Tuesday, November 15, 2005

Reversed Mortgage

I just found very interesting article, which I want to share with you all.

Handy reverse mortgage book reveals consumer choices
Author answers most basic questions effectively

Tuesday, November 15, 2005
by Robert J. Bruss
from Inman News

If you or your parents are a senior citizen homeowner over 62, "Pocket Idiot's Guide to Reverse Mortgages" by Jennifer A. Pokorney should be required reading. I've read lots of books about reverse mortgages, and I've written articles on this important topic, but I have never before found such a concise source that compares reverse mortgage choices in an easy-to-understand format.
Pokorney, a branch manager for a major mortgage lender who specializes in reverse mortgages, speaks with authority and writes with practical advice for senior citizen homeowners. Just in case you are not familiar with reverse mortgages, these financial devices pay money to senior citizen homeowners who are at least age 62. No repayment is required until the homeowner sells, moves out, or dies.
This new book has the best comparisons I've seen of the FHA, Fannie Mae and Financial Freedom Plan reverse mortgages. Pokorney doesn't hesitate to say which type of reverse mortgage is best, depending on the many typical situations she explains.
The basic rule is that reverse mortgage amounts available depend on the borrower's age, the home's appraised market value, and the type of mortgage chosen. Although FHA reverse mortgages are the most popular, the author explains when the Fannie Mae and Financial Freedom offerings are the best choice.
This handy guidebook, in a small format of only 7 inches by 4 inches, has just a few key points on each page. Pokorney uses lots of examples to relate the information she explains to practical senior citizen homeowner situations. Her comparison charts are especially simple and easy to understand.
Although I already know quite a bit about reverse mortgages, I learned new information, such as these mortgages are available on New York City co-ops but not elsewhere. Also I discovered why reverse mortgages are "declined" on some properties, mostly due to repair issues or where the residence is unusual or substandard. I especially enjoyed the author's explanation of how to best handle lender-required repairs.
The author's explanations of the differences between FHA monthly interest rate adjustments and FHA annual adjustments are the best and easiest to understand that I've seen. She has a knack for simplifying what can be confusing.
With a little study, this book will answer most basic reverse mortgage questions senior citizen homeowners and their concerned friends and relatives may have. It explains all the choices, such as lifetime income, credit lines (except in Texas), lump sums, and combinations that the homeowner can select.
A valuable feature is "The least you need to know" summary at the end of each chapter. This quick review highlights the most important topics explained in that chapter.
A key topic that Pokorney doesn't hesitate to tackle is the issue of up-front costs. She explains reverse mortgage costs are paid at the time of obtaining the mortgage and they might seem high depending on the mortgage amount. But she emphasizes loan representatives expect to be paid (from the loan proceeds, not from the borrower's pocket) and that's only fair.
However, the one topic that the author only mentions briefly is Fannie Mae's Home Keeper Reverse Mortgage for home purchase. This very special type of reverse mortgage is rarely used (perhaps because most senior citizen home buyers don't know about it). But it can enable seniors to buy a retirement home and never have to worry about mortgage payments.
Chapter topics include "What is a Reverse Mortgage?" "Is a Reverse Mortgage Right for You?" "Single-Purpose Mortgages"; "Home Equity Conversion Mortgage"; "Home Keeper"; "Cash Account"; "Applying for a Reverse Mortgage"; "The Approval Process"; "The Property Appraisal"; and "Living with a Reverse Mortgage."
This new book can't be recommended too highly if you are interested in senior citizen reverse mortgages that pay money to the homeowner and require no monthly repayments. The author obviously knows her topic very well. She explains it in a direct, simple format, which is easy to comprehend. On my scale of one to 10, this well-written book rates an off-the-chart 12.
"Pocket Idiot's Guide to Reverse Mortgages," by Jennifer A. Pokorny (Alpha-Penguin Group, New York), 2005, $9.95, 152 pages; Available in stock or by special order at local bookstores, public libraries, and www.amazon.com.

Saturday, November 12, 2005

Right to Choose Electric Service Provider

In Texas you have a right to choose the electric provider, just like you
choose your long distance phone company. You can buy your electricity from companies that compete for your business. Some electric providers offer lower rates, wind or solar power, or the promise of better customer service.
Shop and compare. Make sure you choose the electric provider that's right for you. If you do choose to switch, you are one mouse click away from a new electric provider. Want more information? Go to http://www.powertochose.org.

Friday, November 11, 2005

Why Loss Of Homeowner Tax Benefits Will Cause Real Estate Bust

by Blanche Evans

In a moving letter to Treasury Secretary John Snow, Tom Stevens, president-elect of the National Association of Realtors pleads for extreme caution in deliberations to include the elimination of the mortgage interest deduction in budgetary and legislative proposals. Doug Duncan, chief economist for the Mortgage Bankers Association explains in plain terms why losing this important homeowner tax benefit will throw the housing market into a bust.

Stevens writes, "Now that the President's Advisory Panel on Federal Tax Reform has completed its work, the U.S. Department of the Treasury will be working to convert the Panel's recommendations into budgetary and legislative proposals. The National Association of Realtors (NAR) urges extreme caution in your deliberations, and we ask you to preserve the mortgage interest deduction in any proposals to reform the tax code."

He adds, "America's Realtors are deeply concerned about the Tax Reform Panel's recommendations."

"Housing and the overall real estate market have been the engine of our nation's economy and the heart of America's families. Eliminating the mortgage interest deduction would de-value homes across America, hurting all of America's families. Moreover, such tax reform would place the largest burden on "middle America" -- those who have achieved homeownership through mortgage financing."

"NAR estimates that the value of the nation's residential property could decline 15 percent or more, if the tax reform panel's proposal to convert the mortgage interest deduction to a tax credit takes effect. Entirely eliminating the tax deduction for second homes would have a negative impact on at least 5 percent of the gross domestic product, since second homes accounted for 35 percent of all home sales in 2004."

"NAR is undertaking further research to ascertain the full impact of the tax Panel's proposals on all types of real estate and state and local property taxes. However, our conclusion will not change. Realtors believe the mortgage interest deduction is the single most important tax provision for our nation and our families. Diminishing or eliminating the mortgage interest deduction would hurt all families, the housing market and our national economy."

"On behalf of our 1.2 million members who are involved in all aspects of real estate, I would like to meet with you, at your earliest possible convenience, to discuss potential tax reforms proposals. With your help, we can preserve the mortgage interest deduction for the next generation of homeowners and keep our nation strong and growing."

Explains Doug Duncan, chief economist for the Mortgage Bankers Association (MBA,) MBAA.org, "Quite simply what will happen is that the interest expense for borrowing money will rise and that will reduce demand, so the demand side will fall. Second, the value of the tax deduction is capitalized into the price of the house, so if you remove it, the house price will fall by the capitalized value of that deduction."

By how much? It's hard to estimate, but economists suggest between 10 to 20 percent. From a theoretical perspective, it's possible only to guess.

As far as the effects of the real estate tax deduction, Duncan says it is a tax increase "whether you have a mortgage or not, so that will boost the amount by which properties fall, particularly in high property tax states like California and New Jersey. If you own an existing home, it will be fairly dramatic. That won't be the capitalized value -- it would be the carrying costs of the house, so if you eliminate the deductibility of real estate taxes, your total tax load rises and you'll be paying a higher real tax rate on owning that house and that will reduce demand and house prices will fall."

The effects of the loss of the property tax deduction are also difficult to calculate, he says. "They will be more localized because property taxes are determined at local levels."

Lawrence Yun, senior economist with the NAR says, "Residential housing is about 15 percent of the gross domestic product, including new homes, workers to build the homes, income generated from Realtor services, title services, etc., but what is important to realize the housing market has supported consumer spending. Home prices have risen, and homeowners have felt wealthy. Consumer spending is two-thirds of the gross domestic product, and it's been the rising home prices that have supported that. A plunge of 15 percent in home prices would be devastating and put the economy into a recession. It could have severe effects and could put a lot of lenders under water because the collateral value is below the loan amount. You would put financial institutions under stress, and the effects could last for quite some time."


"It would be one of the sharpest recessions for quite some time," Yun hedges.

About the panel's recommendations, Yun acknowledges that there has been no model of the potential disaster that could come from reducing such homeowner tax benefits.

"They realize they are taking away some of the benefit going to the housing sector, and many are saying the housing industry has been subsidized, so let's take that away, but for the short term -- up to five years -- it could be devastating to the economy," he explains. "Flatter taxes or consumption-based taxes should be efficient for the economy, but what is being overlooked is the short-term effects. It's unfair to change the rules in the middle of the game and this 15 percent hit for homeowners is a tax increase. That's very unfair because homeowners didn't anticipate when they bought that there was a possibility this would take place."

Another thing that is suggested is that the people who don't have mortgages or who pay low property taxes won't be hurt. This simply isn't true, according to Yun.

"That is wrong way to look at it," he says. "One can think of the current tax benefit that is accruing, and if you take that away, people will agree home prices will decline. But if you have two identical homes for sale on the same street, one being sold by a person who itemizes and the other being sold by a person who doesn't itemize, it is inconceivable that the home prices will be different because the owner itemizes or doesn't itemize. The owners who don't itemize will lose appreciation, too."

"The only comforting thing its I really don't think it would fly," says Yun. "Seventy percent of the nation are homeowners, and in a democracy it is impossible for any politician to go after 70 percent of the population. People need to be educated and informed of the consequences."

The panel said it was aware that its recommendations are "bold," and Treasury Secretary Snow has said he did not know what ideas the administration would embrace after the Treasury makes it recommendations.

"Now it's up to us," Snow said. The Treasury Department will "take the report, review it carefully, understand the implications and use the report as a starting point for recommendations that we will make to the President."

"The effort to reform the tax code is noble in its purpose, but it requires political willpower," the group said Tuesday in a letter to Snow. "Many stand waiting to defend their breaks, deductions and loopholes, and to defeat our efforts."

An AP report suggested that "members of the panel urged taxpayers and lawmakers to look at the whole plan, not just individual components," so they would know that "withdrawn tax breaks" would be replaced by "simpler benefits."

As the tax-writing House Ways and Means and Senate Finance committees will review the recommendations, so will the NAR. The Board of Directors has pledged to authorize a report on the financial impact of the loss of the mortgage interest rate deduction.