Reverse Mortgage Loan Blog

The new housing law signed last week has some relief for virtually all homeowners:

For property-tax payers, it offers a new deduction, even if you don’t itemize.

For first-time home buyers, a new tax credit is available that acts as a 15-year no-interest loan.

For senior citizens, the new housing bill means lower fees on reverse mortgages, higher loan amounts and more protections.

And for homeowners fearing default, there is more money available for housing counseling and a new program for lenders to transfer failing mortgages to government-backed loans.

David O’Brien Jr., executive director of Housing Opportunities, a housing-counseling service, says he is “guardedly optimistic” that the new law will help homeowners facing foreclosure today.

“Some of these things in this bill common sense would say lenders are already doing on a pre-emptive basis,” he said.

In fact, many now are. O’Brien said lenders have changed significantly in the past six months in terms of negotiating remediation plans that include loan modifications and repayment plans. In addition, lenders are now dedicating personnel to borrowers in trouble.

“Most of the large lenders have assigned people in a triage program for people who call in,” he said. “Before, it was hard to get a loan servicer to respond.”

Key to avoiding foreclosure is letting your lender know as soon as your financial problems begin, O’Brien said.

“The earlier you diagnose the problem and seek some kind of help, the better off it’s going to be,” he said.

Help for homeowners

The new law says that homeowners who spend at least 31 percent of their gross income on a mortgage are eligible for refinancing under a new, more-affordable government-insured mortgage. But there’s a caveat written in the law that says it’s still up to the lenders to decide if they want to participate, O’Brien said.

In addition to homeowners facing possible foreclosure, the new law is offering some tax relief for homeowners who pay state and local real-property taxes and don’t normally itemize deductions, said Lacey Riley, an Arlington CPA with Pickens Snodgrass Koch L.L.P.

“It’s a tiny bit of relief for our high property taxes,” she said.

The new law allows a deduction for individuals who pay property taxes of up to $500 and married couples filing jointly of as much as $1,000, Lacey said.

But remember this is just a standard deduction, so your tax savings will be based on your tax rate. It’s not an adjustment to your adjusted gross income. So if you are married and in the 25 percent tax bracket, your tax bill will go down $250.

Boost for first-time buyers

A better deal is being offered to first-time home buyers.

“They are getting essentially a no-interest loan,” Riley said. “That’s going to be a pretty good deal.”

If you buy a house for the first time between April 9, 2008, and June 30, 2009, you can receive a tax credit of up to 10 percent of the purchase price or $7,500 on your 2008 taxes, Riley said.

The credit has to be paid back to the IRS, but in $500-a-year increments over 15 years. And the credit will be phased out starting with incomes of $75,000 for individuals or $150,000 for joint filers, Riley said.

Help for seniors

Reverse mortgages, the loan program for senior citizens to take equity out of their homes, also saw some major revisions, according to Brandon Burns, a loan officer with Fort Worth-based Griffin Financial Mortgage.

A reverse mortgage is a loan that enables homeowners 62 or older to borrow against the equity in their homes, without having to sell them, give up title or take on a new monthly mortgage payment. No credit or income standards need to be met by the borrower. When the borrower leaves the house, heirs can either sell the house and pay back the loan or turn the title of the house over to the lender.

The loans, which have been legal in Texas since 2000, are typically used by cash-strapped senior citizens who either want to pay off their mortgage, or use the money for prescription drugs or fixing up their homes.

Other provisions

Also included in the new law:

An increase in the single national loan limit, from $200,160 to up to $417,000, in areas such as Tarrant County. (Limits rose to as high as $625,500 in high-cost areas such as California.)

“This is a huge benefit to people who couldn’t originally qualify because the appraised value of their home was beyond the limit,” Burns said. “Now they can pay off the rest of their mortgage and have a substantial amount of money left.”

Ability to use FHA-insured reverse mortgages to purchase a home. Previously, seniors wanting to buy a smaller home or one in a retirement community would have to pay for it upfront and then take out a reverse mortgage, paying closing costs for each, according to Judith O. Smith, owner of another local mortgage lender.

“This is huge for our seniors, the real estate community and builders with all these senior retirement communities going up,” she said.

Reduced origination fees of 2 percent on the initial $200,000 of the claim amount, then 1 percent on the balance thereafter with a cap of $6,000. Lenders’ fees are currently capped at 2 percent of maximum claim amount.

Consumer protections, including prohibitions on requiring the purchase of annuities and other financial products and restrictions on cross-selling financial products.

New requirements on home-counseling practices and funding that promote independence and better counseling. Home counseling is required by law before a reverse mortgage can be taken out. Texans took out 5,738 reverse mortgages last year and are on track to take out 6,700 reverse mortgages by the end of this year, said Scott Norman, executive director of the Texas Association of Reverse Mortgage Lenders. Nationally, reverse mortgages have grown from 7,781 loans in 2001 to 107,000 loans in 2007, according to the National Reverse Mortgage Lenders Association.

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