act. In the letter, it is explained:

“Each of our offices receives calls every day from homeowners trying to save their homes or struggling to recover from losing their homes…Congress must act. We urge you to extend the existing exclusion of forgiven or cancelled mortgage debt from taxable income under federal law before it expires at the end of this calendar year.”

The push is on to get an extension. Here are the current bills in Congress:

• U.S. House of Representatives: Resolution 4336 and Resolution 4202
• Senate: Senate Bill 2250

Whether Congress will act in time to extend the act before its expiration is anyone’s guess.

Choosing the right light bulb

n the world of home improvement products, it used to be that one of the things you could count on for consistency year after year was the light bulb. Little changed since its invention, so it was a product that you didn't really have to give much thought to.

No longer. Today, there's a lot of confusion surrounding this simple staple of the American household. Are 100-watt bulbs banned? Are those twisty bulbs dangerous? Can you use these new bulbs with a dimmer? Aren't the new bulbs really expensive? There are lots of questions and lots of confusing answers, so let's try to clear up what we can.

Incandescent bulbs

Incandescent bulbs are the traditional household light bulb. They consume electricity, which is measured in watts, and give off light, which is measured in lumens. However, most of the electricity they consume is actually given off as heat, so these bulbs have never been particularly energy efficient.

ncandescent bulbs haven't technically been "banned." What's happened is that new energy efficiency standards have been put into place, which simply means that the bulbs now need to consume less electricity for same amount of lumens produced.

So the traditional 100-watt light bulb is, in essence, a thing of the past. It's being replaced by a bulb that produces the same amount of light, but uses about 72 watts. Since that translates to money in your pocket in the form of energy savings, it's not a bad thing. Similar wattage-to-lumen reductions are set to phase in for other bulbs over time, but given the ongoing mess in Washington, those dates are a congressional moving target.

Halogen bulbs

Halogen bulbs, also called energy-saving bulbs, are incandescent light bulbs that have a capsule inside that holds halogen gas around the filament, which increases the efficiency of the bulb. Halogen bulbs are a little more expensive to buy initially, but their energy efficiency increases by about 25 percent over a standard incandescent bulb, and they can last up to three times as long.

Another advantage to halogen bulbs is their color rendition, which is the ability of a light source to render the colors of an object similar to the way sunlight does. This makes them a great choice for many desk and task light applications. Halogen bulbs can also be used with dimmers.

Compact fluorescent bulbs

Compact fluorescent bulbs, or CFLs, are the increasingly familiar "curly tube" light bulb. Once again, they're more expensive to purchase initially than a standard incandescent bulb, but their increasing popularity and availability is bringing prices down.

CFL bulbs uses about a quarter of the energy that a standard bulb uses to produce the same number of lumens, so that's a pretty good savings. They're estimated to last about 10 times as long, so that offsets the somewhat higher initial cost; in fact, the Department of Energy estimates that a typical CFL will pay for itself in less than nine months.

As CFLs have become more popular, they've become available in a range of colors that weren't available when they were first introduced. You can now get CFLs with warm, yellow tones, as well as bulbs that are encased in an outer cover that help diffuse the light better -- and which, coincidentally, also makes them look much more like a traditional light bulb. Some CFLs can also be used with a dimmer switch, but be sure that you verify that on the package when you buy it.

CFLs do contain a small amount of mercury, as do all fluorescent bulbs. When they burn out, they shouldn't be disposed of with the regular trash. Instead, they need to be properly recycled, which is something that a growing number of retailers are doing at no charge.

LED bulbs

The final type of bulb you want to be aware of is the light-emitting diode, or LED. These bulbs are semiconductors that convert electricity into light. They're actually in the early stages of development at this point, so they're still pretty expensive. However, many people think that these bulbs have a tremendous amount of potential, and represent the wave of the future in residential and commercial lighting. As such, their prices should begin coming down.

LED bulbs use only about 25 percent of the energy that a conventional bulb does, but their real advantage is in their life span. An LED bulb is estimated to last about 25 times longer than a conventional bulb, so even with the high initial cost, their use may still make good economic sense for applications where bulbs are difficult to access for replacement.

Welcome to the most current Housing Trends eNewsletter. This eNewsletter is specially designed for you, with national and local housing information that you may find useful whether you’re in the market for a home, thinking about selling your home, or just interested in homeowner issues in general. 

Please click on this link to view the Housing Trends NOVEMBER - 2012 Newsletter http://wendyjimenez.housingtrendsenewsletter.com 

The Housing Trends eNewsletter contains the latest information from the National Association of REALTORS®, the U.S. Census Bureau, Realtor.org reports and other sources. 

Housing Trends eNewsletter is filled with local and national real estate sales and price activity provided by MLSs and the National Association of Realtors, U.S. Census Bureau key market indicators, consumer videos, blogs, real estate glossary, mortgage rates and calculators, consumer articles, and REALTOR.com local community reports. 

If you are interested in determining the value of your home, click the “Home Evaluator” link for a free evaluation report: 

http://wendyjimenez.housingtrendsenewsletter.com/dispContent.cfm?loadid=2&loadtype=0 

Sound decisions can only be made with accurate and reliable information, and I am happy to be a trusted resource for you. Thank you for the opportunity to provide you with this monthly eNewsletter, and I look forward to answering any questions you may have and to the opportunity to be your REALTOR® in the future. 

Sincerely yours, 

Wendy Jimenez
Century 21 Jervis and Associates
800 N. Harbor Blvd La Habra CA 90631 562-243-2966wendy@wendyj4homes.com 

Take Precautions when making donations

Tip of the Week: Take precautions when making donations this holiday season
Before making a donation of any kind, consumers should adhere to certain guidelines, including the following:

• Do not respond to any unsolicited (spam) incoming emails, including by clicking links contained within those messages, because they may contain computer viruses.
• Be cautious of individuals representing themselves as victims or officials asking for donations via email or social networking sites.
• Beware of organizations with copycat names similar to, but not exactly the same as, those of reputable charities.
• Rather than following a purported link to a website, verify the existence and legitimacy of non-profit organizations by searching for the organization online.
• To ensure that contributions are received and used for intended purposes, make donations directly to known organizations rather than relying on others to make the donation on your behalf.

5 things you can do to prevent spyware and viruses on your computer

For more information, go to www.fixingmypc.com or call today!

California's Most Affordable Counties

Thanksgiving Decorating Ideas to Impress your Guests

Thanksgiving decorating ideas to surly impress your guests.

Thanksgiving is a time to share with family and friends and if that sharing is going on at your house, feeling the need to impress can be overwhelming. Below are some table decorating ideas that will be sure to impress your guests. They will also make for a festive mood!

Sumptuous Centerpiece

Make the centerpiece as colorful as the rest of the table. Keep it compact so it doesn't interfere with the passing of dishes.

 

 

 

 

 

 

 

 

 

 

 

Harvest Color

Jewel tones and saturated color heighten the appearance of the Thanksgiving table and celebrate the season's bright foliage against the late-autumn sky. To get the look here, take advantage of the enhanced color attributes of inexpensive faux foliage and rich textile remnants. Present the faux berries and leaves (combined with real leaves, if you like) in a free-form display of pitchers and teapots, sugar bowls and goblets. The burnished finish of the collection will unify the look of the table, and the display lets you enjoy objects you love but don't always have the opportunity to use. Soften the effect with simple white candles; just be sure to set their flames well clear of the berries and leaves.

 

 

 

 

 

Fruitful Place Settings

The table, dressed in a rich palette and laden with autumn fruit, sets the tone for an intimate Thanksgiving dinner. Plump persimmons and scarlet pomegranates adorn the table — and the menu — a ripe reminder of the season's exuberant, and occasionally exotic, abundance. The table setting is a compatible mix of old (heirloom silver and dishes) and new (table runners, glasses, napkins), simply yet artfully arranged to bring out the beauty of all.

 

 

 

 

 

 

 

 

Table Tips

No-Sew Runner: Go through your sewing stash or the remnants bin at your favorite fabric store with an eye to reds and golds. Cut fabric to a length suitable for your table, turning under and pressing raw edges.

Easy Tablescape: Gather together a variety of pewter or silver pieces. Their deep metallic tones offer rich contrast to bright plates in autumn hues. Mix candlesticks with open vessels to vary height and shape.

Leaf Placecards: Real leaves curl, or dry and crack, so try this: Snip faux leaves and berries from inexpensive artificial clusters or garlands, and then use a silver gel pen to write each guest's first name on a leaf.

 

 

Homespun Crafts

In the days before Thanksgiving, a sense of anticipation fills the house as preparations begin. Spend an afternoon enjoying this feeling along with some young helpers or friends. This felt tablescape can be crafted days or weeks in advance to suit your schedule. Visit a fabric or craft supply store to buy wool felt, keeping in mind the length of your table and the number of guests. Cut a wide strip of felt in burnt orange for the bottom layer of the runner and a narrower green layer for the top. Wrap the candles and napkins with their lettered bands, and then arrange "falling leaves" along the table's length.

 

 

 

 

 

 

 

 

Buffet Centerpiece

Add a playful yet practical touch to your table by bringing an outdoor piece — like a garden plant stand — indoors and placing a cake, tart, or pie into the stand's arms.

 

 

 

 

 

 

 

 

New short-sale program offers relief for underwater homeowners

New short-sale program offers relief for underwater homeowners
One of the federal government’s most-important financial relief efforts for underwater homeowners started operating Nov. 1.

• Traditionally short sales, where the lender agrees to accept less than the full amount owed and the house is sold to a new purchaser at a discounted price, are associated with extended periods of delinquency by the original owner.  The new Fannie-Freddie program breaks with tradition by allowing short sales for owners who are current on their payments but are encountering a hardship that could force them into default.

• Eligible hardships under the new program run the gamut: Job loss or reduction in income; divorce or separation; death of a borrower or another wage earner who helps pay the mortgage; serious illness or disability; employment transfer of 50 miles or greater; natural or man-made disaster; a sudden increase in housing expenses beyond the borrower’s control; a business failure; and “other,” meaning a serious financial issue that isn’t one of the above.

• Homeowners who participate in this new program should be aware that although officials at the Federal Housing Finance Agency – the agency that oversees the program – are working on possible solutions with the credit industry at the moment, it appears that borrowers who use the new program may be hit with significant penalties on their FICO credit scores – 150 points or more.

• Other factors to consider are promissory notes and other “contributions.”  In the majority of states where lenders can pursue deficiencies, Fannie and Freddie expect borrowers who have assets to either make upfront cash contributions covering some of the loan balance owed or sign a promissory note.  This would be in exchange for an official waiver of the debt for credit reporting purposes, potentially producing a more favorable credit score for the sellers.

• Finally, participants should be aware of second-lien hurdles.  The program sets a $6,000 limit on what second lien holders – banks that have extended equity lines of credit or second mortgages on underwater properties – can collect out of the new short sales.  Some banks, however, don’t consider this a sufficient amount and may threaten to thwart sales if they cannot somehow extract more.

October Housing Statistics for 90604

Happy Veteran's Day

Wells Fargo sends refunds to some FHA mortgage customers

Thousands of Wells Fargo & Co. home loan customers recently received a surprise in the mail: refund checks from the big bank, along with letters saying they had paid unnecessary fees for their mortgages.

The unsolicited offers of thousands of dollars arrived with a catch — if the borrowers cash the checks, they can't later sue the No. 1 U.S. home lender. The San Francisco bank said in the letters that borrowers were put into more expensive loans when they could have qualified for cheaper ones.

Analysts said the letters sent to potentially 10,000 Wells Fargo borrowers were a way for the bank to sidestep further litigation over "steering" customers into unfavorable loans — allegations that the government has made about certain Wells Fargo operations in the past.

It's one in a long series of legal troubles for major mortgage lenders, the five largest of which agreed in February to a $25-billion settlement of accusations that they "robo-signed" foreclosure affidavits and otherwise abused distressed borrowers. Mortgage investors have barraged them with lawsuits over defaulted loans, and the government also recently filed separate complaints against banks including Wells Fargo, JPMorgan Chase & Co. and Bank of America Corp.

"It sounds like they either found some problems themselves or the regulators discovered them and told them to get things fixed," said Paul J. Miller, an analyst who follows Wells Fargo for Friedman, Billings, Ramsey & Co.

Wells Fargo's mailed refunds involve government-backedFHA mortgages made from 2009 through 2011. These loans are often made to borrowers with shaky credit or those who can't come up with the 20% down payments required for conventional loans.

Though they require as little as 3.5% down, the FHA loans are also more expensive because they require borrowers to pay steep insurance payments to protect against a default. However, in this case, the borrowers actually had the down payments or home equity needed to get a conventional loan, bank officials said.

Wells Fargo spokeswoman Vickee Adams said the problematic FHA loans turned up as the bank reviewed operations at two mortgage channels it has closed down: a subprime lending arm, Wells Fargo Financial, and a wholesale arm that made loans through independent brokers.

The bank previously paid a combined $260 million to settle Federal Reserve and Justice Department allegations that its lending, pay and sales quota practices in the home lending business caused borrowers to be placed into higher-cost mortgages. It didn't admit wrongdoing.

The loans were written as Wells Fargo surged to become the No. 1 originator of loans insured by the FHA. A bank mortgage spokesman said 528,000 Wells borrowers received FHA loans during the years 2009 through 2011, of which fewer than 2%, or 10,560, were offered refunds. He wouldn't say exactly how many refunds the bank has offered.

Mortgage professionals say banks often make more money packaging FHA loans into mortgage bonds than they do on traditional loans because of the government guarantee. And at the time in question, loan officers often made higher commissions on FHA loans.

The refunds came to light when the Los Angeles Times obtained a copy of one of the letters. The bank never announced them publicly.

Pomona resident Eric Murrillo-Angelo received a $6,676.89 check last month in a letter saying he "may have qualified for a conventional conforming mortgage" instead of the FHA loan he got in March 2010.

"I was really excited," he said, "although maybe a little leery at first."

Wells Fargo said a traditional loan would have had about the same interest rate as the FHA loan, but Murrillo-Angelo would not have been charged insurance premiums and higher appraisal and processing fees.

The refund included $4,847.50 for an upfront premium, $1,154.20 in annual premiums and $355 in increased closing costs, plus interest.

"You should understand that by cashing the enclosed check, you agree to release Wells Fargo … from any and all claims relating to Wells Fargo's origination of a more expensive mortgage loan than the loan for which you may have qualified," a bold-faced paragraph read.

After thinking the offer over for about a week, Murillo-Angelo cashed the check.

Loan officers were able to earn a commission of about 2.5% of the loan amount for FHA-backed mortgages in 2009, 2010 and part of 2011, said Fred Arnold, past president of the California Assn. of Mortgage Professionals. That compares with 1.75% commissions for conventional loans, he said.

For example, a $350,000 FHA mortgage would yield an $8,750 commission compared with $6,125 for a conventional loan.

"That meant that some unethical loan officers could potentially steer borrowers to the wrong loan," said Arnold, who noted that regulatory reforms that took effect in 2011 make it impossible to pay a loan officer more for originating one type of loan rather than another.

A Wells Fargo spokeswoman declined to comment directly about the firm's compensation practices. She instead provided a general statement of the bank's policies: "We work hard to offer the appropriate loan options so that every borrower receives the appropriate loan based on his or her credit characteristics and personal circumstances and our compensation reflects that commitment," the statement said.

Meanwhile, the bank — along with others on Wall Street — packaged its loans into mortgage-backed securities for sale to investors. Loans that met certain standards received a guarantee from government-supported housing agencies Fannie Mae and Freddie Mac.

FHA loans, however, received a higher premium when packaged into bonds. They receive a guarantee by the Government National Mortgage Assn., the federal agency known as Ginnie Mae. These securities are a notch safer for investors than Fannie or Freddie bonds, and that made them more appealing for big institutional investors like sovereign wealth funds or mutual funds.

Although the federal government has not pursued criminal prosecutions of bankers at the heart of the mortgage operations that collapsed in 2007, it has stepped up civil lawsuits against the largest originators and securitizers of home loans during the boom.

This month's federal suit against Wells Fargo was filed by the U.S. attorney's office in Manhattan, which has brought six mortgage-fraud lawsuits against big banks in the last 18 months. The latest, filed Wednesday, seeks more than $1 billion from Bank of America for allegedly flawed loans that itsCountrywide Financial Corp. unit sold to Fannie and Freddie.