The USDA home loan program was targeted toward rural communities. Image: Flickr / lcd1863 / CC-BY-SA

As a part of the stimulus package of 2009, the USDA got in the home loan guarantee business. The value of USDA-guaranteed home loans was $16.2 billion in 2010. A recently released audit, however, shows that the program could be headed for collapse.

The USDA loan program

As a part of the stimulus package, the United State Department of Agriculture got into the home-loan guarantee business. The USDA-backed home loans were intended for rural homes that may have trouble otherwise getting financed. For areas such as Irving, Texas, and Pocatello, Idaho — towns that do not have high property values — these guarantees helped many individuals get home loans. In 2009, the USDA guaranteed 133,053 home loans. Various banks provided the money for these loans but had to take on very little risk thanks to the guarantees.

Problems with the USDA program

Though the USDA home loan guarantee program has helped grease the wheels of many home loans, it is not without problems. The USDA recently released an audit of its own loan program, and the results are worrisome. Banking practices that led to the original mortgage crisis have also plagued the USDA home loan program. Though they are only intended as emergency loans, these loans may end up dragging down the federal ledgers. Estimates of the audit are that 10 percent or more of the loans were made to people who simply should not have qualified.

How emergency loan guarantees are working

Though more than 10 percent of the mortgage loan guarantees made by the USDA are at risk, that does not mean the program is entirely at risk. The majority of the loans were made by small and medium banks, which tend to have lower tolerance for risk than larger banks. The majority of the USDA-backed home loans were intended for low- and middle- income borrowers, and many required no down payment. The foreclosure rate of these loans is currently about 2.25 percent.

Sources

NY Times

If you’re looking to become a first-time homeowner, you know there are dozens of different things you need to think about before taking the plunge. Not least among your headaches is finding and arranging a mortgage for your new home. The thought of borrowing such an enormous amount of money and being tied to a home loan for 20 to 30 years can be enough to give anyone nightmares. But the process doesn’t have to be as scary as it seems. Here are half a dozen simple pointers that will help make the process of getting your first mortgage a bit less painful:

1. Figure out how much you can afford

Once you’ve found a house or apartment you would consider buying, use an online mortgage calculator to work out approximately how much you would be paying every month. Remember that you’ll have to fork out for taxes and insurance as well. Then set that figure against your budget (you have made a monthly budget, haven’t you?). Most experts say your accommodation shouldn’t eat up more than 30% of your disposable income. This will give you an idea of what you can realistically afford.

2. Get educated

Ordinary fixed-rate mortgages are fairly easy to understand, but there are several other kinds of home loan that can be harder to get your head around. Ask your loan officer to clarify how your loan works, especially if you are applying for an ARM (adjustable rate mortgage) or other complex home loan where rates will change over the course of the loan term. That way you’ll know what to expect at various points.

3. Check out FHA mortgages

As a first-time buyer, you can apply for a home loan that is insured by the Federal Housing Administration (FHA). Thanks to the extra security it gets from having the mortgage insured by the FHA, your loan issuer is likely to ease its requirements a little, even if you have less than wonderful credit or have declared bankruptcy at any time. With an FHA-insured mortgage, your required deposit will be relatively low, as will your interest rate, although you will have to buy mortgage insurance.

4. Lock in an interest rate

Mortgage lenders will allow you to lock in a rate for a set period of time while your mortgage application is being processed and you’re closing on your purchase. This is important as interest rates fluctuate from day to day, and even from hour to hour. Your loan officer will be able to explain how rate changes can impact your chances of having your loan approved, as well as your monthly payment level.

5. Make sure you get your tax credit

The 2009 first-time homebuyers’ tax credit has been extended, and has even been supplemented with a repeat buyers’ credit. As long as your new purchase is going to be your main residence, you can get up to $8000 as a first-time buyer (defined as someone who hasn’t owned real estate in the past three years), and $6500 as a repeat buyer. To qualify, you need to have a contract signed by April 30, 2010, and to close on the deal by June 30, 2010. These tax credits are fully refundable, which means you can benefit even if you don’t pay that much in tax. There’s no guarantee that there’ll be another extension, so be sure to use your tax credit while you can!

6. Shop around

You’ll find a slightly different selection of home loans from each mortgage provider. That’s why you should always compare mortgages from a number of lenders before signing on the dotted line. Ask them what interest rates and repayment conditions they can offer you, and what their loan requirements are. They might also have different closing costs and down payment requirements. Once you have all the information you need to make a final decision, you can be sure you’ll get the mortgage that best suits your requirements and financial situation.

With housing markets across the county in shambles, millions of homeowners are sitting on real estate that’s worth less than they owe on it. Many of those people are also having trouble making their monthly mortgage payments, and some of them are losing their homes as a result.

Whether your mortgage lender forecloses on your property, whether you voluntarily surrender it, or whether your lender agrees to a short sale — losing your home is never pleasant. Even so, most people who have to surrender their real estate heave a sigh of relief at finally being freed of an impossible financial burden. Sadly, what many of them don’t realize is that they may still be liable for the unpaid portion of the mortgage debt.

Many homeowners are underwater

We used to think of foreclosure as something that only happened to other people. Then, as the sub-prime mortgage crisis gathered steam, thousands of homeowners who had borrowed more than they could afford to pay — thanks to lenient lenders or exaggerated incomes — had to surrender the property one way or another.

With real estate prices having fallen so drastically in many areas, a huge number of homeowners who bought houses they could afford at the time, and who always made their payments on time, are in trouble as well. Some have lost their jobs, had to relocate for work, or filed for divorce, and now they can’t sell the house for enough to pay off the mortgage. When you owe more on your mortgage than your home is worth, it’s known as being “underwater” on the mortgage.

Each state has different laws

In more than 30 states, lenders can sue to recover the deficiency on a mortgage debt once the property has been sold. New York, Texas, and Florida are among the states that allow lenders to pursue deficiency judgments after a foreclosure or short sale. California is one of the states that don’t allow deficiency judgments; but even there deficiency judgments can sometimes be obtained on refinance or second mortgages.

Deficiency judgments can be obtained long after the fact

Many people who are facing foreclosure now don’t realize that the lender won’t necessarily act immediately to recover a deficiency on the mortgage. Sometimes mortgage holders wait until real estate prices start to rise, sell the house, and then (based on the assumption that your financial situation will have improved right along with the housing market) pursue you for the difference, with interest. In Florida, for example, a bank may wait five years before bringing suit to collect a deficiency and can renew a deficiency judgment for up to 20 years.

Negotiate a legal release

It’s important to know your legal rights if you have to give up your home, so get legal advice from an experienced attorney in your area. An attorney may be able to negotiate a release from your obligation to compensate the lender for a deficiency in the event of a foreclosure or short sale. If you get proper legal advice and assistance, and you’ll know where you stand and can make a new start without the threat of a deficiency judgment.

The way of mortgages today

Mortgage companies and mortgage lenders can and do make loans in any economy. The reason is very simple, if they choose not to make home mortgages available, they will not make money. Now ask yourself,  “Do you think home mortgage companies want to make a profit?” Obviously, they do, so let’s proceed.

Profit in mind

Over the past decade or so, most people looking for home financing have been doing so with one goal in mind – profit. They saw the huge gains to be made through real estate investments, and no matter what was asked of them, they’d do it for the chance to take out a home loan.

Money is needed all over the world

Today’s home mortgage market has a different type of customer. The dream of home ownership still exists for people all over the world. Consumers are no longer fixated on making profit from real estate. They are however interested in securing a home mortgage for their families.

The housing bubble

Over the years 2006 and 2007, an estimated $2 trillion worth of mortgages were made to home mortgage consumers. Many of these home loans were made with little or no documentation. Essentially, many borrowers were allowed to sign their name and if their credit score was high enough, they could qualify for nearly any loan amount on a home mortgage they desired. Obviously, this caused, what is commonly referred to as a housing bubble, to burst.

The re-evaluation of mortgages

Lenders were forced to re-evaluate how they make home loans. However, that did not stop them from doing business altogether. Today’s borrower can expect a much more detailed and intricate application process and all the necessary documentation to make a home loan will have to be provided.

More and more documents needed

Legitimate home loan borrowers who want to secure a home mortgage can do so if they are willing to endure the process in a more traditional fashion. That means providing proof of your income, tax returns, credit history and a willingness to make your payments in a timely fashion. Your payment history on your credit report will accurately detail whether or not you will qualify for a home loan.

Your mortgage loans is almost done

That is not to say that you will not qualify if you have bad reports on your credit history. Ultimately, mortgage lenders, based on two important principles, make decisions about who gets a mortgage. You must show the ability to pay the loan and make your payments in a timely fashion, and be able to document a willingness to do so. This is, and has always been, the primary criteria for qualifying for a home loan.