Thanks, Tanta. One of my favorite topics in terms of ills that are taking root in America.
With all your details on the mortgage practices over the past several years you fail to come to the conclusion that we are dealing with a govt. controlled by bankers and financiers who will stop at nothing, in terms of harming a large segment of the population, especially, the most vulnerable, to make a buck. Uncontrolled greed, supported by govt. programs and laws, is what we are up against. The abuse, going on for years, was so obvious to many.
Is it your blind faith in America, or American System? That evildoers can't take control of the US govt.? Well, I have some news for you: They already have and we Americans can't do a damn thing about it.
The French do it differently. They allow sales of homes via a one-time payment (the "bouquet") plus a periodic payment, often annual and fixed, of a predetermined amount, with the seller having the right to occupy the home until his or her death. (The buyer therefore has an interest in the seller dying quickly...)
Another impressive article, thanks for your insights.
I'm a bit confused though about what happens if Granny's home value goes up/down before the maturity event. Does she get more money if her house appreciates, or does the bank pocket that at sale time? Conversely, if the value goes down, does the bank take that hit or do they "adjust" her disbursement?
Seems that a reverse mortgage might make sense for some folks, especially if they are in markets that may have peaked.
Ever notice how many seminars are targeted to the elderly?
Especially annuity providers, whole life, and universal life.
Ever wonder why annuities gat placed in tax-deferred accounts?
Ever wonder why banks in particular have structures that make your first contact the personal banker who can only present annuities and CD's and receive compensation? think they will refer the business to the investment rep within the bank or the trust dept and give up their compensation, I think not. Thus a system that is burdened with conflicts aimed not at placing the interests of the client first but, lining the pockets of the first point of contact with a product that more often than not is unsuitable.
FHA's and Fannie's products include a ton of consumer protections. One of my two biggest fears is that, once they catch on bigtime, copycats will offer 'more generous' programs without all the protections. The other is that you'll get lenders like the ones in Moscow, that used to take steps to make sure that 'extension risk' didn't occur when grannie got a mortgage payable upon her death (yes, USA isn't the only place with HECMs).
central_scrutinizer, the thing with these loans is that the borrower and the lender pretty much have to place their bets at the time. I suppose you can "refinance" a reverse mortgage with another reverse mortgage, but I can't quite wrap my mind around what that would cost.
The thing to remember is that while the home value may be going up and the borrower is getting older, that original drawn balance has been accruing interest. So home values have to go up faster than the interest rate on the loans. My guess is that for most borrowers, not likely.
The bank always takes the hit if the value goes down. (Hence the "default" if the borrower fails to preserve the property; these things require the servicer to have an inspection done once a year.) My general sense is that the principal limits on these things are rarely over 50%, possibly as much as 60-65% for older borrowers.
I think they do make some sense for borrowers. I just want the industry to admit that the very existence of reverse mortgages does something embarrassing to that claim that homeownership isn't a money sink.
I read some idjit on the web a while ago--didn't bookmark it--griping about these old folks who "refuse to downsize" and keep "overconsuming" housing. All righty then. I have never personally originated reverse mortgages, but people like that would make me start doing it.
And there are giants still. I want them to have a home to come back to. I want them to come back. Now.
Well, they're giants in part BECAUSE they volunteer to go do what must be done, when others shrink from the task - like Tantas grandmas man, who volunteered for service in WWII.
Today's giants are even bigger, because there's no draft; nobody has to go.
They don't want to forced to come home, until the job is done.
Another fine analysis. Let me chime in regarding the "intergenerational wealth transfer" issue. There are two ways of looking at it. On the one hand, there is the idea that mom and dad worked hard and saved all their lives so that eventually I would be able to lay around the house watching Survivor reruns all day. On the other hand, there is the idea that mom and dad made that wealth transfer way back years ago when they provided a stable, nurturing home, helped me with my schoolwork and provided an example of how to live. Personally, I got my wealth transfer long ago and if mom and dad want to spend every last cent on travel or even leave it all to the Nature Conservancy, then I'm all for it.
mort_fin, it hurt me to type SOS. I dislike namby-pambyisms. But somehow, in this case, grandma was leaning over my shoulder as I wrote this. While gramps would have chided me for not spelling it out, grannie would have smacked me for so doing.
The necessity of reverse mortgages would be greatly reduced were it not for the perverse machicinations of property taxes based upon the value set by the stupidest person in the room. What if any other form of taxation were assesed in this manner? For all its' faults Prop 13 in California has at least protected homeowners from some of this effect.
When handing out the blame make sure municipalities get an extra heap of greed salad with high fat vigorish dressing.
Amen on the 'come back. Now.' part. And amen to working like hell to create a country, an economy, and political leadership worthy of their enormous sacrifice.
You say "They don't want to forced to come home "(sic). If it really is voluntary, why all the stop-loss orders? Why not let them simply come home if they wish? The commander-in-chief could do this with the stroke of a pen and make the military truly voluntary.
And by the way, the job (occupying and pacifying a country of 27 million people 70% of whom don't want us there and whose parliament recently had a majority vote to set a timetable for our departure) can't be done by 150000-200000 soldiers - maybe not even with 2000000. The idiots who planned this war (and ignored the advice of competent military and intelligence officers) lost this war six years ago and no amount of lying is going to change that. Asking more soldiers to die so that Bush doesn't have to take responsibility for his failure isn't patriotic - it's stupid and immoral.
Need to chime in with David and Alo, rather than Michael...on the performance of your exemplary civic duties not taking a back seat to your technical expertise...not construing the absence of a draft in today's unpopular conflict with your grandparent's conflict as that which distinguishes "today's even bigger giants".
Some of us don't even know what the job is, let alone being able to say where to start or finish it.
Thank you for the personal integrity and recognizing the day, Tanta...no ordinary Giant, people.
Hi Tanta. A while back I was listining to a critic talk about his enjoyment of certain writers. His point was that regardless of one's interest in a subject, some writers are simply a pleasure to read. Your paragraph ending with being "a couple recession bar shout of a good CR chart" reminded me of how much I enjoy your style and "cut to the chase" analysis, even when the material becomes a bit complicated. I'd read you if you were writing about clearing the eves of wasp nests. Keep up the good work. I'm getting a great education while being well entertained. Maybe one fine day you'll kick out an historical novel or something. Thanks, the chuckster
Given the news out of Iran today, perhaps some of our boys will be home soon. The boys out in the Hindu Kush will be there till the last 'kida makes the mistake of showing his head above ground.
Regardless of your position on the current unpleasantness, God bless our troops.
Michael, in that home my grandparents built and lived in their long married lives, there was a portrait of FDR haning in the dining room, draped with an altar cloth. It was never taken down during the Vietnam war, in which all three of my grandfather's sons served. That neighborhood was cannon fodder then, and it's cannon fodder now. The fact that one of the few tickets to a career for the grandchildren of those good folk is the military is an economic issue, not a question of who's the biggest giant. Anyone who tries to claim that there is a monolithic mindset among those who fight, and that it is always and everywhere in support of those who pick those fights, is way more out of touch with reality than great aunt Euelna, who is included in the list of giants.
Not that I want to be asked who John Prine is, but . . .
Slightly OT but the following editorial appeared in the local fish wrap. Wachovia has been my families bank going back to the 1930's. Makes you wonder where the financial economy is going.
"Wachovia Bank has been making it possible for criminals to rob sick old people of their savings.
After buying lists that group people into categories such as "Suffering Seniors" (for example, cancer and Alzheimer's) or "Oldies But Goodies" (gullible gamblers), criminals call these vulnerable people up and con them into giving up personal information.
The criminals then go to cooperative banks, such as Wachovia, and loot the old folks' accounts.
It isn't that the banks don't know who they're dealing with. Wachovia didn't get to be the country's fourth-largest bank by having stupid executives. Just greedy and heartless ones, it would appear.
The New York Times examined thousands of bank documents, court records and e-mails and concluded that executives at the cooperative banks "often confront evidence that they are used for fraud." And don't seem to care.
The paper reported that Wachovia and some other companies continued to work with the criminals, despite the warnings of other banks and government investigators.
"In all," The Times said, "Wachovia accepted $142 million of unsigned checks from companies that made unauthorized withdrawals from thousands of accounts, federal prosecutors say. Wachovia collected millions of dollars in fees from those companies, even as it failed to act on warnings, according to records."
The bank issued a statement saying it had given refunds to those who asked for them, and that it was cooperating with the authorities. How nice.
North Carolinians once could take pride in a homegrown bank so well-managed that it was expanding across the country. They never would have suspected it of conniving with criminals who defraud the old, the lonely, the confused and the sick.
You can get wasps' nests out of the eaves? I didn't know that. I read too much mortgage shit . . .
There are any number of memoirs out there--serious, tongue-in-cheek, tongue-sticking-out-and-making-fart-noises--on the subject of surviving a corporate career with one's soul intact. I've never felt inclined to write one, since surviving with my soul intact was never really my direct concern. What I worried about endlessly was surviving with any ability to write anything at all intact. It was a lot of work, I tell you. My employer could get me to sign off on some megamillion dollar trade that risked taking the bank down with my head up and my shoulders squared. The next day I'd be backed into the corner of my cubicle, brandishing a red pen, crying out that those bastards could have my labor, they could have my dignity, they could have my soul, but they weren't taking my active voice. I dangle modifiers for no one. This far, and no farther, but not "no farthest."
I just can't imagine anyone wanting to read that memoir . . .
Speaking of property taxes... I think a better solution than Prop 13 is a plan where the home owner has a right to sell the property back to the County at the appraised value from the previous year.
For example, home appraised by the county in 2006 for $200,000. Comparable homes in neighborhood are selling for $170,000. County just reappraised at $210,000 for 2007. I think I should have the right to call their bluff and at least force them to purchase it for $200,000.
This might stop this pattern of rising tax values in a declining market. The county could then "reconsider" and decide to value the property at $170,000. Property taxes are lowered, the county isn't stuck with an overvalued home and I don't have to waste time arguing (politely) in front of the appraisal board that they "must have made an oversight when determining my homes value."
You say "If it really is voluntary, why all the stop-loss orders? Why not let them simply come home if they wish? The commander-in-chief could do this with the stroke of a pen and make the military truly voluntary."
Part of the enlistment or commissioning contract with any branch of the military clearly states that that your tour can be extended by the CC. If you have a shortage of critical skills on the ground in a combat zone, more Americans die.
Without a draft it is truly voluntary.
You then said "And by the way, the job (occupying and pacifying a country of 27 million people 70% of whom don't want us there and whose parliament recently had a majority vote to set a timetable for our departure) can't be done by 150000-200000 soldiers - maybe not even with 2000000. The idiots who planned this war (and ignored the advice of competent military and intelligence officers) lost this war six years ago and no amount of lying is going to change that. Asking more soldiers to die so that Bush doesn't have to take responsibility for his failure isn't patriotic - it's stupid and immoral."
I agree with most of your statement here,(of course, we invaded in 2003, so it is 4 years ago)
but... if we leave without any comprehensive plan, we may likely be back fighting a regional conflict with far greater loss of American life. Walking away without a plan will not be as easy as it was when we walked away from Vietnam.
As someone who has every intention of dying childless, I am a huge fan of the reverse mortgage. It's another twist to the tale: far from bequeathing huge amounts of money and property to their kids, many elderly people rely on their kids for support, including financial support. If I don't have kids, I don't have that option. (Of course, I also don't have the enormous expense of having children, so I should be able to save more. Let's see if that happens.) In any case, by the time I'm retired and my house is paid off, of course I will want to stay there, and of course I will not be able to do anything with the proceeds from selling the place after I've died. If I want to spend that money while I'm alive, I think I very much would like to do so. One way of doing that would be to borrow the maximum amount under a reverse mortgage, and then use that money to buy an inflation-linked annuity which will pay out as long as I live. Maybe by the time I retire a financial services company will be sophisticated enough that it will be able to pool all of my retirement funds, plus the value of my property, and convert the whole thing to an index-linked annuity which includes healthcare costs. Now that's a product I'd be interested in.
There is a more modern spin on the term "SOS" (and I am not trying to hijack it. Just go over to ml-implode... shake your head, and say to yourself. "Same Old S**t".
Prop 13: In California, you can ask the county to reappraise your home any time that you think that property values have dropped, and your taxes will decrease accordingly. A lot of people did this in the '90s. If we were to have a serious dip in real estate values, California cities and county gov't would face a rapid drop in income from current homeowners.
"Choosing to serve" and "not wanting to leave until the job was done:" I never served, but my parents' generation did in WWII. I grew up in a Navy town. Around there, we called it "the service." When you signed up with the military, you entered "the service." And service is what it was, and what it is. You subordinate your will to serving the good of the country, as defined by its elected leaders. You don't ask questions, and you aren't consulted on matters of global strategy. You just serve. That's why the military is a tough row, and its members should be honored.
Are the leaders correct? Incorrect? Is the war winnable? Unwinnable? Is it time to stay? Go? Those aren't questions for you, the soldier. You just serve. People who talk about not disappointing our troops are either missing the point or hiding behind specious emotional arguments. The war doesn't belong to the troops. It belongs to us, and is our responsibility. Continuing it because we don't want to hurt the troops feelings is... well, abdicating responsibility. Hiding from responsibility. A line of bull.
Felix, I love it. Forcing Big Finance to step into the ring with Big Pharma, and see who blinks first.
All this talk about trying to get the government to buy in bulk for all of us, like they do for VA and Medicare, is so pointless. What we really ought to be doing is telling Big Pharma they can get whatever Fannie Mae is willing to finance. Heh.
Am I the only one to be scared silly by the longevity risk financial institutions are taking on in offering these products (a risk, incidentally, that Banks do not have to put up regulatory capital against)?
The gap risk on the value of the property vs. the PV of the payments (whether made or not) is mortality contingent. This is (almost - a prominent French bank has been trying to hawk mortality swaps for years, but no one likes the pricing) unhedgeable. It strikes me as potentially much more toxic for the lender than for the borrower.
"In the first quarter, PHH originated $9.2 billion in residential mortgages, giving it about 1.4 percent of the marketplace, according to the trade publication Inside Mortgage Finance, which estimates that about one-fifth of the company's business comes from subprime mortgages or loans without much documentation."
That's ok, they cannot even get their own financials out and have admitted to not having effective controls or many exec's who understand GAAP.
So, Blackstone is supposedly buying them and is in the process of selling a stake to the Chinese and retail through an IPO.
Let's see, PHH came from Cendant, one of the biggest accounting scandals on record, spun it off, admitted to accounting problems and lack of controls or understanding GAAP, Blackstone is buying the mess, and launching an IPO to the public and Chinese..............
"I just want the industry to admit that the very existence of reverse mortgages does something embarrassing to that claim that homeownership isn't a money sink."
As usual, you got some facts right and some facts wrong -- perhaps you should leave the technical explainations of loan products to the experts -- but the reverse mortgage does nothing to support the erroneous theory that homeownership on the whole is a bad investment or endeavor.
A shout-out to Bob Dodd and Jim for their comments. We bear responsibility for their fates, and we also bear responsibility for their future fates. I have an opinion but it is an amateur opinion, so I won't voice it. I will merely thank our military personnel for their service and support their families in any way I can.
Regarding reverse mortgages, they are costly to administer and fraught with risk. This is one category of loans that seems to rank right up there with neg-am mortgages in terms of loss ratios.
I have noticed so much interest in them on Broker Outpost and the Grapevine that I have developed a gnawing sense of worry over them in the current circs. I think the risk on homes in coastal areas is growing, and that it should not be neglected when figuring possible outcomes for such portfolios. With radical changes in insurance premiums and coverage, Granny's sure thing can easily become Granny's eviction, and the lienholder is unlikely to do anything but cut the lienholder's loss in that circumstance. Such lose-lose scenarios strike me as unviable.
Tanta said: "Not that I want to be asked who John Prine is, but . . ."
As soon as I saw the name "John Prine", the lyrics of "Flag Decal" immediately leapt to mind, even without the link.
Tanta said before: "...If you really think the tedious details of mortgage market regulation have nothing to do with the big economic picture, youre a couple of recession bars short of a good CR chart."
Not at all. Same number of recession bars, just in the wrong places.
--
Bob Dobbs: "The war doesn't belong to the troops. It belongs to us, and is our responsibility."
NO. If you read the history of this war and the facts that have come out then the war belongs to just one man -- George W. Bush, the man who ran for the presidency primarily to go after Saddam Hussein. Once he became the President it became his obsession from day one. He is a war criminal but who can apprehend him and put on trial? The World Court? Morally bankrupt among us will never allow that to take place. Govt. of the Crook
It is the Morality, Stupid! (That WILL be the downfall of the American System).
Jas
PS: Take out Consumption Debt (non-essential consumption, e.g., for frivolous luxuries), Gambling, & Prostitution (the oldest vices known) and the US economy has been in a depression for 10 years. A depression delayed is not a depression avoided. Regrettably, immorality will catch up with Americans.
Just like with life insurance or an annuity, the terms of the reverse mortgage depend on how long the lender expects you to live. If you (with better information about yourself) expect to live longer than the lender thinks, then you will come out ahead. One problem is that I suspect people will typically think that they are healthier than in fact they are ("Hey, I'm going to live forever!"). In that type of world, people may consistently overpay, in terms of implicit interest rate, for the reverse mortgage.
Is there any data on what the typical implicit rate of interest is on reverse mortgages?
The lender has an incentive to come up with a "low" appraisal for reverse mortgages, but lenders have incentives to come up with a "high" appraisal for first or second mortgages.
I wonder if there is a way for a "good" appraisal to be revealed by requiring lenders to use the same appraised amount for regular and reverse mortgages?
Has anyone looked at whether or not (independent) appraisers tend to appraise "low" for reverse mortgages and "high" for regular mortgages?
On the subject of mortgages and the troops, yesterday's Washington Post had a front page article that included this.
she bought a house while Bravo Company was in Fallujah, navigating complexities compounded by distance and war. It was a nightmare, she said. One misaddressed set of documents went to Iraq and back without finding Marshall.
On settlement day, the lenders made him call Thief River Falls.
"He had to call the armory," Alicia said, "and the armory had to type up a paper saying he was alive."
I don't remember the exact details, but the story goes a little something like this:
The oldest lady in France sold a lien/received a bouquet (as a above) on her house to/from a middle aged lawyer. She was 85 at the time and he was a sprightly 35 years younger. 30 years later, she was still alive and his children were still waiting to collect.
Her diet for those of you keen to emulate Methuselah apparently consisted of cigarettes, red wine and coffee.
I dunno, I might be naive, but it seems to me a perfectly wonderful post can get misdirected and off on a different point by injecting political beliefs. Witness the threads you've gathered.
Two things (maybe more). Many believe as you, and you've played well to that base. You've probably disaffected and alienated people who just enjoy a thoughtful treatise on the misadventures of our housing market and its financing.
I didn't vote for George Bush and I don't like the war even a little bit, but I have a couple thoughts (gee, who doesn't on THIS subject, huh) we were attacked by Al Quaida is clear. They are stateless, and though we fought the Taliban who housed them in Afghanistan, there is no next place and way to fight them short of turning the globe into a giant police action and worse. That Saddam had weapons of mass destruction at one recent point is beyond dispute. The used them against Iran in the late 80's and against his own people. That he ran out or got rid of them is clear to us now, but was anything but clear 4 to 5 years ago. Everyone in Congress and the government was ready to bet their reverse mortgage that they were there to be found. The war has also been badly managed. The Iraqi ex-pat's here in this country were whispering to anyone that would listen that the people would welcome us with open arms and get busy electing officials and opening Burger King's as soon as we liberated them. No one checked the Balkan history book and Tito's legacy for the far more likely outcome. When a strong man keeps a place in a deathgrip for 20 to 30 years, all the leaders and potential institutions wither up and die. There was nothing there to backfill Saddam no matter how anxious the population might be. This is the quicksand of nation building -- and why cooler heads should have prevailed.
But here we are. The Islamic fascists are watching and waiting for us to quit. We may pick bad engagements, but we aren't known for this. We are known for losing our nerve, packing up and leaving. Don't just look at the Vietnam mistakes, look at Sudan, Lebanon and other adventures where we turned tail and left. The Ali Quaida,Hezbollah, and numerous others are watching and waiting for the inevitable. This challenge has firmly replaced the Soviet era and the Cold War as our Bete Noir. One last point -- do we honestly want to vote on where our next military campaign should be fought? Do we vote on whether a location is sufficiently popular before risking an engagement. Look, nobody wants our best and finest to die at the hands of despotic fanatics bent on a re-creation of the Ottoman Caliphate. It is an honest discussion as to where and how we choose our theatres for war. If everyone doesn't just hate the war yet, just view a few more months of network news or NPR with poignant irony of the tragic loss of one more truly great young person cut down with a pan to the grieving family.
They will come after us. If you don't remember 9/11 -- remem
You've probably disaffected and alienated people who just enjoy a thoughtful treatise on the misadventures of our housing market and its financing.
Gee, sorry I ruined your Memorial Day by not acting like it's just another day to "enjoy" our intellectual pursuits without acknowledging the blood that has seeped into the soil.
I want them back, now. You are free to want them to stay until we have no more blood left to give. I understand that to be one of the Consitutional freedoms for whom so many men and women have died. But I strongly suggest that if you want to be taken seriously by the likes of me, don't make it sound like I just harshed your buzz on this fine day that should be devoted to business as usual, OK?
I damned well do hope a bunch of people thought, man, we can't even get away from this war thing on Calculated Risk. Because that is indeed right. You cannot get away from this war thing. You will have to live with the dreadful diaffecting and alienating realization that there are adults with an interest in economics and finance who actually do, yes, disagree with you on the war and feel just fine about saying that on Memorial Day.
There are 364 days a year to talk about 9/11 blah blah Saddam blah blah WMD blah blah turn the corner blah blah last throes blah blah another six months blah blah. Today is the day that my dead demand my attention.
We'll go back to sparing your tender sensibilities tomorrow.
I know those people - or think I do, your grandparents & Euelna - that's the world I live in still... or at least partly. Work out of my home office and chat with my elderly neighbors who in their mind are living in the late 40s or 50s... Meanwhile I'm emailing & talking on the phone with engineers on the coast or even another continent - 21st century here and now. No wonder I'm as schizo as I am.
Two questions:
1) Do you seriously see RM's as a 'fix' given their cost & constraints? I don't. I see a lot of hype and very little promise... less now after reading your piece.
2) Would you share your recipe for SOS? My mom died before I got her's.
"Say what you will about reverse mortgages, one benefit is they lessen fights between siblings over inheritance issues..."
Not necessarily, the borrowers family (heirs) have 12 months after the death event to acquire the property. Regardless of what has been intimated here, most will have sufficient equity left to make it a desired outcome.
Of course, dryfly. This is better recession food than ramen.
SOS
1 package chipped beef
4 tablespoons butter
3 tablespoons flour
2 cups milk
a lot of black pepper
Tabasco
toast
Snip or tear the beef into pieces, put it in a colander and rinse under very warm water for several minutes, or else this will be "salt on a shingle" and you won't like it. Dump the beef and butter and 1/2 cup of water into a skillet, and cook over highish heat until the water evaporates and the beef is lightly browned. Stir in the flour and blend thoroughly. Pour the milk into the skillet and stir competently and thoroughly until it is thickened and smooth. Add pepper and Tabasco. You aren't likely to need salt. Pour on toast. Accompany with beer for the grownups and apple cider for the children. Wine is not recommended.
I've heard of people who add shit like peas, in an attempt to make this nutritionally acceptable food. I don't know why they don't just eat salads.
I do have a friend who adds a couple of big spoonfuls of this processed cheese "bar dip" he buys down at the local tavern. That's acceptable. Freshly grated gruyere would not be consistent with the spirit of the dish.
If you are looking for a way to justify blanketly placing people in a reverse mortgage, this bloag ain't it superstar.
I do not believe it's a blanket solution for all borrowers.
My comment was conveying the belief that the value/encumbrance proposition will generally be favorable enough for most heirs to seriously consider acquisition of the property
"NO. If you read the history of this war and the facts that have come out then the war belongs to just one man -- George W. Bush, the man who ran for the presidency primarily to go after Saddam Hussein."
It's still our responsibility. We don't care enough as a people to throw him out of office. We're too comfy. Now, if he were idiot enough to institute a draft of college-aged yougn people, the middle class would be in the street in about five minutes, calling for his head. Otherwise, they won't, because as long as it's someone else's child going to war -- often someone who joined up because he didn't have the economic opportunities their kids do -- they won't lift a finger.
It's our war. A war we allow to happen. Bush is just the symptom of the disease. A particularly bad outbreak of societal herpes.
Re: reverse mortgages: not seeing too many of them yet on the California coast. Most older people who've been in their home 10 years or more still have enough equity to cash out, move someplace where homes are 1/3 the price, and put the rest in the bank for retirement.
"Re: reverse mortgages: not seeing too many of them yet on the California coast. Most older people who've been in their home 10 years or more still have enough equity to cash out, move someplace where homes are 1/3 the price, and put the rest in the bank for retirement."
Perhaps, but the Santa Ana Hud Field office is the busiest HECM transactor in the FHA system.
Tanta, first let me say that I respect your knowledge of all things mortgage-related.
Second, let me say, that I am not thrilled by your long-windedness at times.
Third, let me say, your concise responses to war supporters is motivational. We live in a time where OUR voices are not heard by the powers that be, so it's more important than ever for us to make strong and clear statements about our beliefs.
Most of IndyMac's profit in 1Q2007 was in reverse mortgages. The profits in this segment went from something like 8 million in 4Q2006 to 28 million in 1Q2007. Their total profit in 1Q2007 was 50 something million, so you can see how dependent they're going to be on reverse mortgages in the near future. Sorry, I don't remember the exact numbers off the top of my head.
They also stated that they thought profits would be lower going forward due to increased competition in the reverse mortgage segment. Sure enough, a few weeks after reading this, Countrywide announced a reverse mortgage program.
I looked at the Financial Freedom website (What IndyMac calls their reverse mortgages). It looks like you can't borrow more than 50% of the home equity and it looks like a fees goldmine to those who service the loans. It looks like a great deal for banks.
I've written a lot of software for insurance companies. Much of it was actuarial calculations.
For those interested, what the calculations do is they predict the chances of dieing at an age. The chances are based on gender and smoking status. The chances usually stop at something like 125 years old since the cumulative chances of dieing by that age is something like 99.9999999%. Using this, they determine the break even payment for every age and then do an age adjustment. For example, an annuitant who is 62 and is annuitizing 1 million dollars, may have a breakeven payment of 4,000 per month for life. The insurance company would adjust the age by something like 3 years and for someone who is 59, the breakeven payment would be 3,700 per month and this is what they would offer to pay the prospective annuitant. Basically they would, on average, get 3 years of profit.
Things get very complicated when you have joint annuities, where a husband and wife annuitize together and you have survivorship of one spouse. Most annuities have a guaranteed period certain period where payments will be made to heirs if the annuitant dies before a certain time period. There are also a seemingly endless assortment of riders that differentiate products, but, in general, they all work the way I outlined above.
I would guess that the determination of how big a loan is available for a property follows similar logic.
Just read in the Asset Backed Alert: "Glenn Schultz, who heads asset-backed securities research at Wachovia, said that while it's tedious work to determine the credit quality of subprime-mortgage transactions, especially older deals, the effort can be rewarding for investors willing to put in the time."
HAHAHAHAHAHA!!! Shocking! You mean investors don't always analyze the collateral???
Also: "Schultz said some issuers were cranking out deals mainly to take advantage of demand from CDO issuers who wanted to buy the products for their deals' collateral pools, often with little analysis."
Reverse mortgages will get interesting when hedge funds pool healthy, elderly home-owners (let's say 75+, home worth at least 200K, pay the homeowners a lump sum, and then have the proceeds of the reverse mortgage assigned to a trust the fund controls, betting that the homeowners far outlive the lender's mortality assumptions. It a pure mortality arbitrage play that has already been used for years in the life insurance and immediate annuity industry. I haven't seen a large sample for this type of deal, but I bet someone on Wall Street is working on it.
Alec-Great question. I don't know for sure but I would bet that the tax treatment is similar to an immediate annuity. A portion of the monthly, quarterly or annual payment is considered a return of basis, while a much smaller portion is considered gain. The "gain" is ordinary income.
I found it, like most similar material, appropriately dense and abstruse, and will probably pore over it over a few lager this evening with my companeros, to extract hidden meaning and whatnot...
As for the final comment, well what more can one ask for these days but an emergence of a collective sanity, one which doesn't merely ask that the right thing be done, but which depends on each and every one of us to demand more of ourselves in order to effect a change.
Would have been nice if you had deleted any lefty statements following the initial post re the the politics of the present war.
Lefties and righties are both wrong about this war.
The greedy spoiled Boomers (& their spoiled offspring cont)sacrificed genuine productive sectors, R&D, etc. and racketeered capital gains to whole tax structure into making real estate and multiple property ownership as a value ... gutting this country...and selling it off to foreigners.
People (and their heirs) should be paying the taxpayers back for their Medicare and prescription costs out of a large % these ridiculous overinflated property values.
The one huge problem with reverse mortgages is they conveniently assume the owner will remain in the house until they die. But that ain't the way it works. At some point Granny will no longer be able to live independently and will need to move someplace which can provide the necessary on-going care. So the house is then sold; and, guess what, there's no equity left to pay for that on-going care.
The worse thing is I see ads for reverse mortgages which advocate lump sum payments being used for one-time extravagances. At least if it's structured as a regular payment it will probably be used for normal expenses.
--
Thanks, Tanta. One of my favorite topics in terms of ills that are taking root in America.
With all your details on the mortgage practices over the past several years you fail to come to the conclusion that we are dealing with a govt. controlled by bankers and financiers who will stop at nothing, in terms of harming a large segment of the population, especially, the most vulnerable, to make a buck. Uncontrolled greed, supported by govt. programs and laws, is what we are up against. The abuse, going on for years, was so obvious to many.
Is it your blind faith in America, or American System? That evildoers can't take control of the US govt.? Well, I have some news for you: They already have and we Americans can't do a damn thing about it.
Happy Memorial Day.
Jas
The French do it differently. They allow sales of homes via a one-time payment (the "bouquet") plus a periodic payment, often annual and fixed, of a predetermined amount, with the seller having the right to occupy the home until his or her death. (The buyer therefore has an interest in the seller dying quickly...)
Another impressive article, thanks for your insights.
I'm a bit confused though about what happens if Granny's home value goes up/down before the maturity event. Does she get more money if her house appreciates, or does the bank pocket that at sale time? Conversely, if the value goes down, does the bank take that hit or do they "adjust" her disbursement?
Seems that a reverse mortgage might make sense for some folks, especially if they are in markets that may have peaked.
Jas,
the elderly have always been a target.
Ever notice how many seminars are targeted to the elderly?
Especially annuity providers, whole life, and universal life.
Ever wonder why annuities gat placed in tax-deferred accounts?
Ever wonder why banks in particular have structures that make your first contact the personal banker who can only present annuities and CD's and receive compensation? think they will refer the business to the investment rep within the bank or the trust dept and give up their compensation, I think not. Thus a system that is burdened with conflicts aimed not at placing the interests of the client first but, lining the pockets of the first point of contact with a product that more often than not is unsuitable.
Sound familiar?
Tanta - first blog post I've ever seen that used both 'risible' and 'SOS'.
HUD's done a lot of research on HECM's, much of it summarized in their geeky academic journal http://www.huduser.org/periodicals/cityscpe/vol9num1/ch1.pdf
FHA's and Fannie's products include a ton of consumer protections. One of my two biggest fears is that, once they catch on bigtime, copycats will offer 'more generous' programs without all the protections. The other is that you'll get lenders like the ones in Moscow, that used to take steps to make sure that 'extension risk' didn't occur when grannie got a mortgage payable upon her death (yes, USA isn't the only place with HECMs).
central_scrutinizer, the thing with these loans is that the borrower and the lender pretty much have to place their bets at the time. I suppose you can "refinance" a reverse mortgage with another reverse mortgage, but I can't quite wrap my mind around what that would cost.
The thing to remember is that while the home value may be going up and the borrower is getting older, that original drawn balance has been accruing interest. So home values have to go up faster than the interest rate on the loans. My guess is that for most borrowers, not likely.
The bank always takes the hit if the value goes down. (Hence the "default" if the borrower fails to preserve the property; these things require the servicer to have an inspection done once a year.) My general sense is that the principal limits on these things are rarely over 50%, possibly as much as 60-65% for older borrowers.
I think they do make some sense for borrowers. I just want the industry to admit that the very existence of reverse mortgages does something embarrassing to that claim that homeownership isn't a money sink.
I read some idjit on the web a while ago--didn't bookmark it--griping about these old folks who "refuse to downsize" and keep "overconsuming" housing. All righty then. I have never personally originated reverse mortgages, but people like that would make me start doing it.
And there are giants still. I want them to have a home to come back to. I want them to come back. Now.
Well, they're giants in part BECAUSE they volunteer to go do what must be done, when others shrink from the task - like Tantas grandmas man, who volunteered for service in WWII.
Today's giants are even bigger, because there's no draft; nobody has to go.
They don't want to forced to come home, until the job is done.
Another fine analysis. Let me chime in regarding the "intergenerational wealth transfer" issue. There are two ways of looking at it. On the one hand, there is the idea that mom and dad worked hard and saved all their lives so that eventually I would be able to lay around the house watching Survivor reruns all day. On the other hand, there is the idea that mom and dad made that wealth transfer way back years ago when they provided a stable, nurturing home, helped me with my schoolwork and provided an example of how to live. Personally, I got my wealth transfer long ago and if mom and dad want to spend every last cent on travel or even leave it all to the Nature Conservancy, then I'm all for it.
I'll bet most of us here feel the same...
mort_fin, it hurt me to type SOS. I dislike namby-pambyisms. But somehow, in this case, grandma was leaning over my shoulder as I wrote this. While gramps would have chided me for not spelling it out, grannie would have smacked me for so doing.
I compromised whatever risible principles I have.
[dons nomex undergarb]
The necessity of reverse mortgages would be greatly reduced were it not for the perverse machicinations of property taxes based upon the value set by the stupidest person in the room. What if any other form of taxation were assesed in this manner? For all its' faults Prop 13 in California has at least protected homeowners from some of this effect.
When handing out the blame make sure municipalities get an extra heap of greed salad with high fat vigorish dressing.
Tanta,
I'm touched by the conclusion to this piece. Something for us to think about on Memorial Day.
Just goes to show you that "technical" does not mean "uninspired".
Amen on the 'come back. Now.' part. And amen to working like hell to create a country, an economy, and political leadership worthy of their enormous sacrifice.
Michael Herdegen,
You say "They don't want to forced to come home "(sic). If it really is voluntary, why all the stop-loss orders? Why not let them simply come home if they wish? The commander-in-chief could do this with the stroke of a pen and make the military truly voluntary.
And by the way, the job (occupying and pacifying a country of 27 million people 70% of whom don't want us there and whose parliament recently had a majority vote to set a timetable for our departure) can't be done by 150000-200000 soldiers - maybe not even with 2000000. The idiots who planned this war (and ignored the advice of competent military and intelligence officers) lost this war six years ago and no amount of lying is going to change that. Asking more soldiers to die so that Bush doesn't have to take responsibility for his failure isn't patriotic - it's stupid and immoral.
Need to chime in with David and Alo, rather than Michael...on the performance of your exemplary civic duties not taking a back seat to your technical expertise...not construing the absence of a draft in today's unpopular conflict with your grandparent's conflict as that which distinguishes "today's even bigger giants".
Some of us don't even know what the job is, let alone being able to say where to start or finish it.
Thank you for the personal integrity and recognizing the day, Tanta...no ordinary Giant, people.
Hi Tanta. A while back I was listining to a critic talk about his enjoyment of certain writers. His point was that regardless of one's interest in a subject, some writers are simply a pleasure to read. Your paragraph ending with being "a couple recession bar shout of a good CR chart" reminded me of how much I enjoy your style and "cut to the chase" analysis, even when the material becomes a bit complicated. I'd read you if you were writing about clearing the eves of wasp nests. Keep up the good work. I'm getting a great education while being well entertained. Maybe one fine day you'll kick out an historical novel or something. Thanks, the chuckster
Given the news out of Iran today, perhaps some of our boys will be home soon. The boys out in the Hindu Kush will be there till the last 'kida makes the mistake of showing his head above ground.
Regardless of your position on the current unpleasantness, God bless our troops.
Cheers,
prat
Thank you, calmo.
Michael, in that home my grandparents built and lived in their long married lives, there was a portrait of FDR haning in the dining room, draped with an altar cloth. It was never taken down during the Vietnam war, in which all three of my grandfather's sons served. That neighborhood was cannon fodder then, and it's cannon fodder now. The fact that one of the few tickets to a career for the grandchildren of those good folk is the military is an economic issue, not a question of who's the biggest giant. Anyone who tries to claim that there is a monolithic mindset among those who fight, and that it is always and everywhere in support of those who pick those fights, is way more out of touch with reality than great aunt Euelna, who is included in the list of giants.
Not that I want to be asked who John Prine is, but . . .
YouTube - Flag Decal - John Prine
Slightly OT but the following editorial appeared in the local fish wrap. Wachovia has been my families bank going back to the 1930's. Makes you wonder where the financial economy is going.
"Wachovia Bank has been making it possible for criminals to rob sick old people of their savings.
After buying lists that group people into categories such as "Suffering Seniors" (for example, cancer and Alzheimer's) or "Oldies But Goodies" (gullible gamblers), criminals call these vulnerable people up and con them into giving up personal information.
The criminals then go to cooperative banks, such as Wachovia, and loot the old folks' accounts.
It isn't that the banks don't know who they're dealing with. Wachovia didn't get to be the country's fourth-largest bank by having stupid executives. Just greedy and heartless ones, it would appear.
The New York Times examined thousands of bank documents, court records and e-mails and concluded that executives at the cooperative banks "often confront evidence that they are used for fraud." And don't seem to care.
The paper reported that Wachovia and some other companies continued to work with the criminals, despite the warnings of other banks and government investigators.
"In all," The Times said, "Wachovia accepted $142 million of unsigned checks from companies that made unauthorized withdrawals from thousands of accounts, federal prosecutors say. Wachovia collected millions of dollars in fees from those companies, even as it failed to act on warnings, according to records."
The bank issued a statement saying it had given refunds to those who asked for them, and that it was cooperating with the authorities. How nice.
North Carolinians once could take pride in a homegrown bank so well-managed that it was expanding across the country. They never would have suspected it of conniving with criminals who defraud the old, the lonely, the confused and the sick.
Apparently it has changed."
Thanks, chuckster.
You can get wasps' nests out of the eaves? I didn't know that. I read too much mortgage shit . . .
There are any number of memoirs out there--serious, tongue-in-cheek, tongue-sticking-out-and-making-fart-noises--on the subject of surviving a corporate career with one's soul intact. I've never felt inclined to write one, since surviving with my soul intact was never really my direct concern. What I worried about endlessly was surviving with any ability to write anything at all intact. It was a lot of work, I tell you. My employer could get me to sign off on some megamillion dollar trade that risked taking the bank down with my head up and my shoulders squared. The next day I'd be backed into the corner of my cubicle, brandishing a red pen, crying out that those bastards could have my labor, they could have my dignity, they could have my soul, but they weren't taking my active voice. I dangle modifiers for no one. This far, and no farther, but not "no farthest."
I just can't imagine anyone wanting to read that memoir . . .
Speaking of property taxes... I think a better solution than Prop 13 is a plan where the home owner has a right to sell the property back to the County at the appraised value from the previous year.
For example, home appraised by the county in 2006 for $200,000. Comparable homes in neighborhood are selling for $170,000. County just reappraised at $210,000 for 2007. I think I should have the right to call their bluff and at least force them to purchase it for $200,000.
This might stop this pattern of rising tax values in a declining market. The county could then "reconsider" and decide to value the property at $170,000. Property taxes are lowered, the county isn't stuck with an overvalued home and I don't have to waste time arguing (politely) in front of the appraisal board that they "must have made an oversight when determining my homes value."
Do any states do something like this?
lagarita,
You say "If it really is voluntary, why all the stop-loss orders? Why not let them simply come home if they wish? The commander-in-chief could do this with the stroke of a pen and make the military truly voluntary."
Part of the enlistment or commissioning contract with any branch of the military clearly states that that your tour can be extended by the CC. If you have a shortage of critical skills on the ground in a combat zone, more Americans die.
Without a draft it is truly voluntary.
You then said "And by the way, the job (occupying and pacifying a country of 27 million people 70% of whom don't want us there and whose parliament recently had a majority vote to set a timetable for our departure) can't be done by 150000-200000 soldiers - maybe not even with 2000000. The idiots who planned this war (and ignored the advice of competent military and intelligence officers) lost this war six years ago and no amount of lying is going to change that. Asking more soldiers to die so that Bush doesn't have to take responsibility for his failure isn't patriotic - it's stupid and immoral."
I agree with most of your statement here,(of course, we invaded in 2003, so it is 4 years ago)
but... if we leave without any comprehensive plan, we may likely be back fighting a regional conflict with far greater loss of American life. Walking away without a plan will not be as easy as it was when we walked away from Vietnam.
As someone who has every intention of dying childless, I am a huge fan of the reverse mortgage. It's another twist to the tale: far from bequeathing huge amounts of money and property to their kids, many elderly people rely on their kids for support, including financial support. If I don't have kids, I don't have that option. (Of course, I also don't have the enormous expense of having children, so I should be able to save more. Let's see if that happens.) In any case, by the time I'm retired and my house is paid off, of course I will want to stay there, and of course I will not be able to do anything with the proceeds from selling the place after I've died. If I want to spend that money while I'm alive, I think I very much would like to do so. One way of doing that would be to borrow the maximum amount under a reverse mortgage, and then use that money to buy an inflation-linked annuity which will pay out as long as I live. Maybe by the time I retire a financial services company will be sophisticated enough that it will be able to pool all of my retirement funds, plus the value of my property, and convert the whole thing to an index-linked annuity which includes healthcare costs. Now that's a product I'd be interested in.
There is a more modern spin on the term "SOS" (and I am not trying to hijack it. Just go over to ml-implode... shake your head, and say to yourself. "Same Old S**t".
Prop 13: In California, you can ask the county to reappraise your home any time that you think that property values have dropped, and your taxes will decrease accordingly. A lot of people did this in the '90s. If we were to have a serious dip in real estate values, California cities and county gov't would face a rapid drop in income from current homeowners.
"Choosing to serve" and "not wanting to leave until the job was done:" I never served, but my parents' generation did in WWII. I grew up in a Navy town. Around there, we called it "the service." When you signed up with the military, you entered "the service." And service is what it was, and what it is. You subordinate your will to serving the good of the country, as defined by its elected leaders. You don't ask questions, and you aren't consulted on matters of global strategy. You just serve. That's why the military is a tough row, and its members should be honored.
Are the leaders correct? Incorrect? Is the war winnable? Unwinnable? Is it time to stay? Go? Those aren't questions for you, the soldier. You just serve. People who talk about not disappointing our troops are either missing the point or hiding behind specious emotional arguments. The war doesn't belong to the troops. It belongs to us, and is our responsibility. Continuing it because we don't want to hurt the troops feelings is... well, abdicating responsibility. Hiding from responsibility. A line of bull.
Felix, I love it. Forcing Big Finance to step into the ring with Big Pharma, and see who blinks first.
All this talk about trying to get the government to buy in bulk for all of us, like they do for VA and Medicare, is so pointless. What we really ought to be doing is telling Big Pharma they can get whatever Fannie Mae is willing to finance. Heh.
I just can't imagine anyone wanting to read that memoir . . .
I would, and I'd gladly pay for it. I'm looking forward to your Amazon link!
rating agencies, horses, barn doors:
FT.com / UK - A stretched credit cycle, a more savage downturn
Am I the only one to be scared silly by the longevity risk financial institutions are taking on in offering these products (a risk, incidentally, that Banks do not have to put up regulatory capital against)?
The gap risk on the value of the property vs. the PV of the payments (whether made or not) is mortality contingent. This is (almost - a prominent French bank has been trying to hawk mortality swaps for years, but no one likes the pricing) unhedgeable. It strikes me as potentially much more toxic for the lender than for the borrower.
yal,
excellent article and unbelievably...
dead on.
"In the first quarter, PHH originated $9.2 billion in residential mortgages, giving it about 1.4 percent of the marketplace, according to the trade publication Inside Mortgage Finance, which estimates that about one-fifth of the company's business comes from subprime mortgages or loans without much documentation."
That's ok, they cannot even get their own financials out and have admitted to not having effective controls or many exec's who understand GAAP.
So, Blackstone is supposedly buying them and is in the process of selling a stake to the Chinese and retail through an IPO.
Let's see, PHH came from Cendant, one of the biggest accounting scandals on record, spun it off, admitted to accounting problems and lack of controls or understanding GAAP, Blackstone is buying the mess, and launching an IPO to the public and Chinese..............
WTF is wrong with this picture?
Sorry,
the link-
philly.com: Philadelphia local news, sports, jobs, cars, homes
"I just want the industry to admit that the very existence of reverse mortgages does something embarrassing to that claim that homeownership isn't a money sink."
As usual, you got some facts right and some facts wrong -- perhaps you should leave the technical explainations of loan products to the experts -- but the reverse mortgage does nothing to support the erroneous theory that homeownership on the whole is a bad investment or endeavor.
A shout-out to Bob Dodd and Jim for their comments. We bear responsibility for their fates, and we also bear responsibility for their future fates. I have an opinion but it is an amateur opinion, so I won't voice it. I will merely thank our military personnel for their service and support their families in any way I can.
Regarding reverse mortgages, they are costly to administer and fraught with risk. This is one category of loans that seems to rank right up there with neg-am mortgages in terms of loss ratios.
I have noticed so much interest in them on Broker Outpost and the Grapevine that I have developed a gnawing sense of worry over them in the current circs. I think the risk on homes in coastal areas is growing, and that it should not be neglected when figuring possible outcomes for such portfolios. With radical changes in insurance premiums and coverage, Granny's sure thing can easily become Granny's eviction, and the lienholder is unlikely to do anything but cut the lienholder's loss in that circumstance. Such lose-lose scenarios strike me as unviable.
Tanta said: "Not that I want to be asked who John Prine is, but . . ."
As soon as I saw the name "John Prine", the lyrics of "Flag Decal" immediately leapt to mind, even without the link.
Tanta said before: "...If you really think the tedious details of mortgage market regulation have nothing to do with the big economic picture, youre a couple of recession bars short of a good CR chart."
Not at all. Same number of recession bars, just in the wrong places.
Sebastia
--
Bob Dobbs: "The war doesn't belong to the troops. It belongs to us, and is our responsibility."
NO. If you read the history of this war and the facts that have come out then the war belongs to just one man -- George W. Bush, the man who ran for the presidency primarily to go after Saddam Hussein. Once he became the President it became his obsession from day one. He is a war criminal but who can apprehend him and put on trial? The World Court? Morally bankrupt among us will never allow that to take place. Govt. of the Crook
It is the Morality, Stupid! (That WILL be the downfall of the American System).
Jas
PS: Take out Consumption Debt (non-essential consumption, e.g., for frivolous luxuries), Gambling, & Prostitution (the oldest vices known) and the US economy has been in a depression for 10 years. A depression delayed is not a depression avoided. Regrettably, immorality will catch up with Americans.
Just like with life insurance or an annuity, the terms of the reverse mortgage depend on how long the lender expects you to live. If you (with better information about yourself) expect to live longer than the lender thinks, then you will come out ahead. One problem is that I suspect people will typically think that they are healthier than in fact they are ("Hey, I'm going to live forever!"). In that type of world, people may consistently overpay, in terms of implicit interest rate, for the reverse mortgage.
Is there any data on what the typical implicit rate of interest is on reverse mortgages?
The lender has an incentive to come up with a "low" appraisal for reverse mortgages, but lenders have incentives to come up with a "high" appraisal for first or second mortgages.
I wonder if there is a way for a "good" appraisal to be revealed by requiring lenders to use the same appraised amount for regular and reverse mortgages?
Has anyone looked at whether or not (independent) appraisers tend to appraise "low" for reverse mortgages and "high" for regular mortgages?
On the subject of mortgages and the troops, yesterday's Washington Post had a front page article that included this.
she bought a house while Bravo Company was in Fallujah, navigating complexities compounded by distance and war. It was a nightmare, she said. One misaddressed set of documents went to Iraq and back without finding Marshall.
On settlement day, the lenders made him call Thief River Falls.
"He had to call the armory," Alicia said, "and the armory had to type up a paper saying he was alive."
Extended tours in Iraq, extended agony at home - TwinCities.com
No matter what your opinion concerning the war or your opinion concerning lender documentation requirements, this one seemed particularly obnoxious.
I don't remember the exact details, but the story goes a little something like this:
The oldest lady in France sold a lien/received a bouquet (as a above) on her house to/from a middle aged lawyer. She was 85 at the time and he was a sprightly 35 years younger. 30 years later, she was still alive and his children were still waiting to collect.
Her diet for those of you keen to emulate Methuselah apparently consisted of cigarettes, red wine and coffee.
I guess my question is this (for the estate planners out there):
If me and my siblings did this with my folks for the purchase value of the house, what would the tax status be??
Say what you will about reverse mortgages, one benefit is they lessen fights between siblings over inheritance issues...
I dunno, I might be naive, but it seems to me a perfectly wonderful post can get misdirected and off on a different point by injecting political beliefs. Witness the threads you've gathered.
Two things (maybe more). Many believe as you, and you've played well to that base. You've probably disaffected and alienated people who just enjoy a thoughtful treatise on the misadventures of our housing market and its financing.
I didn't vote for George Bush and I don't like the war even a little bit, but I have a couple thoughts (gee, who doesn't on THIS subject, huh) we were attacked by Al Quaida is clear. They are stateless, and though we fought the Taliban who housed them in Afghanistan, there is no next place and way to fight them short of turning the globe into a giant police action and worse. That Saddam had weapons of mass destruction at one recent point is beyond dispute. The used them against Iran in the late 80's and against his own people. That he ran out or got rid of them is clear to us now, but was anything but clear 4 to 5 years ago. Everyone in Congress and the government was ready to bet their reverse mortgage that they were there to be found. The war has also been badly managed. The Iraqi ex-pat's here in this country were whispering to anyone that would listen that the people would welcome us with open arms and get busy electing officials and opening Burger King's as soon as we liberated them. No one checked the Balkan history book and Tito's legacy for the far more likely outcome. When a strong man keeps a place in a deathgrip for 20 to 30 years, all the leaders and potential institutions wither up and die. There was nothing there to backfill Saddam no matter how anxious the population might be. This is the quicksand of nation building -- and why cooler heads should have prevailed.
But here we are. The Islamic fascists are watching and waiting for us to quit. We may pick bad engagements, but we aren't known for this. We are known for losing our nerve, packing up and leaving. Don't just look at the Vietnam mistakes, look at Sudan, Lebanon and other adventures where we turned tail and left. The Ali Quaida,Hezbollah, and numerous others are watching and waiting for the inevitable. This challenge has firmly replaced the Soviet era and the Cold War as our Bete Noir. One last point -- do we honestly want to vote on where our next military campaign should be fought? Do we vote on whether a location is sufficiently popular before risking an engagement. Look, nobody wants our best and finest to die at the hands of despotic fanatics bent on a re-creation of the Ottoman Caliphate. It is an honest discussion as to where and how we choose our theatres for war. If everyone doesn't just hate the war yet, just view a few more months of network news or NPR with poignant irony of the tragic loss of one more truly great young person cut down with a pan to the grieving family.
They will come after us. If you don't remember 9/11 -- remem
You've probably disaffected and alienated people who just enjoy a thoughtful treatise on the misadventures of our housing market and its financing.
Gee, sorry I ruined your Memorial Day by not acting like it's just another day to "enjoy" our intellectual pursuits without acknowledging the blood that has seeped into the soil.
I want them back, now. You are free to want them to stay until we have no more blood left to give. I understand that to be one of the Consitutional freedoms for whom so many men and women have died. But I strongly suggest that if you want to be taken seriously by the likes of me, don't make it sound like I just harshed your buzz on this fine day that should be devoted to business as usual, OK?
I damned well do hope a bunch of people thought, man, we can't even get away from this war thing on Calculated Risk. Because that is indeed right. You cannot get away from this war thing. You will have to live with the dreadful diaffecting and alienating realization that there are adults with an interest in economics and finance who actually do, yes, disagree with you on the war and feel just fine about saying that on Memorial Day.
There are 364 days a year to talk about 9/11 blah blah Saddam blah blah WMD blah blah turn the corner blah blah last throes blah blah another six months blah blah. Today is the day that my dead demand my attention.
We'll go back to sparing your tender sensibilities tomorrow.
Tanta,
Outstanding entry.
I know those people - or think I do, your grandparents & Euelna - that's the world I live in still... or at least partly. Work out of my home office and chat with my elderly neighbors who in their mind are living in the late 40s or 50s... Meanwhile I'm emailing & talking on the phone with engineers on the coast or even another continent - 21st century here and now. No wonder I'm as schizo as I am.
Two questions:
1) Do you seriously see RM's as a 'fix' given their cost & constraints? I don't. I see a lot of hype and very little promise... less now after reading your piece.
2) Would you share your recipe for SOS? My mom died before I got her's.
Have a nice Memorial Day.
"Say what you will about reverse mortgages, one benefit is they lessen fights between siblings over inheritance issues..."
Not necessarily, the borrowers family (heirs) have 12 months after the death event to acquire the property. Regardless of what has been intimated here, most will have sufficient equity left to make it a desired outcome.
Of course, dryfly. This is better recession food than ramen.
SOS
1 package chipped beef
4 tablespoons butter
3 tablespoons flour
2 cups milk
a lot of black pepper
Tabasco
toast
Snip or tear the beef into pieces, put it in a colander and rinse under very warm water for several minutes, or else this will be "salt on a shingle" and you won't like it. Dump the beef and butter and 1/2 cup of water into a skillet, and cook over highish heat until the water evaporates and the beef is lightly browned. Stir in the flour and blend thoroughly. Pour the milk into the skillet and stir competently and thoroughly until it is thickened and smooth. Add pepper and Tabasco. You aren't likely to need salt. Pour on toast. Accompany with beer for the grownups and apple cider for the children. Wine is not recommended.
I've heard of people who add shit like peas, in an attempt to make this nutritionally acceptable food. I don't know why they don't just eat salads.
I do have a friend who adds a couple of big spoonfuls of this processed cheese "bar dip" he buys down at the local tavern. That's acceptable. Freshly grated gruyere would not be consistent with the spirit of the dish.
" Regardless of what has been intimated here, most will have sufficient equity left to make it a desired outcome."
Who in the hell do you think your kidding, producer?
If you are looking for a way to justify blanketly placing people in a reverse mortgage, this bloag ain't it superstar.
Sleep well, dirtbag.
If you are looking for a way to justify blanketly placing people in a reverse mortgage, this bloag ain't it superstar.
I do not believe it's a blanket solution for all borrowers.
My comment was conveying the belief that the value/encumbrance proposition will generally be favorable enough for most heirs to seriously consider acquisition of the property
Jas says:
"NO. If you read the history of this war and the facts that have come out then the war belongs to just one man -- George W. Bush, the man who ran for the presidency primarily to go after Saddam Hussein."
It's still our responsibility. We don't care enough as a people to throw him out of office. We're too comfy. Now, if he were idiot enough to institute a draft of college-aged yougn people, the middle class would be in the street in about five minutes, calling for his head. Otherwise, they won't, because as long as it's someone else's child going to war -- often someone who joined up because he didn't have the economic opportunities their kids do -- they won't lift a finger.
It's our war. A war we allow to happen. Bush is just the symptom of the disease. A particularly bad outbreak of societal herpes.
Re: reverse mortgages: not seeing too many of them yet on the California coast. Most older people who've been in their home 10 years or more still have enough equity to cash out, move someplace where homes are 1/3 the price, and put the rest in the bank for retirement.
"Re: reverse mortgages: not seeing too many of them yet on the California coast. Most older people who've been in their home 10 years or more still have enough equity to cash out, move someplace where homes are 1/3 the price, and put the rest in the bank for retirement."
Perhaps, but the Santa Ana Hud Field office is the busiest HECM transactor in the FHA system.
Now isn't soon enough. Yesterday would be better.
SOS. God, it's the only thing I miss about all of that bullshit. There isn't anything like SOS in the morning.
God Bless You, Tanta, whoever and whereever you are.
Yes, God damn it, they were Giants, and they are Giants.
I'm going to cry now.
Tanta, first let me say that I respect your knowledge of all things mortgage-related.
Second, let me say, that I am not thrilled by your long-windedness at times.
Third, let me say, your concise responses to war supporters is motivational. We live in a time where OUR voices are not heard by the powers that be, so it's more important than ever for us to make strong and clear statements about our beliefs.
Well done
Most of IndyMac's profit in 1Q2007 was in reverse mortgages. The profits in this segment went from something like 8 million in 4Q2006 to 28 million in 1Q2007. Their total profit in 1Q2007 was 50 something million, so you can see how dependent they're going to be on reverse mortgages in the near future. Sorry, I don't remember the exact numbers off the top of my head.
They also stated that they thought profits would be lower going forward due to increased competition in the reverse mortgage segment. Sure enough, a few weeks after reading this, Countrywide announced a reverse mortgage program.
I looked at the Financial Freedom website (What IndyMac calls their reverse mortgages). It looks like you can't borrow more than 50% of the home equity and it looks like a fees goldmine to those who service the loans. It looks like a great deal for banks.
I've written a lot of software for insurance companies. Much of it was actuarial calculations.
For those interested, what the calculations do is they predict the chances of dieing at an age. The chances are based on gender and smoking status. The chances usually stop at something like 125 years old since the cumulative chances of dieing by that age is something like 99.9999999%. Using this, they determine the break even payment for every age and then do an age adjustment. For example, an annuitant who is 62 and is annuitizing 1 million dollars, may have a breakeven payment of 4,000 per month for life. The insurance company would adjust the age by something like 3 years and for someone who is 59, the breakeven payment would be 3,700 per month and this is what they would offer to pay the prospective annuitant. Basically they would, on average, get 3 years of profit.
Things get very complicated when you have joint annuities, where a husband and wife annuitize together and you have survivorship of one spouse. Most annuities have a guaranteed period certain period where payments will be made to heirs if the annuitant dies before a certain time period. There are also a seemingly endless assortment of riders that differentiate products, but, in general, they all work the way I outlined above.
I would guess that the determination of how big a loan is available for a property follows similar logic.
Just read in the Asset Backed Alert: "Glenn Schultz, who heads asset-backed securities research at Wachovia, said that while it's tedious work to determine the credit quality of subprime-mortgage transactions, especially older deals, the effort can be rewarding for investors willing to put in the time."
HAHAHAHAHAHA!!! Shocking! You mean investors don't always analyze the collateral???
Also: "Schultz said some issuers were cranking out deals mainly to take advantage of demand from CDO issuers who wanted to buy the products for their deals' collateral pools, often with little analysis."
Double shocking!!!
Reverse mortgages will get interesting when hedge funds pool healthy, elderly home-owners (let's say 75+, home worth at least 200K, pay the homeowners a lump sum, and then have the proceeds of the reverse mortgage assigned to a trust the fund controls, betting that the homeowners far outlive the lender's mortality assumptions. It a pure mortality arbitrage play that has already been used for years in the life insurance and immediate annuity industry. I haven't seen a large sample for this type of deal, but I bet someone on Wall Street is working on it.
Alec-Great question. I don't know for sure but I would bet that the tax treatment is similar to an immediate annuity. A portion of the monthly, quarterly or annual payment is considered a return of basis, while a much smaller portion is considered gain. The "gain" is ordinary income.
Thanks Tanta
for responding with this elucidation.
I found it, like most similar material, appropriately dense and abstruse, and will probably pore over it over a few lager this evening with my companeros, to extract hidden meaning and whatnot...
As for the final comment, well what more can one ask for these days but an emergence of a collective sanity, one which doesn't merely ask that the right thing be done, but which depends on each and every one of us to demand more of ourselves in order to effect a change.
I like your writing.
Would have been nice if you had deleted any lefty statements following the initial post re the the politics of the present war.
Lefties and righties are both wrong about this war.
The greedy spoiled Boomers (& their spoiled offspring cont)sacrificed genuine productive sectors, R&D, etc. and racketeered capital gains to whole tax structure into making real estate and multiple property ownership as a value ... gutting this country...and selling it off to foreigners.
People (and their heirs) should be paying the taxpayers back for their Medicare and prescription costs out of a large % these ridiculous overinflated property values.
I've heard of people who add shit like peas, in an attempt to make this nutritionally acceptable food. I don't know why they don't just eat salads.
Because in the Midwest if you add peas it IS a salad.
Tanta~
Thank you, there are still giants. But as a 27 year old I can see as it says the next generation furious about this.
I agree it's their ( the parents ) money, they worked for it. If my mom wants to spend it on accessories for her quilting hobby thats her choice.
I could make some comments about my sisters 30K wedding on Saturday but then thats Heloced I am pretty sure.
I like how your article is original and conversational. Keep it up!
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The one huge problem with reverse mortgages is they conveniently assume the owner will remain in the house until they die. But that ain't the way it works. At some point Granny will no longer be able to live independently and will need to move someplace which can provide the necessary on-going care. So the house is then sold; and, guess what, there's no equity left to pay for that on-going care.
The worse thing is I see ads for reverse mortgages which advocate lump sum payments being used for one-time extravagances. At least if it's structured as a regular payment it will probably be used for normal expenses.
What an informative post. A good read.