By JILIAN MINCER
As the credit crisis has worsened, more seniors have turned to federally insured reverse mortgages to tap home equity and, in some cases, to prevent foreclosure.
While still a very small share of the borrowing market, demand for these mortgages climbed in 2008 as credit tightened and retirement savings plunged. The market is expected to grow significantly as loan amounts increase and baby boomers with inadequate savings tap their home equity to fund retirement. Consumer groups, however, warn that fees are high and the cash sometimes is misused.
"Americans have the bulk of their assets tied up in their homes, even now," says Greg McBride, senior financial analyst at Bankrate.com. "The demand for reverse mortgages is increasing by the day."
The Federal Housing Administration approved 115,176 loans in 2008, up 6.4% on a calendar-year basis.
Loan providers expect a jump in closings this year because a bill passed in July by Congress created a nationwide $417,000 equity limit for FHA reverse mortgages, also known as Home Equity Conversion Mortgages (HECMs).
Consulting firm Reverse Market Insight reported that Miami is the No. 1 market for reverse mortgages, followed by Los Angeles, Tampa, Fla., Santa Ana, Calif., and Baltimore.
As the name implies, reverse mortgages enable a person 62 or older to convert home equity into cash without selling a house. The older the person, and the more valuable the home, the more money they could borrow.
"It gives people another lever to pull," says McBride. "Reverse mortgages let you tap into the value of your home."
Peter Bell, president of the National Reverse Mortgage Lenders Association, says, "If the goal is to stay in the home, this is an excellent tool."
Unlike a home-equity line of credit, consumers don't need to have income or high credit score to apply for a reverse mortgage. They must own all or almost all of their home. The amount of money from the reverse mortgage depends on the person's age, appraised value of the home and current interest rates. A person must receive mandatory counseling before applying for the loan to ensure that they consider other options such as selling their home.
Payments can be set up as an annuity or a line of credit. The fees are high, with limits of $6,000 plus closing costs. The FHA guarantees the loans and ensures the homeowner that payments will be made as long as the borrower remains in the home. The FHA also guarantees the lender that it will receive its full payment.
"People who thought their retirements were set are finding out they don't have the resource they thought they would," says Bronwyn Belling, reverse mortgage specialist at the AARP Foundation, an affiliated entity of AARP. "It's a really valuable way to help make ends meet and to stay in their own homes."
But she warns that the decision should be delayed as long as possible and should not be made lightly because the fees are high.
Bell says the current economy has contributed to the demand. There are more cases of people who can't or don't want to sell their homes in the current market.
Today, a growing number of the borrowers are using the federally insured loans to free up monthly cash and to avoid foreclosure. McBride says consumers also use the extra cash for a repair or to pay taxes if they convert a traditional IRA into a Roth IRA.
The credit crisis has dried up the availability of private reverse mortgages with much higher limits, says Bell.
In some places home values have fallen so much that many seniors do not qualify for the loans.
Wealthy homeowners had been using the cash for a variety of reasons including to purchase second homes, distribute assets and purchase insurance policies.
Consumers shouldn't use the loans if they're not going to be in the homes for at least a couple of years because the upfront costs are high. Someone could expect to pay $15,000 or more in upfront fees and then additional monthly costs as well as the interest.
One of the biggest mistakes is using the money too early. The average rate of the borrower has declined to 73.1 years from 76 years in 2000.
"We're also starting to hear more reports that people are being encouraged to use the loan proceeds to invest unnecessarily in long term care insurance, shoddy home repairs or annuities that didn't pay until someone is over age 100," says Belling of AARP.
http://online.wsj.com/article/SB123264214889606533.html
Friday, January 23, 2009
Monday, January 12, 2009
More oil is put into storage...
More oil is put into storage, waiting for prices to rise
Record contango pushes up oil inventories; Cushing stockpiles at the highest
By Moming Zhou, MarketWatch
Last update: 2:01 p.m. EST Jan. 12, 2009Comments: 25NEW YORK (MarketWatch) - A record amount of crude oil has been put into storage as investors and producers waited for oil prices to rise in the following months, in the hope that they can sell their oil at dearer prices.
Futures trading on the New York Mercantile Exchange indicated that a barrel of oil might fetch a much higher price in a few months. At Friday's closing, crude for July delivery was more than $13 higher than February crude, a gap that's never been seen between the two months' contracts.
Contango, or the situation where the price of a far future delivery commodity is higher than a nearer future contract, isn't surprising, with price difference typically representing the cost of storage and the time value of money.
But when the price spread is greater than the storage cost, "there is an opportunity to arbitrage at a profit without risk," said James Williams, an economist at energy research firm WTRG Economics. "Typically contango leads the storage buildup," he added.
Crude prices, currently nearly $110 lower than the record high above $147 hit in July, are expected to rise in the second half of the year as international economic stimulus efforts breathe life into the global economy and major producers cut output, analysts said. Instead of selling oil at a depressed price amid sluggish demand, more producers and investors are hoarding oil for future sales.
"When the market flips into contango, meaning the current month is less expensive than the month going forward, people start putting crude into storage," said Jeff Mower, editor-in-chief at Platts Oilgram Price Report. Contango "creates a financial incentive to store more barrels."
Record crude has been stocked at Cushing, Okla., the delivery point for futures traded on the Nymex. Cushing inventories jumped to 32.2 million barrels in the week ended Jan. 2, more than 9 million, or 40%, higher than a month ago, according to the U.S. Energy Information Administration.
That's the highest level since at least April, 2004, when the EIA started collecting Cushing data.
Super contango
The ongoing economic turmoil has pummeled oil prices and created contango that hasn't ever been seen. On Dec. 19, the expiring January contract ended at $33.87 a barrel, $8.49 lower than the February contract. That's the widest contango between two successive months' contracts, according to energy information provider Platts.
With price gas that big, oil investors can pocket lucrative profits by simply buying the January contract, taking the physical oil delivery and storing it, and at the same time selling the February contract.
Meanwhile, the oil storage business thrived as energy players sock away plentiful crude to wait out the current price trough.
Bruce Macphail, director of contract terminals at Enbridge, said the company's 15.5 million barrel storage capacity at Cushing is nearly full. He said the company holds contracts with a variety of energy companies ranging in length from six months to several years. Read more on oil storage.
As the current contango is expected to widen, Cushing inventories could rise further, analysts said. Storage capacity at Cushing stands at around 42 million barrels, according to Platts.
Rising inventories
Beyond Cushing, oil stockpiles are also on the rise across the nation.
Total U.S. commercial inventories, or oil held by producers, refineries and other users, jumped 6.7 million barrels in the week ended Jan. 2 from a week ago to hit 325.4 million, the highest level since May, 2008.
Refineries, meanwhile, are scaling back their production to wait for demand and prices to rise. U.S. refineries operated at 82.5% of their totally capacity of 17.6 million barrels a day at the end of last year, the lowest utilization rate since October, 2008.
Futures markets indicated gasoline prices will rise in the following months. On the Nymex, the September reformulated crude contract closed at $1.3817 Friday, or 24% higher than the February contract.
At the pump, regular gasoline averaged at $1.79 a gallon Monday, up 13 cents from a month ago, according to AAA's Daily Fuel Gauge Report.
Moming Zhou is a MarketWatch reporter based in New York.
Record contango pushes up oil inventories; Cushing stockpiles at the highest
By Moming Zhou, MarketWatch
Last update: 2:01 p.m. EST Jan. 12, 2009Comments: 25NEW YORK (MarketWatch) - A record amount of crude oil has been put into storage as investors and producers waited for oil prices to rise in the following months, in the hope that they can sell their oil at dearer prices.
Futures trading on the New York Mercantile Exchange indicated that a barrel of oil might fetch a much higher price in a few months. At Friday's closing, crude for July delivery was more than $13 higher than February crude, a gap that's never been seen between the two months' contracts.
Contango, or the situation where the price of a far future delivery commodity is higher than a nearer future contract, isn't surprising, with price difference typically representing the cost of storage and the time value of money.
But when the price spread is greater than the storage cost, "there is an opportunity to arbitrage at a profit without risk," said James Williams, an economist at energy research firm WTRG Economics. "Typically contango leads the storage buildup," he added.
Crude prices, currently nearly $110 lower than the record high above $147 hit in July, are expected to rise in the second half of the year as international economic stimulus efforts breathe life into the global economy and major producers cut output, analysts said. Instead of selling oil at a depressed price amid sluggish demand, more producers and investors are hoarding oil for future sales.
"When the market flips into contango, meaning the current month is less expensive than the month going forward, people start putting crude into storage," said Jeff Mower, editor-in-chief at Platts Oilgram Price Report. Contango "creates a financial incentive to store more barrels."
Record crude has been stocked at Cushing, Okla., the delivery point for futures traded on the Nymex. Cushing inventories jumped to 32.2 million barrels in the week ended Jan. 2, more than 9 million, or 40%, higher than a month ago, according to the U.S. Energy Information Administration.
That's the highest level since at least April, 2004, when the EIA started collecting Cushing data.
Super contango
The ongoing economic turmoil has pummeled oil prices and created contango that hasn't ever been seen. On Dec. 19, the expiring January contract ended at $33.87 a barrel, $8.49 lower than the February contract. That's the widest contango between two successive months' contracts, according to energy information provider Platts.
With price gas that big, oil investors can pocket lucrative profits by simply buying the January contract, taking the physical oil delivery and storing it, and at the same time selling the February contract.
Meanwhile, the oil storage business thrived as energy players sock away plentiful crude to wait out the current price trough.
Bruce Macphail, director of contract terminals at Enbridge, said the company's 15.5 million barrel storage capacity at Cushing is nearly full. He said the company holds contracts with a variety of energy companies ranging in length from six months to several years. Read more on oil storage.
As the current contango is expected to widen, Cushing inventories could rise further, analysts said. Storage capacity at Cushing stands at around 42 million barrels, according to Platts.
Rising inventories
Beyond Cushing, oil stockpiles are also on the rise across the nation.
Total U.S. commercial inventories, or oil held by producers, refineries and other users, jumped 6.7 million barrels in the week ended Jan. 2 from a week ago to hit 325.4 million, the highest level since May, 2008.
Refineries, meanwhile, are scaling back their production to wait for demand and prices to rise. U.S. refineries operated at 82.5% of their totally capacity of 17.6 million barrels a day at the end of last year, the lowest utilization rate since October, 2008.
Futures markets indicated gasoline prices will rise in the following months. On the Nymex, the September reformulated crude contract closed at $1.3817 Friday, or 24% higher than the February contract.
At the pump, regular gasoline averaged at $1.79 a gallon Monday, up 13 cents from a month ago, according to AAA's Daily Fuel Gauge Report.
Moming Zhou is a MarketWatch reporter based in New York.
Friday, January 9, 2009
US FED: Rosengren Supports Expanded FHA Mortgage Lending
Thomson Financial News
Washington, Jan 08 2009 (IFR) - Boston Federal Reserve Bank President Eric Rosengren today said he supports expanded access to Federal Housing Administration (FHA) lending programs, among other fiscal and monetary efforts to boost the sagging US housing market.
'Making these programs more accessible to borrowers and banks would help ensure that low and moderate income borrowers can obtain financing, which should help stabilize the market for lower-priced homes,' Rosengren said in comments this evening before the Massachusetts Mortgage Bankers Association.
Yahoo! Buzz'Since many banks have been raising their minimum credit score to qualify for mortgages, the FHA may be able to provide loans for borrowers whose credit history is not up to current thresholds, yet have the capacity to make payments,' he added.
He also recommended that Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) work to provide a secondary market for mortgages that reflect the lower costs of funds in many credit markets. 'Further exploration of the GSEs options for pricing and programs may result in additional support to the mortgage market,' Rosengren said.
As for the role of the Fed in all of this, Rosengren cited the central bank's November announcement that it would buy up GSE debt obligations and mortgage backed securities.
'While any extension of direct government assistance to borrowers has potential 'moral hazard' problems, the mere potential for such problems should not automatically derail proposals that are likely to keep temporarily troubled borrowers in their homes,' he said.
Rosengren noted that the economy has contracted 'quite significantly' in the final quarter of 2008, and may continue to do so over the first half of 2009. He warned that holiday sales 'fell short of expectations for many retailers,' and said it's a sign that consumers are spending less.
Washington, Jan 08 2009 (IFR) - Boston Federal Reserve Bank President Eric Rosengren today said he supports expanded access to Federal Housing Administration (FHA) lending programs, among other fiscal and monetary efforts to boost the sagging US housing market.
'Making these programs more accessible to borrowers and banks would help ensure that low and moderate income borrowers can obtain financing, which should help stabilize the market for lower-priced homes,' Rosengren said in comments this evening before the Massachusetts Mortgage Bankers Association.
Yahoo! Buzz'Since many banks have been raising their minimum credit score to qualify for mortgages, the FHA may be able to provide loans for borrowers whose credit history is not up to current thresholds, yet have the capacity to make payments,' he added.
He also recommended that Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) work to provide a secondary market for mortgages that reflect the lower costs of funds in many credit markets. 'Further exploration of the GSEs options for pricing and programs may result in additional support to the mortgage market,' Rosengren said.
As for the role of the Fed in all of this, Rosengren cited the central bank's November announcement that it would buy up GSE debt obligations and mortgage backed securities.
'While any extension of direct government assistance to borrowers has potential 'moral hazard' problems, the mere potential for such problems should not automatically derail proposals that are likely to keep temporarily troubled borrowers in their homes,' he said.
Rosengren noted that the economy has contracted 'quite significantly' in the final quarter of 2008, and may continue to do so over the first half of 2009. He warned that holiday sales 'fell short of expectations for many retailers,' and said it's a sign that consumers are spending less.
Thursday, January 8, 2009
MORTGAGES: Tenth Straight Decline Sends 30-Year Mortgage To New Low
CHICAGO (Dow Jones) -- Long-term mortgage rates dropped again this week, with the 30-year fixed-rate mortgage hitting a fourth consecutive record low in the history of Freddie Mac's weekly survey.
The 30-year mortgage averaged 5.01% for the week ending Jan. 8, down from last week's 5.10%. The mortgage averaged 5.87% a year ago. The rate hasn't been lower since Freddie Mac's Primary Mortgage Market Survey began in 1971. The survey covers conventional, conforming mortgages.
"Interest rates for 30-year fixed-rate mortgages fell for the tenth week to a fourth consecutive record low due in part to the Federal Reserve's recent purchases of mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae," said Frank Nothaft, Freddie Mac chief economist, in a news release.
"On Nov. 25, 2008, the Federal Reserve announced that it planned to purchase up to $500 billion of these securities by the end of June of this year. For the sake of comparison, there were roughly $4.7 trillion of such securities backed by home mortgages available as of Sept. 30, 2008.
The low rates, now nearly 1.5 percentage points below their level in October, have brought savings to those buyers brave enough to enter the housing market these days. The lower 30-year rate brings the monthly payment on a $200,000 loan down by $184 from the October peak, Nothaft pointed out.
Rates on 15-year fixed-rate mortgages also dropped, averaging 4.62% this week, down from 4.83% last week and 5.43% a year ago. The mortgage hasn't been lower since June 13, 2003, when it averaged 4.60%.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.49%, down from 5.57% last week and 5.63% a year ago. And 1-year Treasury-indexed ARMs averaged 4.95%, up from 4.85% last week but down from 5.37% a year ago.
To obtain the rates, the 30-year fixed-rate mortgage required payment of an average 0.6 point, the 15-year fixed-rate and 5-year ARM required an average 0.7 point and the 1-year ARM required an average 0.5 point. A point is 1% of the mortgage amount, charged as prepaid interest.
On Wednesday, the Mortgage Bankers Association reported that the volume of mortgage applications filed last week was down a seasonally adjusted 8.2% compared with the week before, due to a drop in refinance applications.
Freddie Mac (FRE) also joined with Fannie Mae (FNM) Thursday in saying they are extending a temporary foreclosure and eviction suspension on single-family homes to further work with servicers to modify mortgages.
Fannie and Freddie said they will extend the suspensions until Jan. 31. In November, Fannie and Freddie said they would not foreclose on occupied homes or evict homeowners from Nov. 26 to Jan. 9 to implement a streamlined mortgage modification program.
(END) Dow Jones Newswires
01-08-09 1215ET
Copyright (c) 2009 Dow Jones & Company, Inc.
The 30-year mortgage averaged 5.01% for the week ending Jan. 8, down from last week's 5.10%. The mortgage averaged 5.87% a year ago. The rate hasn't been lower since Freddie Mac's Primary Mortgage Market Survey began in 1971. The survey covers conventional, conforming mortgages.
"Interest rates for 30-year fixed-rate mortgages fell for the tenth week to a fourth consecutive record low due in part to the Federal Reserve's recent purchases of mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae," said Frank Nothaft, Freddie Mac chief economist, in a news release.
"On Nov. 25, 2008, the Federal Reserve announced that it planned to purchase up to $500 billion of these securities by the end of June of this year. For the sake of comparison, there were roughly $4.7 trillion of such securities backed by home mortgages available as of Sept. 30, 2008.
The low rates, now nearly 1.5 percentage points below their level in October, have brought savings to those buyers brave enough to enter the housing market these days. The lower 30-year rate brings the monthly payment on a $200,000 loan down by $184 from the October peak, Nothaft pointed out.
Rates on 15-year fixed-rate mortgages also dropped, averaging 4.62% this week, down from 4.83% last week and 5.43% a year ago. The mortgage hasn't been lower since June 13, 2003, when it averaged 4.60%.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.49%, down from 5.57% last week and 5.63% a year ago. And 1-year Treasury-indexed ARMs averaged 4.95%, up from 4.85% last week but down from 5.37% a year ago.
To obtain the rates, the 30-year fixed-rate mortgage required payment of an average 0.6 point, the 15-year fixed-rate and 5-year ARM required an average 0.7 point and the 1-year ARM required an average 0.5 point. A point is 1% of the mortgage amount, charged as prepaid interest.
On Wednesday, the Mortgage Bankers Association reported that the volume of mortgage applications filed last week was down a seasonally adjusted 8.2% compared with the week before, due to a drop in refinance applications.
Freddie Mac (FRE) also joined with Fannie Mae (FNM) Thursday in saying they are extending a temporary foreclosure and eviction suspension on single-family homes to further work with servicers to modify mortgages.
Fannie and Freddie said they will extend the suspensions until Jan. 31. In November, Fannie and Freddie said they would not foreclose on occupied homes or evict homeowners from Nov. 26 to Jan. 9 to implement a streamlined mortgage modification program.
(END) Dow Jones Newswires
01-08-09 1215ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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