Mortgage Debt in Retirement article

[imoldernu]

We discuss this often, on a personal planning basis, but what does this overhang of mortgage debt mean for the future value of housing? As banks continue to hold on to foreclosed housing, to avoid marking to market... And the homes that are on the books at Freddie Mac?....

The real bottom line question is, does this have an end?
The general impression I get is that the worst of the housing crisis is over, and with new building going on, that the market is on the way up.

If the numbers quoted are true, then it seems there's a way to go before values will exceed the precrisis pricing.

[athena53]

I wanted to add an update to this; banks are crazy. (Or maybe the regulations around granting mortgages are crazy.)

As I mentioned earlier, DH and I applied for a mortgage to buy a smaller house. Our credit scores are around 770-780. They'd be higher but we churned the credit cards a little last year as I dumped some of the loyalty program cards and went for straight cash-back. Our record of payments on credit cards and the mortgage is impeccable.

We applied for a mortgage that would be 6% of our invested assets and less than half the price of the house we're buying. Our bank originates its own loans but then sells them, so they want to meet Fannie Mae standards. (A "non-conforming" loan would have had an interest rate 150 basis points higher.) Fannie Mae is very picky about what sources of income it will consider. Without going into a lot of gory numbers, our taxable dividends in 2014 were enough to pay that mortgage. Taxable capital gains were twice that, and of course the income from the IRAs doesn't show up in the taxes at all.

They can loan us 4% of the value of our invested assets. And that's counting DH's SS as part of our income. We'll take it, but I find this mind-boggling. They'll loan ridiculous amounts to people with installment debt up the wazoo and zero savings but a regular paycheck, but can't deal with a couple of retirees who could pay cash for the house nearly ten times over. Maybe they think we'll spend it all on a private plane and they'll have to foreclose on the mortgage.

[pb4uski]

That surprises me as I was talking with a friend who is retired but is a part-time real estate agent the other day and he was talking about the great availability of low/no-downpayment mortgages and we were both commenting on how the banks never learn from their stupid mistakes.

Have you asked whether they would consider any Roth conversion income as income? Both my sister who does loans for a bank and my mortgage broker indicate that the "pension income" shown on my tax return as a result of Roth conversions would count but it seems that practice varies.

[Totoro]

Quote:

Originally Posted by athena53 Maybe they think we'll spend it all on a private plane and they'll have to foreclose on the mortgage.

Even if they have to foreclose, you are lending only 50% of the current house value, so there's virtually no risk.

And to add craziness, banks themselves are judged harshly on their (risk-weighted) balance sheet and much less their income.

It may be helpful though to look around a bit more for a bank who caters to your demographic. Out here [that's the Netherlands] the mainstream ones cannot deal with your situation, but there are a few who can (usually geared to professionals like doctors, SME owners, laywers etc ..).May be the same for you?

[bclover]

Quote:

Originally Posted by pb4uski That surprises me as I was talking with a friend who is retired but is a part-time real estate agent the other day and he was talking about the great availability of low/no-downpayment mortgages and we were both commenting on how the banks never learn from their stupid mistakes. Have you asked whether they would consider any Roth conversion income as income? Both my sister who does loans for a bank and my mortgage broker indicate that the "pension income" shown on my tax return as a result of Roth conversions would count but it seems that practice varies.

Quote:

Originally Posted by athena53 I wanted to add an update to this; banks are crazy. (Or maybe the regulations around granting mortgages are crazy.) As I mentioned earlier, DH and I applied for a mortgage to buy a smaller house. Our credit scores are around 770-780. They'd be higher but we churned the credit cards a little last year as I dumped some of the loyalty program cards and went for straight cash-back. Our record of payments on credit cards and the mortgage is impeccable. We applied for a mortgage that would be 6% of our invested assets and less than half the price of the house we're buying. Our bank originates its own loans but then sells them, so they want to meet Fannie Mae standards. (A "non-conforming" loan would have had an interest rate 150 basis points higher.) Fannie Mae is very picky about what sources of income it will consider. Without going into a lot of gory numbers, our taxable dividends in 2014 were enough to pay that mortgage. Taxable capital gains were twice that, and of course the income from the IRAs doesn't show up in the taxes at all. They can loan us 4% of the value of our invested assets. And that's counting DH's SS as part of our income. We'll take it, but I find this mind-boggling. They'll loan ridiculous amounts to people with installment debt up the wazoo and zero savings but a regular paycheck, but can't deal with a couple of retirees who could pay cash for the house nearly ten times over. Maybe they think we'll spend it all on a private plane and they'll have to foreclose on the mortgage.

LOL,
Doesn't suprise me at all. I can't begin to tell you the wackiness that happened to me when I downsized.

case in point:
after my dh died and one son started his life () I decided to sell and move, I was actually put down about 60% of the price for various reasons (don't flame, I know some folks would have done differently) anyhoo, my credit union that I have been a member for 30 years declined me some of the downpayment did not come from income but from an inheritance left to me by my father.

LOL, so let me get this straight, I have more than enough to pay for the house in cash, no debit, a job, a fico score of 815 and I'm a bad risk because my parents did the right thing and their kids receive an inheritance



nothing banks do now surprise me. nothing at all.

One explaination I got was that I could spend my inheritance at any time. when I pointed out that, that made absolutely no sense because in reality I could also quit my job (thus losing my income) 2 seconds after closing.

I asked her is this how they make decisions? you coulda, woulda, shoulda

[athena53]

Quote:

Originally Posted by pb4uski Have you asked whether they would consider any Roth conversion income as income? Both my sister who does loans for a bank and my mortgage broker indicate that the "pension income" shown on my tax return as a result of Roth conversions would count but it seems that practice varies.

We haven't done that yet; I retired in mid-2014 so was well over the 15% marginal bracket. I think part of the issue was that we had only a one-year track record post-retirement and weren't taking regular draws. We're closing on June 29 so it's a bit late to start another application process. Eventually I plan to get an HELOC- it's a good safety valve for big-ticket expenses like replacing the HVAC-and will have the luxury of time to shop around then.

Our buyer owns a hotel that gets only 2 stars in TripAdvisor (a local Ramada, apparently with very lax housekeeping standards and the occasional bedbug) and she's putting 5% down. I'm darned grateful she got her mortgage although I think we're better risks!

BTW, apparently the regs are going to get even more stringent after August 1. Both my realtor and the mortgage broker shudder when you mention that date.

[daylatedollarshort]

I looked into getting a mortgage after we semi-ERed when we were thinking of downsizing (and buying one house before we sold the other). One CU would look at assets and one would consider monthly "income" from assets (three months of moving money from savings to checking). And we only needed to show 3 years of income on a 30 year mortgage. If I remember right, I think one CU would also consider potential rental income from the second house and one would not, since we were not experienced landlords and they would not consider the possibility of us hiring a management company!

None of the rules make logic sense but if we wanted the loan we would have had to play the game and made the monthly transfers for the one CU to show "income".

[Koolau]

I realize we're a bit off topic, here, but I too experienced the crazy logic of the "new" mortgage reality post the housing bust. Up is down and down is sideways. FICO scores are ignored in favor of imputed income. Case in point: When trying for a mortgage loan, we were nearly shut out - until they looked at our tax returns. Converting and or spending from the 401(k) was called "income" because we had to pay taxes on it! Totally nuts, but that's what got us our mortgage loan. I really do think we (as a nation, perhaps as a planet) are in big trouble when we act the way we do. End of rant and YMMV.