Phil Gordon, the Mayor of Phoenix, Arizona states that the housing bailout legislation is a great start but falls short to stop the mortgage meltdown being experienced today. Today Mayor Gordon will meet in Washington, D.C with House Speaker Nancy Pelosi and other lawmakers to fight for additional funding for the first time home buyers. He states that the new housing bailout will help those with troubled mortgages but does not help the first time home buyers; something Mayor Gordon wants changed.
According to Gordon, “We got hit particularly hard because most of our foreclosures are as a result of the sub-prime. While people have been losing jobs here, (it’s) nowhere near the rate of the rest of the country.” Gordon goes on to say the speculators are to blame for a lot of the mortgage meltdown by adding, “The fundamentals of Arizona are strong. People are still coming here, jobs are still growing. But there were so many speculators who bought homes to make a profit on.” Gordon believes mortgages should not be a vehicle to profit but should be meant to raise a family. This is a sentiment that is shared with many families and potential home owners that are hoping for a break for the first time home buyer.
This past weekend, the Senate approved the housing bailout legislation that was primarily designed to aid troubled homeowners and slow down the rate of foreclosures. President Bush is expected to sign this legislation this week. The legislation includes provisions that will also help families that are in no danger of losing their home as well. One of the money-saving provisions that is hidden deep inside the housing bill includes changes for reverse mortgages.
A loan against home equity that is not required to be paid until the house is sold or the homeowner dies is a reverse mortgage. To qualify for a reverse mortgage the homeowner(s) must be 62 years of age or older. A reverse mortgage can offer the much needed income for the retired individual or couple who have gathered a lot of equity but little in savings. The bill has addressed two aspects of the reverse mortgage that has made it less than attractive to potential borrowers; fees and loan limitations.
Most reverse mortgage borrowers will pay a hefty upfront fee which will reduce the total amount of money that is available to borrow. The housing bill will limit the origination fees for federally insured reverse mortgages on loans up to $200,000 of a homes value to 2% with an additional 1% for up to $6,000 over $200,000.
The amount of the reverse mortgage is based on the current interest rate, the home’s value and the borrower’s age. Previously the maximum home value for a federally insured reverse mortgage topped at $200,160 to $362,790 and was dependant on the homeowner’s location. The restrictions prevented the homeowner in a high cost area form getting the most out of the equity in their home. The legislation bill has raised the maximum home value to $625,500 resulting in homeowners living in high cost areas to qualify for a larger reverse mortgage loan.