Four years ago, Bank of America made headlines in the reverse mortgage industry by acquiring a turnkey operation and then simultaneously announcing a reverse mortgage program for second homes. This was big news, especially for baby boomers who had significant equity in two homes.

BofA, a latecomer to the reverse mortgage party, came in the door with both barrels blasting. It paid a reported $220 million for Reverse Mortgage of America, the reverse mortgage arm of Seattle Mortgage. Several of Seattle Mortgage’s top people also made the switch to BofA, including John Nixon, the executive vice president and chief operating officer of Reverse Mortgage of America.

Seattle Mortgage entered the reverse mortgage industry in 1995. It had a loan portfolio of 40,000 reverse mortgages, totaling more than $4 billion in outstanding balances, when it sold Reverse Mortgage of America to BofA. Approximately 400 Seattle Mortgage associates joined BofA, including a retail sales force of more than 200 sales associates in 25 states and Washington, D.C.

Things were really looking up. But a few weeks ago, BofA completely shut it down, reversing out of the reverse mortgage game to focus on its core business of conventional, “forward” mortgages while adding more manpower to resolving foreclosures and defaults. The bank’s much-anticipated program for second homes barely got started before it quietly faded away.

“We made the strategic decision to exit the reverse business due to competing demands and priorities that require investments and resources be focused on other key areas of our business,” said Doug Jones, consumer sales and institutional mortgage services executive for Bank of America Home Loans.

The company said it will continue to serve the needs of existing reverse mortgage customers and those with loans in process, as well as maintain their servicing portfolio.

“We fully understand the critical sensitivity of ensuring that our senior customers are provided with the same level of excellent customer service that we have provided in the past,” Jones said.

The BofA announcement came on the heels of a similar move by Seattle Mortgage. Financial Freedom, a jumbo reverse specialist, then followed.

Seattle Mortgage, which started over with reverse mortgages after the sale to BofA, recently settled a 2007 class-action lawsuit over loan origination fees paid to brokers.

According to notes in the case, Seattle Mortgage contends it did nothing wrong. BofA and Seattle Mortgage were two of the nation’s largest reverse mortgage lenders. Wells Fargo, which led the country in reverse mortgage originations, recently dropped its program.

Reverse mortgage funds can be distributed either in a lump sum, regular monthly payments, line of credit, or in a combination of those options. When the house is sold, or the last remaining borrower dies or moves out of the home, the loan amount plus the accrued interest is repaid. The borrower can’t owe more than the value of the home.

“The demographics of our seniors and the upcoming boomer group indicate there are multiple tentacles of financial planning tools that could be used in the long run,” Nixon said in 2007 when he made the move to BofA. “One of those tools would be helping people with significant equity in the second home to help tap that equity to make their lives more comfortable.”

What has changed that would so dramatically alter a program to assist seniors? While BofA and Wells Fargo imply that their reverse mortgage operations simply “didn’t scale” compared to other lending opportunities, consumers have to wonder if there is a another explanation for the moves.

For example, with home values down and equity dwindling, is every product geared to seniors an automatic reputation risk? If you charge a senior for any service and it does not work out to their (or their children’s) complete satisfaction, are you guilty until proven innocent? Should specific reverse mortgage lenders be held accountable when property values plummet and a nest egg erodes?

While there were some huge mistakes with the early reverse mortgages that were compounded by a few bad operators, today’s product is a needed, helpful tool that enables thousands of seniors access to funds otherwise untouchable. How many conventional lenders will grant a loan to a 70-year-old with no income?

Reverse mortgage rates and fees have come down. Fixed-rate programs are now in place. There is no other product where greater care is given, more counseling is mandatory, and more questions are answered before anything is done.

Let’s hope not all reverse mortgage lenders are driven from the industry because of reputation risk.

Is the Federal Housing Administration taking a back-door exit away from condos — a key real estate segment in which it’s recently built up market shares of 40 percent and higher in many urban areas?

Could the agency be tightening its rules in order to cut loan volume in the months ahead, potentially putting thousands of unit sellers, buyers, homeowners associations and realty agents in a mortgage-money squeeze?

FHA adamantly denies that it’s doing anything of the sort, and insists that new rules rolled out at the end of last month represent prudent responses to the serious risks the agency’s insurance funds confront.

But condo industry executives and community managers say FHA’s tougher regulations have a wet-blanket effect on associations’ ability — and willingness — to get their projects approved for financings by the agency. Without an entire project certified, potential buyers of units cannot obtain FHA-backed loans, which in turn makes it more difficult for current unit owners to sell and could depress property values.

Mark Lewis, executive vice president of Associa, the nation’s largest community management firm with 10,000 projects and 2 million homeowners in 31 states, said that he’s “getting complaints hourly” from condo boards of directors who are balking at seeking certifications or recertifications for FHA financing because they can’t deal with the new, stringent rules.

“We’re getting frantic calls from Realtors saying, ‘Oh my god, this deal is going to fall through,’ ” unless FHA financing is available. But because of the new rules, he said, the project may no longer qualify.

FHA’s low down payment minimums — 3.5 percent — and relatively generous credit and debt ratio policies have made it the go-to financing source during the past several years for moderate-income buyers who previously would have sought conventional mortgages. With high-cost-area mortgage limits of $729,750 — at least until Oct. 1, when they are scheduled to drop — FHA has even become a player in some upper-end condo communities.

The biggest complaint about the new FHA rules, said Lewis, is the requirement that anyone who signs an application for certification or recertification of a project must assume full responsibility under federal law for the accuracy of every piece of information contained in the submission.

The penalties for subsequent findings that information was inaccurate or omitted can be severe — ranging up to $1 million in fines and 30 years in prison for the worst infractions.

Since the certification package submission covers myriad items that can be difficult to pin down precisely — such as the percentage of units currently occupied by renters on a given date, or whether project documents are in full compliance with every state law and regulation — many association boards and managers are reluctant to stick their necks out to guarantee accuracy of the unknowable under threat of future federal fines.

“We’re not the Gestapo,” said Lewis. “We can’t go door to door to find out who’s in there and whether they’re renting or they own.” Also, many of these condos drafted their underlying documents years ago and have not necessarily kept them up to date with relatively minor changes in state law.

For example, he said, some condos prohibited flying of flags in their original documents, but state laws have since overridden that prohibition.

“There’s just no way you can certify to FHA that you are in full compliance with every change that’s occurred” since the original documents were adopted. And yet, Lewis said, a strict reading of the new guidelines requires it.

Condo boards, unit owners and managers also are upset by other rules from FHA, including:

1. A requirement that no more than 15 percent of all units in the project are no more than 30 days delinquent on their condo assessments, including bank-owned (REO) units, which are notorious for nonpayment of fees.

Often condo boards can’t even determine who actually owns a foreclosed unit, said Andrew Fortin of the 30,000-member Community Associations Institute trade group, “so how can FHA expect volunteer condo boards to find this information and collect the assessments?”

Worse yet, he said, most boards or management companies don’t learn about delinquencies on assessments until well after 30 days.

Plus, FHA’s new rule conflicts directly with some state laws, such as in North Carolina, where boards are prohibited from even seeking to collect fees until they are more than 30 days delinquent.

2. A requirement that not only must condo boards carry fidelity insurance on their officers, but that management companies must carry policies as well.

According to Fortin, that requirement conflicts with state law in Maryland, where condo boards already must purchase fidelity insurance for their management companies. Under a strict reading of the rules, he said, that means management companies will be forced to buy what amounts to double coverage.

3. A variety of technical rules that may hamper condo conversions and so-called gut rehabs.

For example, Philip Sutcliffe, principal of the condominium consulting firm Project Support Services, said FHA’s new rule requiring full, professionally prepared studies of financial reserves will be too expensive for many projects to afford. Sutcliffe said he sometimes wonders whether “anyone at (the U.S. Department of Housing and Urband Development) truly understands how condominiums work in the real world.”

As a consequence of these and other concerns about the new rules, recertifications of existing condo projects for FHA mortgage insurance are lagging. An FHA official confirmed to me that just 1,000 of approximately 12,000 projects eligible have done so in recent months — a no-show rate that critics call ominous.

In response, FHA officials argue that most of the agency’s rules track similar requirements in the conventional financing marketplace. Moreover, they say, at a time when condo projects have taken especially hard hits in the housing downturn — and many projects in places like Florida, Arizona and Nevada have experienced soaring rates of delinquency and foreclosure — they have a duty to protect FHA’s insurance funds against avoidable losses.

Asked whether a calculated phasedown of FHA’s condo volume lurks behind the toughened rules, Lemar Wooley, a spokesman for the agency, said “that is not the case. FHA is committed to continuing its mission of providing affordable, sustainable homeownership opportunities while managing and mitigating risk. Our new condo guidance is consistent with that commitment.”

Ginny:  We have been renting out our home since we moved to another town where my husband took a job. We’ve got an applicant (a retired lawyer) who has seen our lease form but wants “at least three hours” to negotiate its terms. The lease is from a respected legal publisher and we’re sure it’s legal.

I’m getting a bad vibe from this applicant, whose current landlord describes him as solvent, prompt and respectful of the rental property, but who is “a real pain.” Should we decide not to pursue this application? –Tess and Larry, Winnetka, CA.

Tess and Larry:  Sometimes it takes more than solvency and respect for property to make a good tenant. Unless you are desperate to rent the property now, and are willing to take a chance on having to deal with problems down the road, you should think about passing on this applicant. But to protect yourself, you’ll need to gather a bit more information before sending this applicant on his way.

Let’s look first at the legally permissible reasons landlords may rely on to deny an application. The general rule is that if the applicant cannot meet your rental terms (wants to have a pet in a no-pets building, for example), cannot or will not complete an application, or has a history of being a poor tenant, you’re on solid legal grounds to say “No, thanks.”

Being a poor tenant means that any reasonable businessperson in your shoes would conclude that renting to this person would pose an unacceptable business risk.

The most obvious business risks concern applicants whose income-to-debt ratio is worrisome, whose rent-paying history is spotty, or who have been asked to leave by past landlords for misbehavior. But these transgressions are not the only ones you can consider; one of the risks you want to avoid is having to spend time and energy dealing with a difficult tenant.

Just make sure that your conclusion that this tenant is a potential time-and-energy sink is not based on stereotypes concerning the applicant’s race, religion, sex, and so on.

So, let’s consider the telling remark of the applicant’s current landlord. What exactly does “a real pain” mean? Call that landlord back and ask for examples. You may hear that the tenant made frivolous repair requests, denied the landlord access for no good reason, hassled other residents, complained a lot, and so on.

All of these traits spell annoyance, if not downright trouble, to most seasoned landlords, and you may reject the application on this basis. Be sure to keep your notes so that, if challenged later, you have evidence that your decision was based on sound business reasons rather than illegal discrimination.

You may also reject based on your unwillingness to negotiate your lease. No law requires you to engage in an hours-long discussion. Many times, of course, landlords are well-served to modify their leases, particularly when it’s pointed out to them that certain clauses are unenforceable.

And often, landlords are willing to vary certain terms (pets, amount of deposit, parking, a promise to paint or other refurbishing, and even the rent) when the applicant’s requests are reasonable and the market is soft.

Let’s face it: A landlord surveying a long line of eager and qualified applicants will be less interested in modifying terms like these than a landlord who’s operating in a cold market with very few potential renters on the horizon.

If you are satisfied with the legality of your lease, the only result of protracted discussions with your lawyer-applicant will be terms less favorable to you (you can bet, for example, that the applicant will want you to drop your “late fees” clause). Unless you’re willing to dilute the lease — and take on a tenant who may drain your time and resources — repost the vacancy ad.

Ginny:  I’ve been a tenant at my complex for more than 10 years, and have always paid the rent on time. The property manager sent me a letter asking, without explanation, for copies of my Social Security card and driver’s license. I’ve already provided my license several times for a parking sticker, and the Social Security number was provided before I moved in. I’m concerned about identity theft; do I have to supply this information? –Susan, Boise, ID

Susan: I’m not aware of any laws that give landlords the right to tenants’ Social Security number or driver’s license information. Of course, many landlords ask for this information in the course of screening applicants; they need identifying information to enable them to order a credit report (although it’s possible to get a report without supplying a Social Security number). Any applicant who refuses to supply necessary identifying information can be turned away on that basis.

Asking for your SSN and driver’s license information after a tenant has been accepted and proved to be a solid, rent-paying resident is something else again, however. This information is relevant at screening time, when landlords have to gather evidence of good tenant behavior, which they do by checking credit and even driving history.

But as a long-term tenant, you have amply proved that you are a good risk! Mind you, by law people cannot run credit reports on other people unless they have a sound business reason, which doesn’t appear to exist here.

Have a talk with management and ask why they want this information. If you hear, “So we can have it on hand,” beware. Federal law (the “Disposal Rule,” 69 Fed Reg. 68690) specifically forbids the keeping of sensitive information when it’s no longer necessary.

If management persists in asking for the information and you refuse, triggering an eviction, you will have to defend on the grounds that your eviction was punishment for your refusal to comply with an illegal demand.

Although violations of the Disposal Rule carry civil penalties, it’s not certain that you can raise them as a defense to an eviction. It’s hard to imagine a landlord foolish enough to oust a stable, long-term tenant over information that the landlord really doesn’t need. But if you encounter such foolishness, be sure to get some legal help if matters take a turn in this direction.

The federal tax law encourages homeownership in a big way by allowing homeowners to deduct from their income taxes the interest they pay on home mortgages.

The deduction may be used for mortgage debt totaling $1 million, and up to $100,000 in home-equity loans or lines of credit, for a principal and second home.

One study estimates that the mortgage interest deduction lowers the cost of capital for owner-occupied housing by 7 percent. Also, by allowing taxpayers to deduct mortgage interest from their taxable income, but not rental payments, the tax code creates a strong financial incentive to buy rather than rent a home.

In 2009, about 35 million households claimed the deduction, and more than 75 percent of homeowners have used the deduction at least once.

As you might expect, the mortgage interest deduction is expensive. Indeed, it’s one of the largest tax breaks in the tax code, costing about $80 billion per year. That’s why the so-called “Gang of Six,” a bipartisan group of six senators that has been drafting a deficit reduction plan, has called for changes in the deduction.

The six senators’ draft plan states Congress should “reform, not eliminate … tax expenditures for homeownership.”

The group has not provided any concrete proposals on how the home interest deduction should be changed, but many are already on the table.

For example, the Obama administration has proposed limiting the value of the deduction for taxpayers in the top two tax brackets: 33 percent and 35 percent. These taxpayers would not be allowed to use the deduction to reduce their income in the top two brackets.

In effect, this converts the deduction to a 28 percent tax credit for these upper-income homeowners. Homeowners with incomes below $250,000 would generally not be directly affected by this proposal.

Other proposals call for limiting the deduction to homes worth $500,000 or less, rather than the current $1 million limit, and eliminating it entirely for second homes. Others contend that the deduction should be phased out entirely in return for lower tax rates for everyone.

What happens if the mortgage interest deduction is “reformed”? The National Association of Realtors says eliminating the deduction entirely would cause a 15 percent decline in the value of homes across the nation.

In high-cost areas, that impact would be greater, while in lower-cost areas the effect would be less. Obviously, the impact would be less severe if reform short of total elimination of the deduction is enacted.

On the other hand, some claim that reforming the deduction wouldn’t be such a big deal. After all, the average home interest deduction is only about $2,000 per return. It’s primarily upper-income taxpayers who would be affected.

Households earning more than $200,000 a year account for less than 10 percent of all returns filed, but account for 30 percent of all the tax savings from the home interest deduction. Households earning more than $100,000 a year get 69 percent of all the tax benefits from the deduction.

The mortgage interest deduction was adopted more or less by accident back in the 1890s. Since that time it has become one of America’s best-loved tax breaks. Anyone looking to greatly change it will be in for a fight.

Four years ago, Bank of America made headlines in the reverse mortgage industry by acquiring a turnkey operation and then simultaneously announcing a reverse mortgage program for second homes. This was big news, especially for baby boomers who had significant equity in two homes.

BofA, a latecomer to the reverse mortgage party, came in the door with both barrels blasting. It paid a reported $220 million for Reverse Mortgage of America, the reverse mortgage arm of Seattle Mortgage. Several of Seattle Mortgage’s top people also made the switch to BofA, including John Nixon, the executive vice president and chief operating officer of Reverse Mortgage of America.

Seattle Mortgage entered the reverse mortgage industry in 1995. It had a loan portfolio of 40,000 reverse mortgages, totaling more than $4 billion in outstanding balances, when it sold Reverse Mortgage of America to BofA. Approximately 400 Seattle Mortgage associates joined BofA, including a retail sales force of more than 200 sales associates in 25 states and Washington, D.C.

Things were really looking up. But a few weeks ago, BofA completely shut it down, reversing out of the reverse mortgage game to focus on its core business of conventional, “forward” mortgages while adding more manpower to resolving foreclosures and defaults. The bank’s much-anticipated program for second homes barely got started before it quietly faded away.

“We made the strategic decision to exit the reverse business due to competing demands and priorities that require investments and resources be focused on other key areas of our business,” said Doug Jones, consumer sales and institutional mortgage services executive for Bank of America Home Loans.

The company said it will continue to serve the needs of existing reverse mortgage customers and those with loans in process, as well as maintain their servicing portfolio.

“We fully understand the critical sensitivity of ensuring that our senior customers are provided with the same level of excellent customer service that we have provided in the past,” Jones said.

The BofA announcement came on the heels of a similar move by Seattle Mortgage. Financial Freedom, a jumbo reverse specialist, then followed.

Seattle Mortgage, which started over with reverse mortgages after the sale to BofA, recently settled a 2007 class-action lawsuit over loan origination fees paid to brokers.

According to notes in the case, Seattle Mortgage contends it did nothing wrong. BofA and Seattle Mortgage were two of the nation’s largest reverse mortgage lenders. Wells Fargo, which led the country in reverse mortgage originations, recently dropped its program.

Reverse mortgage funds can be distributed either in a lump sum, regular monthly payments, line of credit, or in a combination of those options. When the house is sold, or the last remaining borrower dies or moves out of the home, the loan amount plus the accrued interest is repaid. The borrower can’t owe more than the value of the home.

“The demographics of our seniors and the upcoming boomer group indicate there are multiple tentacles of financial planning tools that could be used in the long run,” Nixon said in 2007 when he made the move to BofA. “One of those tools would be helping people with significant equity in the second home to help tap that equity to make their lives more
comfortable.”

What has changed that would so dramatically alter a program to assist seniors? While BofA and Wells Fargo imply that their reverse mortgage operations simply “didn’t scale” compared to other lending opportunities, consumers have to wonder if there is a another explanation for the moves.

For example, with home values down and equity dwindling, is every product geared to seniors an automatic reputation risk? If you charge a senior for any service and it does not work out to their (or their children’s) complete satisfaction, are you guilty until proven innocent? Should specific reverse mortgage lenders be held accountable when property values plummet and a nest egg erodes?

While there were some huge mistakes with the early reverse mortgages that were compounded by a few bad operators, today’s product is a needed, helpful tool that enables thousands of seniors access to funds otherwise untouchable. How many conventional lenders will grant a loan to a 70-year-old with no income?

Reverse mortgage rates and fees have come down. Fixed-rate programs are now in place. There is no other product where greater care is given, more counseling is mandatory, and more questions are answered before anything is done.

Let’s hope not all reverse mortgage lenders are driven from the industry because of reputation risk.

Is the Federal Housing Administration taking a back-door exit away from condos — a key real estate segment in which it’s recently built up market shares of 40 percent and higher in many urban areas?

Could the agency be tightening its rules in order to cut loan volume in the months ahead, potentially putting thousands of unit sellers, buyers, homeowners associations and realty agents in a mortgage-money squeeze?

FHA adamantly denies that it’s doing anything of the sort, and insists that new rules rolled out at the end of last month represent prudent responses to the serious risks the agency’s insurance funds confront.

But condo industry executives and community managers say FHA’s tougher regulations have a wet-blanket effect on associations’ ability — and willingness — to get their projects approved for financings by the agency. Without an entire project certified, potential buyers of units cannot obtain FHA-backed loans, which in turn makes it more difficult for current unit owners to sell and could depress property values.

Mark Lewis, executive vice president of Associa, the nation’s largest community management firm with 10,000 projects and 2 million homeowners in 31 states, said that he’s “getting complaints hourly” from condo boards of directors who are balking at seeking certifications or recertifications for FHA financing because they can’t deal with the new, stringent rules.

“We’re getting frantic calls from Realtors saying, ‘Oh my god, this deal is going to fall through,’ ” unless FHA financing is available. But because of the new rules, he said, the project may no longer qualify.

FHA’s low down payment minimums — 3.5 percent — and relatively generous credit and debt ratio policies have made it the go-to financing source during the past several years for moderate-income buyers who previously would have sought conventional mortgages. With high-cost-area mortgage limits of $729,750 — at least until Oct. 1, when they are scheduled to drop — FHA has even become a player in some upper-end condo communities.

The biggest complaint about the new FHA rules, said Lewis, is the requirement that anyone who signs an application for certification or recertification of a project must assume full responsibility under federal law for the accuracy of every piece of information contained in the submission.

The penalties for subsequent findings that information was inaccurate or omitted can be severe — ranging up to $1 million in fines and 30 years in prison for the worst infractions.

Since the certification package submission covers myriad items that can be difficult to pin down precisely — such as the percentage of units currently occupied by renters on a given date, or whether project documents are in full compliance with every state law and regulation — many association boards and managers are reluctant to stick their necks out to guarantee accuracy of the unknowable under threat of future federal fines.

“We’re not the Gestapo,” said Lewis. “We can’t go door to door to find out who’s in there and whether they’re renting or they own.” Also, many of these condos drafted their underlying documents years ago and have not necessarily kept them up to date with relatively minor changes in state law.

For example, he said, some condos prohibited flying of flags in their original documents, but state laws have since overridden that prohibition.

“There’s just no way you can certify to FHA that you are in full compliance with every change that’s occurred” since the original documents were adopted. And yet, Lewis said, a strict reading of the new guidelines requires it.

Condo boards, unit owners and managers also are upset by other rules from FHA, including:

1. A requirement that no more than 15 percent of all units in the project are no more than 30 days delinquent on their condo assessments, including bank-owned (REO) units, which are notorious for nonpayment of fees.

Often condo boards can’t even determine who actually owns a foreclosed unit, said Andrew Fortin of the 30,000-member Community Associations Institute trade group, “so how can FHA expect volunteer condo boards to find this information and collect the assessments?”

Worse yet, he said, most boards or management companies don’t learn about delinquencies on assessments until well after 30 days.

Plus, FHA’s new rule conflicts directly with some state laws, such as in North Carolina, where boards are prohibited from even seeking to collect fees until they are more than 30 days delinquent.

2. A requirement that not only must condo boards carry fidelity insurance on their officers, but that management companies must carry policies as well.

According to Fortin, that requirement conflicts with state law in Maryland, where condo boards already must purchase fidelity insurance for their management companies. Under a strict reading of the rules, he said, that means management companies will be forced to buy what amounts to double coverage.

3. A variety of technical rules that may hamper condo conversions and so-called gut rehabs.

For example, Philip Sutcliffe, principal of the condominium consulting firm Project Support Services, said FHA’s new rule requiring full, professionally prepared studies of financial reserves will be too expensive for many projects to afford. Sutcliffe said he sometimes wonders whether “anyone at (the U.S. Department of Housing and Urband Development) truly understands how condominiums work in the real world.”

As a consequence of these and other concerns about the new rules, recertifications of existing condo projects for FHA mortgage insurance are lagging. An FHA official confirmed to me that just 1,000 of approximately 12,000 projects eligible have done so in recent months — a no-show rate that critics call ominous.

In response, FHA officials argue that most of the agency’s rules track similar requirements in the conventional financing marketplace. Moreover, they say, at a time when condo projects have taken especially hard hits in the housing downturn — and many projects in places like Florida, Arizona and Nevada have experienced soaring rates of delinquency and foreclosure — they have a duty to protect FHA’s insurance funds against avoidable losses.

Asked whether a calculated phasedown of FHA’s condo volume lurks behind the toughened rules, Lemar Wooley, a spokesman for the agency, said “that is not the case. FHA is committed to continuing its mission of providing affordable, sustainable homeownership opportunities while managing and mitigating risk. Our new condo guidance is consistent with that commitment.”