Americans again cash in on home equity

Americans again cash in on home equity

Kenneth R. Harney Feb 28, 2014

WASHINGTON – One of the mortgage products that contributed to the housing crash is booming again, New home equity credit line borrowings soared by 42 percent in the final three months of 2013 and were up sharply for the entire year, to $111 billion.

But does this point to a return to the “my house is an ATM” mentality that characterized excessive home equity borrowing from 2004 through 2007, just before the crash? Should consumers – and the banks doling out the cash – be cautious about this trend?

Researchers at Experian Information Solutions estimate that originations of home equity lines of credit – HELOCs in mortgage industry shorthand – rose by 58 percent in the final quarter of last year in the Western states, 38 percent in the Northeast, and 36 percent in the Midwest.

The average line of credit for new borrowers with “super-prime” VantageScores (781-850) was $120,000. VantageScores are one of the two main types of risk-evaluation scores used by lenders. More ominously, new equity credit lines extended to owners with “deep subprime” scores (300-499) increased faster than in previous years and averaged more than $60,000, roughly triple the amounts in late 2010. On the other hand, according to researchers, serious delinquencies in outstanding HELOCs continued to be low, generally well under 1 percent. What’s behind the equity credit line eruption? A record-fast rebound in owners’ equity holdings tied to rising home prices is one key. Between the third quarter of 2012 and the same period last year, Americans’ real estate equity accounts expanded by $2.2 trillion, according to the Federal Reserve. That growth is offering owners more options to tap their real estate wealth to fund home renovations, tuition payments, auto purchases and a variety of other consumer expenditures.

Banks are also pushing equity line products. Mike Kinane, senior vice president of TD Bank, said that home equity lines are providing a money-saving alternative to refinancing in a rising interest rate environment. With rates that are currently well below those quoted for fixed-rate 30-year mortgages, tapping “home equity looks attractive” to growing numbers of owners. TD Bank’s equity line rates go as low as 2.75 percent (prime bank rate minus half a percentage point) for qualified applicants.

Lenders I interviewed for this column, however, insisted that the rapid rise in new equity lines is different this time around, under much tighter controls. Cindy Balser, senior vice president of consumer credit products for Key Bank in Cleveland, says underwriting in 2014 is more intensive than it was a decade ago. Not only are credit limits more restrained – generally held to 80 percent of the home value, counting both the first and second mortgages against the property – but banks like hers require full appraisals or property condition reports by licensed appraisers to supplement electronically derived valuations.

But even with tighter controls, bankers and lending industry analysts acknowledge that there are potential downsides. Competition is encouraging some lenders to push their limits for combined first and second mortgages debt to 90 percent of home value or higher. That’s risky for them and for borrowers who could find themselves underwater in the event of another economic downturn.

Also, warns Amy Crews Cutts, chief economist for Equifax, today’s enticing interest rates are likely to increase. Since equity credit lines typically carry floating rates, borrowers could eventually find themselves paying much more every month than they ever anticipated.

Here’s what else to watch for if you’re thinking of jumping on the equity line bandwagon,

- “Teaser” rates. These short-term discounts on new credit lines may beguile you, but they are simply borrower bait. Focus on the index your credit line rate will be based on and the size of the “margin” tacked on by the bank. Run scenarios of what you might be paying if the index increases.

- Look for credit lines that come with an option to switch to a fixed rate if you choose. If your variable rate starts to take off sharply in future years, this will be a way to lock in your rate before things spiral out of control.

- Read the fine print. Credit lines can be complicated – your maximum draw can be limited or the entire line frozen under certain conditions. Your early payments may be interest-only but they’ll switch to full amortization at some point. You should understand all the features of your credit line before signing up.

Fannie Mae offers financing incentives to buyers ready to live in foreclosed houses

Fannie Mae offers financing incentives to buyers ready to live in foreclosed houses

By Kenneth R. Harney February 19, 7:00 AM

If you’re planning to shop for a home in the coming few weeks, here’s a an early-spring come-on that might save you some money if you qualify.

Fannie Mae, the largest mortgage investor in the country, has a bulging portfolio of houses acquired through foreclosures. Roughly 31,000 of these properties are listed on its “HomePath” ( resale marketing site. To move them quickly out of inventory, Fannie temporarily is offering qualified owner-occupant purchasers – but not investors – cash incentives toward closing costs of 3.5 percent of the purchase price. But you have to submit your initial offer no later than March 31 and close by May 31.

What sort of houses are we talking about? Visit the site and you’ll see. They run the gamut – from a one-bedroom condo unit in San Diego to a four-bedroom, four-bath single family home in suburban Montgomery Village, Md. Some states have thousands of HomePath listings online: Florida has nearly 12,000; Illinois, 4,360; Ohio, 2,800; California, more than 2,300; Washington state, nearly 1,800; and Nevada, around 1,400. Asking prices range from $30,000 to $600,000 or more. On a $400,000 house, the 3.5 percent closing-costs incentive would amount to $14,000.

To ensure that buyers who intend to occupy its homes get an opportunity to fully check them out and bid without competition from investment groups offering all-cash deals, Fannie has instituted what a “First Look” program. It essentially prohibits bids from investors during the first 20 days after listing (30 days in Nevada). After that, investors are free to jump in. Each First Look listing includes a countdown clock that indicates the number of days remaining before bidding is opened to all comers.

The 3.5 percent closing-costs offer is available only during active First Look periods from mid-February through March, so there’s not a lot of time to get involved. Bidders will need to indicate upfront that they want to be considered for a closing-costs discount.

Who is eligible? Number one, you’ve got to be a bona fide owner-occupant purchaser and commit to live in the house as a primary residence for at least a year. You’ll need to fill out a certification to that effect, a document that can be found on the HomePath site. Properties are not available in all states.

You don’t have to be a first-time buyer, though the Fannie program is likely to attract substantial numbers of them. The 3.5 percent discount helps with one of the biggest problems faced by first-timers: upfront cash.

As with most home purchases, you’ll need to be able to qualify for mortgage financing. Though Fannie may end up owning or securitizing the loan you obtain, it won’t be financing you directly. On HomePath purchases, you shop for a mortgage just as you would on any other house. Ideally, you nail down a financing source and get prequalified for mortgage money up to a specific dollar limit at current interest rates. If you’ve already located a First Look property and qualify, the lender is likely to take the 3.5 percent closing-costs incentive into consideration in evaluating your application.

While you shop on HomePath, however, keep this important factor in mind: These are foreclosed, previously occupied homes. Though some of them are repaired, painted and spiffed up before they are listed, many could use some additional work. They are sold “as is,” and that’s built into the pricing. Fannie identifies what it calls “improved” properties on the HomePath site – those that have undergone significant repairs – with either the Home Depot logo, when repairs have been made by contractors from that company, or with a hammer-and-roof symbol, when repairs have been completed by independent contractors hired by Fannie.

If you can’t find the First Look house you want, don’t give up. Freddie Mac, the other giant federal mortgage investor, also has thousands of foreclosed homes it’s trying to dispose of – and its own “First Look” program – at its “HomeSteps” ( marketing site. Freddie has its own spring incentive promotion: On bids received by April 15, the company is offering $500 that buyers can use to pay condo association dues, flood insurance or home warranty premiums. In addition, Freddie offers mortgage financing options in some areas. If you qualify, that could mean a loan with no mortgage insurance, no appraisal and a 5 percent maximum down payment.

Definitely worth checking out.

A helping hand on mortgages

A helping hand on mortgages

Kenneth R. Harney Feb 14, 2014

WASHINGTON – Parents, grandparents and young adults know the problem only too well, Heavy student-debt loads, persistent employment troubles stemming from the recession – plus newly toughened mortgage underwriting standards – are all standing in the way of vast numbers of potential first-time homebuyers in their 20s and 30s.

But are there effective techniques that family members, friends, even employers can use to bridge the generational gap by offering a helping hand – without hurting their own finances in the process? You bet.

First, some sobering numbers

1. Citing Census Bureau data on homeownership by age, demographer Chris Porter of John Burns Real Estate Consulting calculates that Americans who were 30 to 34 years of age in 2012 – those born between 1978 and 1982 – had the lowest homeownership rate of any similarly aged group in recent decades, 47.9 percent. By contrast, Americans born between 1948 and 1957 had a 57.1 ownership rate by the time they hit the 30 to 34 bracket. This is despite record low mortgage rates and bumper crops of bargain-priced foreclosures and short sales.

2. Debt-to-income ratios increasingly are mortgage application killers for would-be first timers. Adoption nationwide last month of a new federal 43 percent maximum debt-to-income ratio for “qualified mortgages” is particularly poorly timed for young purchasers. Because of large student debts, which average $21,402 but sometimes balloon into six figures, they may not be able to meet the 43 percent standard for years.

Typically they’re already paying out large amounts on credit cards, auto loans or leases and their student debt – about 30 percent of current monthly income for those 21 to 30 years of age as of 2012, according to a new research report from research economist Gay Cororaton of the National Association of Realtors. Factoring in the monthly cost of a typical mortgage for an entry-level purchase, the debt-to-income ratio as of 2012 for these individuals exceeded 60 percent, Cororaton estimates. Even with a 5 percent increase in income per year, they will not be able to qualify under the 43 percent debt-to-income test until 2019.

That’s a long time to postpone a purchase. Yet consumer research consistently finds that the overwhelming majority of Americans in their 20s and 30s would like to own a home, once they’re able to put together the financial pieces to make it feasible.

So what are some of the solutions available to help bridge the gap? The most popular is also the oldest: Growing numbers of relatives are stepping in with gift money to help defray the down payment and the closing costs – 27 percent of first-time purchasers last year, according to one industry estimate. Down payment gifts do not address the crucial debt-to-income ratio problem, but for young buyers who can get close to the 43 percent mark for conventional loans (Fannie Mae and Freddie Mac) or slightly higher at the more flexible FHA or VA, they can be extremely important. Rules on gifts vary among funding sources, but there are some shared basics: The money cannot be disguised as a gift if it is actually a loan; there needs to a formal gift letter that spells out the purpose of the gift and the specific transaction for which it is to be used; the source of the funds and the capacity of the gift-giver to provide the money need to be documented. For down-payment help outside the family tree, check out

But an increasingly important and fast-growing resource is turning the gift concept on its head: Rather than simply handing over their cash with no repayment arrangements, family members are becoming mini-lenders themselves. With a little professional assistance, they are providing either second mortgages or first mortgages that are custom-designed to deal with whatever financial hurdles – including paying off student loans to reduce debt-to-income ratios – their young relatives are confronting. Properly structured, these loans provide annual returns to family members well in excess of money-market funds or bank deposits, and open the door to homeownership for their kin.

The largest player in the field, National Family Mortgage (, has structured and serviced more than $155 million of intra-family transactions in the past two years and is on track, according to founder and CEO Tim Burke, to do $150 million in volume during 2014. “There is a lot going on” in this field that can help entry-level buyers strapped with student-loan debt, says Burke.

Check it out.

Getting an earful on servicers

Getting an earful on servicers

Kenneth R. Harney Feb 7, 2014

WASHINGTON – Got problems with the company that services your home mortgage – the one that collects your payments, keeps track of your escrow account and lets you know when you’re late?

So your monthly numbers don’t look right? You got blown off by servicing personnel when you tried to get inaccuracies in your account corrected?

Well, move over. You’ve got lots of grumpy company. As of Jan. 31, just under half of the 187,818 complaints filed with the federal watchdog Consumer Financial Protection Bureau concerned mortgage foul-ups, and the vast majority of these involved servicing, loan modification and foreclosure activities by servicers.

But sometimes the problems go beyond run-of-the-mill ineptitude. As part of its statutory functions, the CFPB sends investigators into the offices of mortgage servicing firms to check their accounts for evidence of what it calls “unfair and deceptive practices.” In their latest series of visits and supervisory audits, bureau auditors found shenanigans that might horrify unsuspecting homeowners

1. Abuses in mandatory cancellations of private mortgage insurance premiums. Servicers are required by federal law to stop collecting insurance premiums, which can run into the hundreds of dollars a month, once the principal balance on a mortgage reaches 78 percent of the original value of the property. But some servicers don’t follow the letter of the law. In one case, according to the CFPB, a servicer invented a requirement out of whole cloth – that premium payments could be canceled only if a loan was more than two years old. But there is no such requirement in federal law. Investigators also found cases where sticky-fingered servicers did not return excess mortgage insurance payments to the borrower within the 45 days that federal law requires.

2. “Biweekly” mortgage payment plans that weren’t really biweekly. The biweekly payment alternative, which some servicers charge fees to set up, requires half a month’s payment every two weeks rather than a full payment once a month. Since there are 26 two-week periods in a 52-week year, payments properly credited to principal and interest biweekly can accelerate payoff of the loan and over time, potentially saving the borrower thousands of dollars in interest charges. But CFPB investigators found that one company, which it did not identify, marketed deceptive biweekly payment programs to its mortgage customers. Rather than the promised biweekly crediting of payments, the servicer instead “submitted payments monthly and retained the extra money” in its own accounts until the end of the year, at which point it made an extra monthly payment. The net result was less beneficial for the borrower than promised.

3. Poor reporting on loan accounts to the national credit bureaus. Though servicers have a legal responsibility to correctly report the payment status of their customers’ loans to the bureaus, investigators found that in some cases servicers misreported mortgages whose payments had been modified – lowered – by lenders as being in foreclosure. They also reported some short sales – where the lender agrees to accept less than the full amount of the debt owed and a new owner purchases the house – as foreclosures. Both types of erroneous reports cause devastating hits to borrowers’ credit scores.

4. Abuses in transfers of servicing. Though complaints by consumers when their servicing is switched from one company to another have been commonplace for years, investigators found that some servicers mistreated customers whose loans had modified payment terms. Rather than honoring the modification terms, servicers insisted on independently determining that the lower payments were offered “properly” – either on a trial basis or permanently – by the previous servicer. This produced needless delays and paperwork to torment homeowners.

But it’s not only the CFPB that is turning up servicing issues like these. Kevin Stein, associate director of the California Reinvestment Coalition, says his group’s surveys of housing counselors suggest that servicers’ practices continue to pose serious problems, especially for non-wealthy homeowners, people of color, handicapped individuals and those who have sought or obtained loan modifications.

According to Stein, botched transfers of servicing appear to be an increasing source of pain for consumers, as are lost documents and so-called “dual tracking,” where servicers pursue foreclosures at the same time they are considering borrowers for a possible loan modification.

What should you do if your mortgage servicer gives you the runaround despite having seriously messed up your mortgage account? Consider joining the thousands of fellow owners who have filed complaints with the CFPB ( Unlike other federal agencies, the bureau follows up on your complaint, contacts the servicer promptly and tries to mediate your dispute.