Foreclosure rates are on the rise. / Image: The-Lane-Team/Flickr/CC BY-ND

The price of homes continues to fall in the U.S. as foreclosure rates grow. This is good news for home buyers looking for a bargain. However, if you are looking to sell, it may be advantageous to wait a little longer.

FHFA report shows sharp drop

The Federal Housing Finance Agency reports this week that its home-price index fell in the current quarter faster than at any time since 2008. Prices have fallen 2.5 percent in the last quarter, which is a drop of 5.5 percent from last year. The report, however, covers only homes purchased with mortgages provided by Fannie Mae or Freddie Mac. It excludes cash only sales.

Foreclosures remain a key factor

FHFA acting director Edward DeMarco said, “In many local real estate markets, particularly those hit hard by this cycle, foreclosures and other distressed properties are still a key factor in recorded and anticipated future sales and may be delaying price stability or recovery.” The prices of homes in foreclosure are dropping, according to RealtyTrac. The average sales price was $168,321 during the first quarter, which is a 1.89  percent drop from the previous quarter, and 1.46 percent from a year ago. And because foreclosures lower the value of other homes in their neighborhood, they affect the rest of the index as well.

Fewer foreclosures going to third parties

“While foreclosure sales continue to account for an unusually high percentage of all residential home sales, sales volume is well off the peak we saw in the first quarter of 2009, when nearly 350,000 foreclosure properties were sold to third parties,” reported James Saccacio, the CEO of RealtyTrac. During the first quarter, 158,434 homes in various stages of foreclosure were sold to third parties during the first quarter, which is a drop of 16 percent from the previous quarter and 36 percent from a year ago.

Foreclosures rates vary by state

The percentages of houses on the market because of foreclosure varies by state. In Ohio and Illinois it was 41 percent. California and Arizona had foreclosure rates of 45 percent. In Nevada, foreclosures were 53 percent of the market.

Beware of foreclosure scams

This trend has brought out higher numbers of foreclosure rescue scams. These scams involve upfront fees for promises of foreclosure prevention that never happen, leaving the distressed homeowners high and dry. In February the Federal Trade Commission began prohibiting upfront fees to negotiate mortgage reduction plans.

Sources

Wall Street Journal

DS News

Daily Finance

Applying for a loan will cause a credit score to take a hit. Photo: TrinityCreditServices/Flickr/CC-BY

The point of a credit score is so companies can project whether a person is a risk to extend to credit to. However, a person’s credit score takes a hit every installment loan or mortgage lenders ask to see it, meaning a person looks like more of a credit risk for trying to use credit.

Lose credit to use credit

Anyone who applies to get a loan of any kind, whether it’s a simple installment loan for personal use or a larger loan like a mortgage, is subject to a credit check. A lender gets applicants’ credit scores from one of a number of agencies. Unfortunately, the manner in which the score is requested can hurt a person’s credit rating. It’s called a “hard pull,” according to AOL News. When a lender requests a credit score from a credit rating agency with the intention of possibly lending to the applicant, a couple of points are taken off the top of the credit score.

Two-week window

One of the main incentives of maintaining a good credit score is to be able to get the best possible interest rates. Ironically, a good credit score can be negatively affected when a person applies for a loan that they worked hard to be able to get the best rate on. However, there is way to loan shop and avoid a precipitous drop. Shop for loans within a 14-day period. If all “hard pulls” are done within two weeks, all inquiries count as one. After that, don’t apply for any more loans until your credit score climbs back up.

Rating agencies not in the business of making it easy

Though credit rating agencies Experian, EquiFax and TransUnion are in the business of providing information to other businesses — not to consumers — they have come under fire for keeping so-called VIP lists, according to the New York Times. The three main credit rating bureaus have been accused of treating information for the wealthy and high-profile people in a more preferential manner and the Federal Trade Commission is currently investigating the allegations. The credit bureaus, according to Fox, deny that any such considerations are made.

Sources

AOL News

New York Times

Fox

CFPB readies simplified mortgage forms / Image: TheTruthAbout/Flickr/CC BY-SA

The Consumer Financial Protection Bureau, the Obama administration’s agency being set up by adviser Elizabeth Warren, plans to bring greater transparency to the credit industry by requiring the use of a simpler, more straightforward shopping sheet for mortgage lending. On Wednesday the agency website released two possible versions of a simpler mortgage disclosure form for public scrutiny.  Reactions have been mixed from industry and consumer sources.

Current forms confuse consumers

The CFPB claims that hidden charges and unreasonable terms are often hidden within the confusing language of the forms currently being used by lenders.  Currently, two mortgage disclosures are required: the federal Truth in Lending Act (TILA) mortgage disclosure and the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate.  The new form will combine the two, reducing the the current five pages down to a one-page (front and back) form. The CFPB is calling it the “know before you owe” project.

Two different prototypes offered

Both versions of the new form contain the same information, but it is presented in different ways. Both show the interest rate, monthly loan payment, closing costs and taxes.  At a glance, one can see monthly payments and how those payments might change during the life of the loan.  The forms will also warn of possible penalties and other non-transparent charges.

Confusion can be costly

“Getting stuck with the wrong home loan can cost tens of thousands of dollars over the life of the loan,” Warren said Wednesday.  “[This] is a clear, simple form so consumers can get better answers to two basic questions: Can I afford this mortgage, and can I get a better deal somewhere else?”

Mixed reactions on both sides

Industry and consumer reactions have been mixed.  Industry groups say the changes may limit innovation and variety in lending, while consumer groups are concerned that the changes may limit the ability to stop a foreclosure with court action.

No change at this time

The new forms will not soon be available by any bank, however.  The Consumer Financial Protection Bureau, created by the Dodd-Frank Act, will officially begin work on July 21.  The CFPB will then conduct five rounds of testing in six different cities before introducing an official form in September. The bureau will then have until July 2012 to propose rules relating to the form’s implementation.

Sources

CNN
Bloomberg
LA Times

Need help understanding your mortgage? It may be on the way from the Consumer Financial Protection Bureau. (Photo Credit: CC BY-ND/David White/Seek4Media)

In 1975, Congress passed the Home Mortgage Disclosure Act, which required mortgage lenders to fully report all public loan data. While this and other consumer-friendly provisions relating to mortgages have been in effect for more than 30 years, the recent U.S. subprime mortgage crisis illustrated that additional regulation may be necessary. Hence, the soon-to-be-activated Consumer Financial Protection Bureau plans to debut a new version of the standard mortgage disclosure form that should make things easier for homebuyers to understand.

New mortgage disclosure form a ‘key priority’

The Wall Street Journal reports that the new mortgage disclosure form is a “key priority” of the Consumer Financial Protection Bureau, a Dodd-Frank organization that will begin operations on July 21.

Mortgage forms currently consist of copious amounts of paper documenting all aspects of the mortgage agreement in Byzantine detail. Borrowing costs and other fees connected to the closing of the loan are buried in a sea of provisions. These book-like forms were created under the auspices of 1968′s Truth in Lending Act and the Real Estate Settlement Procedures Act of 1974. If the CFPB has its way, mortgage disclosure forms will become much more user-friendly.

“We will be looking at our first (mortgage form) prototypes,” White House adviser and possible CFPB chairwoman Elizabeth Warren told Dow Jones Newswires.

Housing industry has opposed simpler forms before

Elizabeth Warren sided with scores of consumer advocates when she announced the CFPB’s intentions to simplify mortgage disclosure forms. However, various members of Congress and the housing industry have opposed similar attempts in the past to improve the readability of mortgage papers so that consumers can understand the exact costs associated with their mortgage loans. It remains to be seen whether Warren, or whomever officially accedes to the top CFPB post, will have as much success against the housing industry as the organization has had thus far with the credit card industry.

Sources

Home Mortgage Disclosure Act of 1975

Wall Street Journal

You should understand your mortgage

Paying credit cards has been the latest consumer debt payment trend, notes TransUnion. (Photo Credit: CC BY-ND/Adjustable Rate Mortgage)

Debt payment patterns in the U.S. were changed drastically by the recession, and the shift to paying credits cards first, over mortgages, is a perfect example. Traditionally, this had never been the case. Yet when the subprime mortgage crisis put many homeowners underwater, addressing credit card debt seemed the more feasible choice, reports the Huffington Post.

TransUnion has tracked the disturbing trend

Mortgage delinquency is now viewed as almost acceptable in the current housing market, a trend that may have costly repercussions. According to credit bureau TransUnion, 7.24 percent of U.S. homeowners were late on their mortgage but current on their credit cards in the fourth quarter of 2010. In the previous quarter, it was 7.40 percent, but the drop can’t be viewed as good news, said TransUnion consultant Sean Reardon.

“(It is now) 72 percent higher than it was at the beginning of the Great Recession,” he told the Huffington Post.

By comparison, only 3.03 percent of U.S. consumers chose to fall behind on their credit cards in order to keep up with their upside down mortgages. This is the lowest known percentage for the category on record.

When the tide turned

Not coincidentally, TransUnion found that more U.S. consumers began to pay more attention to their credit cards than their mortgages just a few months after the financial collapse began in 2007. Booming unemployment and a poor housing market submerged scores of subprime borrowers as the country shifted toward an unhealthy dependency upon credit.

The growth in number of underwater mortgages is staggering. By the final quarter of 2010, 23 percent of U.S. homeowners had upside down mortgages, according to business data provider CoreLogic. That amounts to 11.1 million residential properties in negative equity, up from 10.8 million (22.5 percent) in the third quarter of 2010. Another 2.4 million homeowners have less than 5 percent equity, making the total percentage of negative and near-negative equity mortgages 27.9 percent nationwide. But it hasn’t just been subprime borrowers opting to pay their credit cards instead of their mortgages, notes Reardon.

“Initially it was,” he said, “but it spread across all risk segments. It’s now an issue at the national level.”

Sources

CoreLogic

Huffington Post

Refinance your mortgage and whittle down credit card debt

Bank of America is shuttering the reverse mortgage portion of its business. Image: Flickr / MoneyBlogNewz / CC-BY

Tuesday morning, Feb. 8, Bank of America announced it will no longer write reverse mortgages. The reverse mortgage business has dropped off significantly in the last year. A rising number of reverse mortgages are also ending up in technical default.

Bank of America and reverse mortgages

Bank of America first started offering reverse mortgages in 2006. In 2007, Bank of America purchased Reverse Mortgage America. In 2008, Bank of America purchased Countrywide Financial Corporation and took over its mortgages and reverse mortgage operations in Reno, Nevada, and around the nation. As of early 2011, Bank of America will close down all reverse mortgage operations and move the 600 employees to other divisions within the bank. All those who hold or are currently applying for Bank of America reverse mortgages will still be serviced by the bank.

A reduction in the reverse mortgage business

Reverse mortgages — in which homeowners sell their home back to the bank over time — have dropped in popularity. The number of new reverse mortgages written dropped by more than a third in 2009, and dropped again in 2010. The number of homeowners who are technically in default on their reverse mortgages is also increasing. A reverse mortgage default is more difficult to parse, because going into “default” means not paying taxes on the property or keeping it maintained. Many seniors are facing the choice of taking out no fax payday loans to keep their home maintained or lose their main source of secondary income.

The benefit of reverse mortgages

Reverse mortgages are currently losing popularity. Many senior citizens are outliving their reverse mortgages, or defaulting from lack of maintenance on the home. In some situations, however, a reverse mortgage can help individuals pull equity out of their homes without having to try to sell the home. In short, reverse mortgages may be helpful at times, but they are often extended beyond the intended use of the product.

Sources

Miami Herald
Nasdaq

As a way to bilk lenders out of money, Skibicki took out installment loans with fake information. Image: Flickr / MoneyBlogNewz / CC-BY

A Maryland mortgage broker yesterday pleaded guilty to several counts of mail fraud. The broker is being charged by the U.S. Attorney for Maryland. These charges are in connection with multiple fraudulent loans and mortgages.

Maryland mortgage fraud

Douglas Skibicki, a Maryland mortgage broker, has pleaded guilty to several counts of mail fraud. Skibicki has admitted that he participated in a scheme to defraud lenders, family members and banks. He applied for and received multiple mortgages and helped others receive mortgages under entirely fraudulent circumstances. In several cases, Skibicki worked with an appraiser that provided fraudulent appraisals, often of empty lots.

Families lost out with installment loans

The Maryland installment loans that Skibicki brokered were originally intended for families and businesses. These real estate loans were taken out as ways to refinance existing mortgages and get more financing out of existing properties. Many of the properties were empty lots or had minimal structures on the property. However, appraisals indicated that the there were three and four bedroom homes worth hundreds of thousands of dollars. Skibicki also submitted false documentation to banks and mortgage lenders, creating loans that families simply were not able to pay back.

The punishment for mortgage fraud

Though the mortgage fraud Skibicki has been charged with cost millions of dollars, he has been charged with mail fraud. A cease and desist order has also been issued against Skibicki, preventing him from ever doing business in the short-term loan, financial, or mortgage industry again. Because Skibicki mailed the mortgage forms to lenders, the mail fraud charge is more severe. Sentencing is schedule for April of this year, and he could be facing up to 20 years in prison, in addition to forfeiting $1.4 million in property and gains, as well as being fined twice the amount of ill-gotten gains.

Source:

Loan Safe

Low mortgage rates doesn't mean you can get a mansion for pennies, but you can score a sweet deal with low interest loans. Image from Wikimedia Commons.

If you’re looking at buying a home, right now is the time to do it. There are, unfortunately, a lot of foreclosed properties on the market at discounted prices. Not only that, but a lot of people are looking to sell. There is also a lot of inventory to move. As luck would have it, mortgage interest rates for 30 year fixed mortgages are at an all time low. So if you want to get low interest loans for a home, now is the time. You may never even need mortgage modification at prices this low.

Mortgage rates hit record low

Currently, the interest rates on 30 year fixed rate mortgages are at the lowest point they have ever been on record. Freddie Mac has kept track of the data since 1971, and the current market interest rate for 30 year mortgages dropped this week to 4.36 percent from 4.42 percent, according to Bloomberg. Granted, these are low cost loans compared to several years ago, but the rates are not exactly on short term loans. After all, it is for a 30 year mortgage. The rate for 15 year fixed mortgages is at 3.86 percent. At this rate, 30 year mortgages will be at that rate by Thanksgiving.

Plenty of inventory to move

As of right now, there is a greater supply of homes on the market than there has been since 1983. The real estate market has a 27 year all time high supply of homes for sale. However, that usually means that fewer people are buying. According to Reuters, home resales are at a 15 year low, and more people are getting refinancing if they can. The unfortunate corollary to all this is that getting credit from money lenders is harder than ever, and the era of unchecked loans for bad credit for purchasing a home is completely over.

Buy low and sell high

However, if you have the credit and a down payment ready, this is the time to buy. In the right area, you could actually get into a sweet house for half the cost you normally would pay. At these rates, you may never need to refinance or even have to think about mortgage modification.

Further Reading

Reuters

Bloomberg

The FHA is planning on increasing mortgage rates, even though housing is still weak. Image: Wikimedia Commons

The Federal Housing Administration is the federal government agency charged with helping guarantee mortgages. The FHA does not directly provide no credit loans for homes, but guarantees loans to certain classes of borrowers. The FHA is required to keep about 2 percent reserves in case loans go bad, but they currently only have about .53 percent reserve. Interest rates on FHA loans will be going up on September 7, though there are plans in place to actually help reduce average payments.

FHA provides bad credit loans

The home mortgage loans that the FHA backs are usually targeted to borrowers with bad credit that need money now. The FHA loan programs help reduce the necessary down payment. Currently, the down payment required for an FHA loan is about 3.5 percent of the value of the home. Some senators tried to increase the required down payment to 5 percent, but the bill was struck down. Currently, the FHA originates about 20 percent of the mortgage loans for people with bad credit.

Requirements for FHA reserves

Currently, the FHA has cash reserves on hand that would be able to cover only .53 percent of the loans they have currently guaranteed. Federal law states that the FHA have reserves on hand to cover 2.0 percent of their loans. In order to make up this gap, the FHA requested permission to increase the rates charged on loans they guarantee. Lawmakers approved an increase of 1 percent on the premium for home insurance paid over the life of the loan. This new fee will go into effect on September 7, though it will be phased in depending on the size of the borrower’s down payment. The move is expected to raise $3.6 billion per year.

Payments on FHA loans

The borrowers that have FHA loans will be seeing increases in their payments, though not as much as some expect. While the amount of money paid over the life of the loan will be increasing, the origination fees will be going down. The loan origination fee will be going down from 2.25 percent of the loan to 1 percent. This means that homeowners who have gotten the loans will pay about $40 per month more for their loans, but less for the origination.

New regulations in New York ensure that your mortgage officer has a license. Image: Flickr/featherdtar

In New York state, and soon in many other states, officers that offer personal loan products such as mortgages are now subject to new regulations. These regulations are intended to help customers in need of large or small loans protect themselves from unscrupulous agents. These licensing laws were passed in 2006 in New York, and similar ones were passed federally in 2008.

New York state loan licensing

The newest regulations in New York state are intended to regulate not cash advance lenders that offer mortgages, but their agents. As of July 31, anyone who wants to work as a mortgage loan officer must be individually licensed. In order to get this license, an agent must complete a 20 hour training course. Applicants also must pass tests, criminal background checks and financial background checks. Similar laws are set to take effect all over the country in the next few years.

Addressing loan job jumpers

The New York law and the Secure and Fair Enforcement for Mortgage Licensing federal law passed in 2008 address a specific problem. Many of the bad loans and fast cash advance products that contributed to the economic downfall came from a unique subset of lenders. While mortgage businesses were licensed, the lenders who worked at them were not required to be. This meant that some mortgage loan officers would make bad loans or no credit loans, push unneeded loan products, then jump from job to job when they got fired.

Questions about licensing requirements

While the reform that has been implemented as of July 31 addresses many issues in the mortgage business, some are questioning the requirements. Most say that the required 20 hours of training simply isn’t enough. In most states, licensed professions require a minimum of 75 hours or more of training. Either way, the Nationwide Mortgage Licensing System & Registry is now providing a search for borrowers to identify whether they are working with a licensed mortgage lender.

Large firms filing bankruptcy

This is the largest bankruptcy filing of multibillion-dollar public companies in history, according to Bankruptcydata.com. According to Brian Hamilton, founder of Sageworks, “Corporate revenue is down in the United States and when topline revenue is down, there’s less money to spread through expenses.”

Because of the large number of financial crashes, bankruptcy courts are having a difficult time managing. Barbara Lynn, chair of the bankruptcy committee of the US, suggested Congress make changes in judgeships. She is requesting that Congress authorizes 13 permanent bankruptcy judges and 22 temporary judges to handle the overwhelming caseload.

How Americans are responding

Long-term lodging company Extended Stay Inc., Six Flags Amusement Inc. and GM Corp are just three of the huge corporations that are setting the stage for businesses and individuals. With struggles that are insurmountable being felt on the corporate level, many consumers are interpreting this as extending their individual struggles. Lynn Miller, analyst at Price Waterhouse, stated, “We are seeing people experimenting with more spending, but when large corporations fall, they immediately regress back to their thrifty ways…people want to test the waters, but the economic OK to do so just isn’t there yet.”

Consumer Anne Davies of Middleton, Pennsylvania said, “When GM went, we immediately reassessed our spending. Although we haven’t lost jobs or homes, we still felt that if it could happen to GM, it could happen to us…we started watching our mortgage loans, personal loans and finances that much more closely.” Davies’ sentiment is shared with the general American public, as they try to manage the recession’s aftermath.

Try to mitigate their losses

Many of the large corporations that are currently financially falling are trying to mitigate their losses. GM cut huge amounts of dealerships prior to filing bankruptcy. Six Flags amusement theme parks had heavy advertising in place, coupled with deep discounts, to bring in people, despite their huge debt. At the beginning of this year, Anne Cunningham, spokesperson for Six Flags, said, “We want to bring people in…our priority is to maintain our good name and customer service focus, regardless of where we end up in a few months.”

Many consumers are taking the same view, wanting to mitigate their losses as they watch the post-recessionary period play itself out. They are using strict budgeting and tactful decision-making to handle bills, debt, and savings. The bottom line is that no one knows exactly what state the economy will be in once the recession completely passes. With major crashes in the lending and housing industries, almost no one will walk away unaffected on some level.

Economic slowdown

Although some pundits were hopeful that the recession was bottoming out, the reality is that there are still large signs that the nation has a way to go before it’s in the clear. The consistent fall of billion-dollar corporations is a large sign that more aftershocks are going to be felt by the economy. Consumers have to take proactive steps to watch their personal loans, mortgage loans, savings and retirement accounts. No one knows when the recession’s aftermath will truly be over, and consumers need to be prepared.

Start your personal loan application HERE!

Never Confuse Net Worth with Self-Worth

One problem that is often lamented in two-income relationships is that one person either feels superior to another based on his or her higher earnings, or another feels inferior. Unfortunately, this happens when individuals inextricably link their self-worth to their overall net worth.

When people are defined by the numbers on a paycheck, they are often misled into believing that they are more or less important to a relationship because of this. In an effort to avoid this detrimental pitfall, it is imperative that couples remember that love, trust, loyalty and sincere companionship cannot be bought. Therefore a person’s presence in the relationship should never be valued or devalued based solely on their earnings.

Allow Both Parties to Contribute to Household Expenses

While it is tempting to allow the person who earns the most to pay most or all of the household expenses, this is not advisable. In order for each party to feel a sense of unity in caring for the home, each should have a relative stake in the financial maintenance of the home. It is a good idea for two income earners to sit down and create a realistic budget according to what each can afford.

One may be taking on the task of paying for groceries, credit card debt and utilities, while another pays for the mortgage and car payments. Of course, one is paying more, but this isn’t the point. The point is that everyone has an important role to play in financing the necessities of the household, which fosters a sense of equity and unity for both individuals.

Plan Income Appropriate Activities

One partner may be able to afford expensive trips and lavish spending sprees, while the other cannot. In order to create a level of balance in recreational activities, these should be planned according to what each can afford. Low-cost activities can and should be enjoyed just as readily as ones with larger price tags.

Even in cases where one spends the most on the primary activity, such as plane tickets or hotel costs, activities can be arranged where the other can pay for sightseeing, souvenirs and food costs. This is just an example, of course, but the main point is to be sure that each plays a role in paying for recreational activities and entertainment so that each person feels a valuable part of the fun memories created within the relationships.

Express Appreciation

Finally, the most important tip for two-income-earning couples is to always show appreciation for the other and what each contributes financially. Couples should never take the other’s efforts for granted, nor should they forget to express appreciation for monies contributed, no matter how great, how often or how small. Everyone works hard for what they earn and being considerate enough to spend money on the wants and needs of both parties always deserves a word of appreciation and thanks.

The struggle to handle student loans

There is a catch-22 for recent graduates who got their educations for higher-paying careers. Though many targeted law or medicine as their perfect careers, now they are having a hard time finding jobs. Without finding jobs, paying back the higher cost of their education is next to impossible.

There are a growing number of consumers who are falling into this category, and the economy isn’t doing much to help. When it comes to other forms of debt, there are some outs to help ease the strain. For example, mortgage payments can be negotiated or properties sold to ease the tension. Credit card debt can be paid off or eliminated in bankruptcy. Car loans can be eliminated via a discharge in bankruptcy, negotiation or payments, or if necessary, selling off the vehicle. Then there are student loans. There really is no such thing as getting rid of student loan debts. They can’t be discharged in bankruptcy or negotiated down. The amount can’t be touched and neither can the interest rate charged to hold them. That means that consumers are never going to find a way out of paying for their student loans without some legislative changes.

Reworking the student loan

Due to issues with student loan repayment there is a growing consumer base hoping to revamp rules regarding the debt. In fact, a Facebook group that calls themselves “Forgive Student Loan Debt” is making a case for an economic stimulus plan to forgive outstanding student loan debt. There are plans of attack to help manage mortgage, credit card and unsecured loans, so they believe there should be some relief with education expenses.

They are basing their argument on the fact that education is good for society. Elevating the skill sets of mass groups can be a powerful tool for economic advancement. By allowing some negotiation option or payoff, the Facebook group hopes that consumers under heavy student loan debt would be able to focus on using their education, rather than stressing over how to pay for it. They are calling on the government to make changes that would bring a stimulus target to former students under a capped level of debt.

Will negotiating student loan debt become a reality?

Whether student loan debt will be looked at by legislators has yet to be seen. With growing numbers of defaulting and deferred student loan accounts though, there is a strong call for some changes to benefit recent graduates who are struggling. The fact that those holding mortgage, credit card and unsecured loans have government-built options and those with student loans don’t may be the best argument for change.

Start your unsecured loan application HERE!

Banks use the prepayment penalty for protection

The way they work is that banks would allow the borrower to get lower rates, but in return the buyer would sign a paper stating they must pay a prepayment penalty if their mortgage was paid off between three to five years. Ilyce Glink, publisher of ThinkGlink.com, (see http://www.bankrate.com/finance/mortgages/6-steps-to-a-lower-prepayment-penalty-1.aspx) said, “These contracts were structured to guarantee banks a certain amount of profit. The banks would do a risk calculation or a profit calculation, and the penalty itself was generally set between 2 percent and 4 percent of the loan.”

The sad truth about prepayment penalties is that homebuyers need to sign them, but often times they don’t notice them. Glink added, “The stacks of paperwork homebuyers are required to go through usually disorient them and the cost of prepayment penalties are often ignored.” The problem comes in when the borrower wants to pay off or refinance the loan and the penalty is a reality they have to face.

Ways to handle a prepayment penalty

Clarky David, Debt Diva at CareOne Debt Relief Services, said, “With a mortgage, you’ve entered into a legal contract, and most of the time, the bank is not going to want to go to the effort to renegotiate it.” Although there is now a way to get around a prepayment penalty, there are ways to minimize it. Here are five tips to follow:

1. Find the paperwork. The first step consumers need to take is to make sure that they have a prepayment clause. Glink said, “It usually says ‘prepayment disclosure’ or ‘prepayment penalty disclosure’ at the top. There are usually three or four documents you had to initial to indicate that you read them.”
2. Read the contract. Most of prepayment penalties have a single fee and others have a sliding scale to watch for. The sliding scale ones will decrease the longer a borrower holds the loan. For example, during the first year of the mortgage a homeowner may have a prepayment penalty of 4%, whereas during the third year it may fall to just 1%. For consumers who are in the time span where a rate is set to decrease, this is a great time to wait for a month to save some emergency money.
3. Crunch the numbers. The next thing to do is pull out a calculator and do the math. Sometimes the prepayment penalty is worth the chance to move to a less risky lower-interest loan. Best case scenario, the prepayment penalty is eaten up by overall savings on a new mortgage loan. On the other hand, consumers may have to lower the penalty before they move. Again, it’s best to compare the options mathematically and make a decision based on savings.
4. Talk to the loan officer. The next step is to start negotiating the penalty with the loan officer. Glink said, “The first point of contact should be the loan officer. But if you don’t have any luck there, escalate to a manager. They generally have more pull and decision-making power.” Most likely the penalty won’t be ignored altogether, but there is a chance they may cut back the penalty if a homeowner has some track record of consistent payments for a good amount of time.
5. Get any changes or amendments in writing. Document all discussions and negotiations with everything from the loan officer’s name to the time the discussion was had. Consumers should always request that the deal is sent in writing. A verbal offer is worth nothing and without proper documentation consumers may be starting from square one.

Banks willing to negotiate

Banks are suffering as a result of the recession and aren’t eager to let go of valuable prepayment penalty fees. Despite the contract, they still may be willing to negotiate. For any consumer looking for emergency money, it can be a good option to try to at least shave a few thousands off of a penalty. It may not sound like much, but it can add up to substantial savings in the end.

Need emergency money now? Apply HERE!

Buying Your First Home

Buying a home is an exciting time, but it can be a bit nerve-wracking – especially if you’re a first-time homebuyer. The following guide will give you a rough idea of what to expect throughout the process:

Your First Steps

• Determine how much mortgage you can afford.
  Buying a home isn’t just substituting your rent payment with a mortgage. Spend some time looking at your budget to see how much you can afford to spend on housing each month – just don’t forget to include things like taxes, homeowner’s insurance and a separate savings fund for major home repairs you may need down the road.

• Get pre-qualified for a mortgage.
  Before you even start looking at homes, you’ll want to sit down with your banker or a representative from a mortgage lending company to get pre-qualified for a loan. Basically, the lender will review your finances and determine how much of a loan they’re willing to give you. Knowing this number will help you narrow down the houses that will fit within your budget.

Moving Forward with the Home Buying Process

• Choose an agent.
  As a first-time home buyer, going at it alone can prove overwhelming. Look for an agent who’s familiar with real estate trends in the area and who has the necessary connections to get you into the home of your dreams. This is a major decision, so don’t make it lightly!

• Begin Searching for Homes.
  Yes, this is the fun part – the one you’ve been waiting for since you started thinking about buying your first home. Your agent will help you narrow down the pool of available homes, but you’ll still need to visit each home for a tour. Throughout this process, take careful notes and plenty of pictures to use when coming to a final decision.

The Final Stages

• Make an Offer.
  Once you’ve chosen your ideal home, your agent will help you prepare your offer. He or she will determine a good starting point for your price negotiations and will present your offer to the seller’s agent. If the offer is rejected, your real estate agent will help you to figure out your next steps, whether it’s submitting a new offer or moving on to another home.

• Wrap up the Process.
  Even after your offer has been accepted, you still got work to do. Throughout this period, you’ll need to complete a home inspection and follow up on your closing paperwork. In these final steps, your real estate agent will be an invaluable resource in keeping track of all the paperwork that’s necessary to complete the purchase of your first home.

Finding the Right Home

Of course, the home buying process rarely proceeds according to these six, straightforward steps. As you move forward, you may run into complications, such as a rejected bid or a failed inspection. However, with the assistance of a qualified real estate agent, it is possible to navigate these challenges until you reach your end result – a home you can call your own.

The state of lending today

Prior to the recession any score of 700 or higher would have no problem finding a lender. Now, rate adjustments begin at 740, with every 20-point drop adding another adjustment. The result of the shift in credit scores is that people with decent scores need to pay more for loans or make quick changes in their credit habits to increase their scores. Some drops in credit scores may even be hidden to consumers. For example, Todd Huettner, president of Huettner Capital, said, “One of my clients always had a credit score of 740. When she went to refinance, she found out her score was at 719. The reason was she put a new washer and dryer on a store credit card. Many store cards are actually revolving credit, which means your limit is essentially your starting balance. So that purchase maxed out her card and caused a 20-point score drop.”

How things changed in the world of credit

Last year the nation’s two largest mortgage lenders, Fannie Mae and Freddie Mac, struggled in the market. Due to the lending crash, both companies changed their definition of “risk.” Any borrower with a credit score below 720 fell under this new definition and is affected by its change. Sean Cragg, VP of sales for Gold Star Mortgage Financial Group, said, “These fees have nothing to do with the mortgage company or its various products and cannot be negotiated away.” All providers of mortgage, auto and personal loans must comply with the new rules. Only financial institutions holding their own portfolios can dictate and follow their own guidelines.

Is there hope for the future?

So the question is: Is there hope for the future in lending? David Chung, managing director of CreditXPert, Inc., said, “There are many factors, including proposed legislation and regulation that continue to change the mortgage lending landscape. In the near term, it is more likely that this benchmark will continue to rise than fall.”

To individual borrowers that means more difficulties in finding funding. Chung added, “Often, lenders will quote rates that include the adjustments, without calling attention to them, in order to avoid a negative reaction from their customer.” What is stable, however, are the general requirements for finding funding. In today’s world of credit, here are the requirements:

• Great credit
• Stable income, with a minimum of two years of steady employment
• Reserves after closing
• Down-payment
• Low debt-to-income ratio
• Good loan-to-value percentage

Being proactive with credit

For any consumer looking for mortgage, auto or personal loans, it is more important than ever to work on credit scores. Chung said, “Virtually everyone can raise their scores by at least 10 to 20 points, sometimes significantly more in 30 days.” It may take some persistence and care, but in the end the savings will be worth it.

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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.

Consumers who have mortgage and personal loans are voicing their displeasure with big banks. Now that the economy is on the mend, consumers are reflecting on what really happened to turn their financial lives around. Millions of Americans lost their jobs. Millions saw their home value decline. Thousands lost their homes to foreclosure. Even if consumers didn’t feel the recession themselves, most likely someone close to them suffered greatly. The realities of the recession are weighing heavy on the minds of Americans now that they have a chance to sit back and reflect.

Big banks take the blame

Consumers are targeting the big banks and their mistakes in the economy. Banks took federal bailout dollars, and the purpose of the funds was to avoid collapse. In turn, they gave top executives huge bonuses. Public perception is that they had no right to offer the bonuses, and executives had no right to take them. Due to the huge amount of financial problems consumers went through, watching big banks make moves to reward executives is now hard to stomach.

In the media there are thousands of Americans who are writing to the Better Business Bureau with complaints about banking policies that are unfair. One Bank of America customer noted how his Visa bill stopped going to his home. He struggled for over six months to rectify the problem with the branch, and although each time he left he was assured the problem was fixed, he continued to go without his bill. Finally the bank found out his bill for some reason was going to Afghanistan. No one knows why and the result was eleven overdraft fees over the course of just two days. This is just one of the many stories of consumers who wanted to give their big banks a chance after the recession and were let down by performance.

What the crux of the issue is

Studies are showing that the crux of the issue is the decline of the personal banker. Many consumers remember how simple it was to open new accounts, take out personal loans and manage savings at their local branch. They went in to discuss their needs and a personal banker gave them the right banking products for their needs. Now things are different. In today’s banking world, often times the turnover is high. That means a consumer may talk to a different person every time they go into a branch. For every situation they have to bring the new employee up to speed on who they are, what they want, and what has been used to fix issues in the past. On top of the added stress of explanations, they are seeing fees getting bigger. Lowering customer service aptitude and raising costs doesn’t make sense to many consumers.

Fees and bad borrowers

Another criticism consumers have with banks is that they no longer turn away those defined as “bad” customers. Banks instead prefer to hold onto their bed debt borrowers in an effort to raise fees and heighten interest rates. Though the practice brings in millions of dollars, it isn’t making banks look good in the eyes of the consumer public. Again, public perception is a huge issue in the world of banking, and without some serious changes, that perception will continue to decline.

Consumers voice their opinions

Banks holding mortgage and personal loans are under criticism. Consumers are regrouping and starting to piece together where the blame lies in terms of banking procedures. Many people are disappointed with banks and becoming vocal about what they want and what they aren’t getting from their financial institutions. Hopefully, in the future, banks will turn their procedures around and once again start serving the customer.

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Home can be sweet whether you rent or buy

For people who’ve never owned a home, the relative cost-effectiveness of buying and renting is a frequent concern. Understanding the benefits and the risks of both options can help people make the right decisions. There was a time when buying was almost always considered to be the better choice, but today this is not always so.

Before you decide whether to buy or rent

Once upon a time, homeowners enjoyed mortgage payments that were equal to or, in many cases, less than rental payments on comparable houses. Times have changed, however, and so have rent and mortgage prices. Today, because so many factors are involved there’s little consistency to be had in answering the question of whether it’s best to rent or buy. To take just one example, in the past, people tended to live in the same home for thirty years or more. This made home ownership a wise choice for many.

Lifestyle choices

For people who work in fields may require them to relocate in the next three to five years, or for people who have goals of moving to an area where homes are more expensive, buying now may not be the best option. However, for those who plan to live for the next several years in an area where they can currently afford to buy, then buying may be the better choice. Naturally, in any given situation, the decision depends on many factors other than current market prices and job stability, but considering a purchase under these circumstances makes good sense.

Home maintenance

Prospective home buyers should also consider ownership costs beyond a mortgage, home insurance, and real estate taxes. When those costs are factored in, the cost of owning a home can far exceed the cost of renting one. Maintenance costs may include:

• Repairs
• Gardening and landscaping
• Homeowner association fees (when applicable)
• Routine maintenance (painting, cosmetic updating, etc.)
• Major repairs and remodeling

For those who wish to avoid these additional costs or who determine that they cannot afford these costs on top of monthly mortgage payments, insurance, and taxes, home ownership may not be the choice.

Tax considerations

Home ownership is often provides special tax breaks. For instance, homeowners are able to deduct the interest paid on mortgages loan from their taxable incomes. When the interest paid on a mortgage is sufficient to allow a homeowner to itemize deductions, the tax savings can be significant. Before purchasing a home, it’s a good idea to calculate anticipated tax breaks resulting from payment of mortgage interest. Homeowners may also benefit from other deductions, such as property taxes.

The final analysis

In many cases, home ownership can offer financial savings and stability. However, it’s not necessarily the best choice for everyone. When considering whether to buy or rent, each person must weigh his or her own personal pros and cons in addition to the general considerations mentioned above.

Consumers are lacking quick cash options now that lenders are working with stricter rules. Prior to the recession, lenders were handing out loans to sub-prime borrowers. There were few restrictions and the loan products available were vast. Almost every applicant could find some loan company to provide the credit needed. Unfortunately, though it put many Americans into homes, it did little to assure that they had the ability to repay the funds. That’s what caused the lending crash and partially fueled the recession of 2008/2009.

The change in consumers

The hard choice that many Americans are being forced to make is whether to pay their credit card bills or their mortgages. It may sound unfathomable and a few years ago, it was. But in today’s tough financial times there are a growing number of consumers who are opting to pay down debt on credit cards. According to a TransUnion study, the percentage of Americans who are current on credit card payments but behind on their mortgages is increasing. In fact, it increased to 6.6% at the end of 2009 and that is up from just 4.3% at the beginning of the year. For those who are current on mortgages and late on credit cards, the data is opposite. At the end of last year that rate was at 3.6%, which is up from 4.1% one year prior.

What the numbers mean

The change in numbers is telling of where consumers are now that they have been through a recession. There was a time when the common perception was that any homeowner would do whatever it took to pay a monthly mortgage payment, even falling back on other bills as a result. Today’s homeowner isn’t following the same model. Experts are attributing the shift to home values. When the housing market bubble burst at the beginning of the recession, borrowers watched their home’s value decline. Some declined up to 40%, and that left them with “underwater” mortgages.

An underwater mortgage is a condition where the borrower owes more than their home is worth. Knowing they were underwater left many consumers with changing priorities. They believe that if they owe more than the home is worth, it may not be as important to make a mortgage payment on time. Rather, they use their quick cash to pay down debt. A study done by RealtyTrac showed that in today’s market, about 25% of homeowners are in the underwater position with their mortgages. The common feeling is what is the purpose of putting money into an asset that is just losing value—value that it most likely will never regain?

The lending bubble’s aftereffect

Another problem the lending crash created was a market that isn’t personally invested in their property. In former years, consumers had to put 10 to 20% down on a property. It helped to psychologically bond them to the property because of their upfront investment. During the lending spurt, consumers were allowed to buy properties with little to nothing down. That meant that there is no personal investment. Add to that the huge number of foreclosures and the loss of property just isn’t as scary sounding as it once was.

In lieu of the long-term investment

More and more consumers are joining the ranks of those prioritizing paying off credit cards, rather than mortgage payments. The reason can be attributed to a huge paradigm shift in the market since the recession. Consumers want quick cash options and credit cards offer that, not homes. Americans seem more focused on having ways to afford everyday expenses like food, gas and clothes than on long-term commitments.

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