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

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

Jumbo loans, or large mortgages for lavish homes, are becoming harder to get as mortgage lending requirements are changing. Image from Wikimedia Commons.

The mortgage industry is going through a volatile period, and the product known as jumbo loans is about to become harder to come by. Jumbo loans are mortgages for large amounts, usually $700,000 or more, and fewer banks may wind up willing to lend them. Smaller mortgages may also get harder to approve.

Mortgage underwriting requirements changing dramatically

Freddie and Fannie play a huge role in the mortgage industry. When a bank wants to lend a mortgage, Fannie Mae and Freddie Mac often agree to purchase the loan from the bank and sell it to investors as a security. This increases the amount of available loan capital so banks can lend more. The mortgage houses are becoming far more discriminating, and the mortgage products called “jumbo loans” are on the way out. The amount that qualifies as a jumbo loan has been revised, according to Reuters, to $625,000 from $729,750. This means in October, Fannie and Freddie will no longer back loans of $625,000 or more. Home buyers who want jumbo loans are scrambling to get the mortgages approved before the loans can’t be underwritten anymore.

Mortgages for low income people to suffer as well

Banks are more willing to lend to people when Fannie and Freddie will purchase the loans. New lending requirements being proposed by the Federal Reserve may make it harder for low income buyers to get a mortgages. As a result of the Dodd Frank Act, the Federal Reserve has proposed that an “ability to repay” metric be established as a requirement to get a loan, according to MSNBC. Low income borrowers would be affected, as an already skittish mortgage market is not conducive to lending bad credit loans for housing. Lending mortgages to people who couldn’t pay them back, a criticism often leveled at credit card companies and payday loans lenders, has often been pointed to as one of the chief causes of the housing market crash. The Fed is only taking comments, according to the Wall Street Journal, and is handing over authority to the Consumer Financial Protection Bureau over mortgage lending practices when the agency begins operations in July.

Credit to tighten for housing

Many indicators point toward credit within the housing industry tightening significantly. Underwriting and purchasing requirements at Fannie and Freddie are already becoming far more strict. For a Freddie or Fannie affiliated lender to lend money for a condominium, 70 percent of the condo units in the building must already be sold, according to CNN. That requirement was 51 percent in 2009. The Federal Reserve and National Association of Realtors estimate that 25 percent of all mortgage application are currently denied, and fewer banks are willing to lend without federal backing from Fannie and Freddie.

Sources

Reuters

MSNBC

Wall Street Journal

CNN

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

Advantages of a No Fax Cash Advance

When you need cash in a hurry, such as for your mortgage, not having to deal with a fax machine or loan office can be a real time saver. For example, say you applied at a traditional loan office for a cash advance. They must then fax your application to the actual lender. Then the lender must take the time to make a decision. After the decision is made, they will let the loan office know. And then they have to track you down to let you know the decision. Then you must drive back to the loan office to pick up your cash advance. Sounds complicated, doesn’t it?

Of course, if you were to apply for a no fax cash advance online, the information could be quickly forwarded to the lender. They could give the answer immediately and you could have your no fax cash advance in your account within a few hours. You could catch up your mortgage payments, all within a matter of 24 hours.

No Fax Cash Advances are quick and easy

As you can see, applying for, and getting, a no fax cash advance is quick and easy. If you meet all the requirements, then you should be able to get your cash pretty quickly. Use this cash to save your house from going into foreclosure. To prevent this from happening again, be sure to pay off your no fax cash advance as soon as you get your next paycheck. After all, you want to keep this option open for the future in case you need it again!

Start your no fax cash advance loan application HERE!

Mortgage mistakes to watch out for

In the world of mortgages there are some pitfalls. First of all, the top priority for anyone looking to buy a home is to repair credit. Order copies of all three of your credit reports and read them thoroughly. A good time frame to order them is six months prior to buying. That way you can challenge any errors and have sufficient time to get them fixed. It also gives you time to pay down your credit balance on any credit card. You want your open-credit-to-available-credit ratio to be as low as possible. This can increase your credit score considerably.

Next, you want to get pre-approved for a loan. There is a difference between being pre-qualified and pre-approved. Being pre-qualified doesn’t mean a whole lot. All it means is that a lender tells you how much you most likely could qualify for in terms of a loan. If you read the fine print on your pre-qualification letter, you most likely will find some wording that tells you that the amounts are “estimates only.” On the other hand, a pre-approval is when you submit your information and have a lender tell you exactly how much you can get. It’s a thorough investigation into your finances that is a perfect gauge of what your loan will look like.

Additional costs you should think about

You also should consider the money it is going to cost to move in. Sure you are going to have closing costs and a down payment, but there are additional costs every potential homeowner should think about. Moving costs, storage costs and repair costs are all additional expenses that some homeowners don’t budget for. Short term loans can come in handy to have a little extra cash for unforeseen costs. Ted Grose, president of the California Association of Mortgage Brokers, stated, “It costs so much just to move in, and then the water heater breaks. Some people are so stretched that they may not be able to make their first mortgage payment on time.”

Borrowing what you need

Another issue to be aware of is making the mistake of borrowing too much money. A lot of people get duped into accepting a loan that is way more than they actually need for the home they want. Just because you can get a loan for $400, 000 doesn’t mean you should. Think about the size of home you really need, and then decide how big a loan you want to repay. Grose added, “Mortgage money is way too easy to get. People tend to overbuy and that can really stress family life. It’s also a formula for foreclosure trouble in the future.”

Buying the home should be fun

Buying a home should be one of the most fun activities of anyone’s life. You are moving onto the next stage of life in new surroundings, and that should afford a lot of good times and build some happy memories. Be sure to fix your credit score, get pre-approved, build up a cash surplus, via short term loans if needed, and target exactly how much you want to borrow. By doing research, you can rest easy as you move into your next dream home.

Start your short term loan application HERE!

There are ways to overcome financial hardships, no matter the situation.

Hardships can affect consumer’s cash today. The recession was hard on consumers and many had to drastically change their ways of life to manage. On top of the financial situation, some consumers suffered other hardships to make matters even worse. For anyone who had difficulties personally and financially, it was a challenge.

For example, Michelle Plumbley, of New Castle, New Jersey, is a homeowner with three children. Four months ago, her husband died of cancer and she was notified that she would no longer be receiving the $2,100 in Social Security benefits to live. Her credit card debt is $18, 000 and comes along with a hefty interest rate. She is debating options and weighing pros and cons for her future.

The solution for a homemaker after tragedy

Plumbley has some options:

• She can contact a debt consolidator and pay $285 a month for 4 years
• She can borrow on her retirement to pay off her debt
• She can sell her home, which she owns in-full, and pay off all debts
• She can downsize to a smaller home, and use the left over money to pay debt

Although there are many options, each one comes with an interesting set of after-effects. For example, she could sell her home and buy a new one, but the leftover funds may just cover her credit card payoff. In addition, the market isn’t at its best position right now to start selling a property, so it may be on the market for a while before the solution comes to fruition.

The expert’s opinion

Steve Bucci, financial expert for Bankrate.com, said that Plumbley has critical decisions to make. First of all, losing $2,100 in monthly income is a drastic change for anyone to manage. The good news for her, though, is that her house is paid for. That could be what saves her from a disastrous outcome. The biggest issue she has to deal with is her credit card debt. Bucci advises her to submit a “letter of hardship” to her credit lending company. Many lenders are more sensitive with cash today because they know the state of people’s finances. To ask for a letter of hardship, consumers need to talk to a manager at their credit lending company and be prepared with a payment plan. Some lenders offer six-month to year-long breaks in payments for qualifying hardship-suffering customers.

The second thing for Plumbley to look into is how to increase her income, or decrease her expenses. To pay off her debt, she needs an additional $400 a month. That averages out to about $13 a day. Bucci suggests all people who owe considerable debt should break it down to manageable amounts and then think strategically about how to handle it.

Thirdly, Plumbley also was considering selling her home and downsizing to a smaller one. Rather than that, Bucci instructs her to look into a home equity line of credit, or HELOC. A HELOC will have a low interest rate and a longer lifespan. That will allow her to pay back the money much easier and at a much lower rate than what her credit card company is currently offering. The one caution with this option, though, is that consumers need to understand that they are exchanging unsecured debt for secured debt with the move. If payments aren’t made on time and the loan defaults, homeowners could potentially lose their property.

Finally, debt consolidation is another possible solution Plumbley could use. Bucci instructs that debt consolidation can help consumers, but only if they are careful what company they use. A legitimate nonprofit credit counseling agency can help a difficult financial situation. The problem is that there are so many unscrupulous companies preying on consumers in financial turmoil. Bucci says, “If a company promises anything that seems outrageous, it probably is…it’s impossible to lift a credit score one-hundred points in a few months.”

Managing debt after a hardship

Managing cash today is difficult, and adding a serious hardship to the mix can mean even more stress. For anyone who finds themselves in this position, the best thing to do is to take stock of what the issue is, what the options are, and then weigh each one out objectively. As Bucci added, “It is very important for those in trouble to remain financially strong and a safe harbor for dependents until they become independent, and perhaps can help you in return.”

Need cash today? Start your quick loan application HERE!

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!

The problem of negative equity

In fact, economists are predicting that many homeowners will be in worse shape within the next two years than they have been in previous. Studies are showing that almost half of the US’s 52 million borrowers will have negative equity by the beginning of 2011. According to the report done by Deutsche Bank, the number of borrowers with negative equity is telling of a huge pool of owners who will either default or go into foreclosure.

Down payments valued at zero dollars

Negative equity happens due to various factors, but the most common is the decline of home values. Since the recession, that has been a chronic problem within the housing market. According to real estate website Zillow.com, home values throughout the country have declined by 22.3% since mid-2006. To the average home owner who put down 20% of their mortgage, that means their down payments have lost their complete dollar value. Karen Weaver, research analyst at Deutsche Bank, said, “The continued decline of US home prices will contribute to rapidly rising rates of negative equity. The most obvious implication is for mortgage defaults.”

Watch for the signs

When it comes to the housing market, all homeowners should be watching the market. There are clear signs when a home is at risk of declining in value. More and more homes are proving that falling behind or going into foreclosure have more to do with home value drop based on the economy, than on job, credit, or income. Here are some signs to watch out for:

1. Foreclosures in your area. The biggest danger sign to watch for is when neighboring homes start falling into foreclosure. Mark Zandi, chief economist at Economy.com, said “When one home on the block goes into foreclosure, every home’s value drops by 1%… if two homes on the block go into foreclosure, every home’s value drops by 3%.” Once homes start dropping considerably due to distressed properties in the neighborhood, it’s difficult to overcome. While small personal loans or savings can rescue homeowners in minor trouble, adding a difficult neighborhood market can mean disaster.
2. Homes not selling. Another sign to watch for is the number of homes in a neighborhood that are not selling. The underlying message is that buyers and sellers have not been able to come to an agreement on the transaction. Zandi believes that “the time on the market is always a good barometer of demand for homes and for the price homes are transacting at. The longer it appears that neighbors are taking to sell their home, the more likely it is that they are not getting the price they want and that prices are falling.”
3. Rising unemployment rates. Generally speaking, cities with the highest unemployment rates suffer from the highest home value loss. For example, Merced, California’s unemployment rate is one of the highest in the country at 17.6% and home values have declined by over 40%. Homeowners in areas with high unemployment rates are cautioned that if primary industry in their cities were hurt due to the recession, their home values may fall even quicker.
4. Distressed homes. Neighborhoods with a notably high number of distressed properties are at a higher risk of homes losing value. Zandi confirmed, “Normally dented siding, peeling paint and broken porches are signs that neighbors are having trouble making ends meet and can’t pay for the care of their homes. The mere fact that they are not investing in their homes will affect you, too.”

Time is the key to overcoming negative equity

Although the issue of negative equity is a serious one, it isn’t an inevitable repercussion of the recession. Homeowners who plan on keeping their homes for the next five to seven years most likely will recoup any lost value of their properties. For homeowners who are finding it hard to make ends meet, small personal loans should be used for the shortfall, rather than borrowing against the mortgage. Then taking a wait-and-see attitude may be the best option in coming months.

Start your personal loan application HERE!

Looking to refinancing

The growing reality in today’s economic climate is that home values have plummeted. People who had paid religiously into their mortgages for years were surprised when the economy ate away at the equity they thought they had amassed. That is the stickler when it comes to refinancing. People have such low equity that it hardly qualifies them for a refinance. Add to the equity issue the fact that lenders are much stricter now post-recession and banks are adding higher fees, and it makes for a sector of homeowners who have few options.

The new states of interest rates and home value

The survey done by Credit Suisse showed that about 39% of homeowners in the 30-year fixed-rate segment currently have interest rates of over 7%. A good number of those people could bring their interest rates down two full percentage points if they were able to refinance at current rates. Despite the possibility, however, the number of refinance applications in January of this year was lower than it was this time last year.

Another chronic problem the recession created was the increase of underwater mortgages. This is a condition where homeowners owe more on their houses than what the property is worth. Recent surveys show that almost 25% of all homeowners are currently underwater. Of course that also makes it impossible for them to refinance and find relief. The reality of the banking world is that banks want collateral to back up the loans they are making and with drastically diminishing home values, they aren’t willing to take on the risk. A homeowner, who has no equity on the books, is left with few options when it comes to maneuvering their debt and finding fast cash.

What is being done to help

The overriding issue when it comes to refinancing is how things can change to make more homeowners qualify. Most experts agree that due to lenders creating stricter rules, they are undermining the government’s efforts to allow homeowners to use the lowered interest rate advantage. It defeats the purpose of sustained lows in interest. Fannie Mae and Freddie Mac are also adding their own fees in an effort to raise revenue and mitigate losses. It’s easy to see how mitigating losses and maintaining low interest rates are counteracting one another. Fannie Mae and Freddie Mac are seeking a balance between taking on the risk of low-credit scoring homeowners and giving more people access to credit and refinancing options.

In the future expect more homeowners to be able to refinance and find fast cash like they did in the past. There is a caution, however, that those with drastically low credit scores most likely will not be able to refinance, regardless of what changes lenders make. Though the government and lenders are working together to create more customer-friendly climates for those with less-than-perfect credit, it will take much longer for low-credit customers to find any relief.

Need fast cash? Apply HERE!

Mortgage Loan Modification’s Key Definition: Negotiate.

Loan modification talk is everywhere. The idea that talking to any mortgage loan company during these hard times should result in a better deal is so pervasive that people are treating modifications like a constitutional right. Borrowers are calling their mortgage companies and demanding a lower interest rate, a lower payment and a lower principle, because the President said so. Unfortunately, a new deal is far from guaranteed. The federal government directed the mortgage industry to help reverse the effects of loose lending practices and falling home values and gave them a portion 700 billion dollars to do it. The average home owner needs to understand that a loan modification is a negotiation between the mortgage company and the owner. Nothing is guaranteed by the federal government or any other institution. Banks have vague guidelines under which a borrower must qualify in order to get the modification. Approaching this process from a negotiating standpoint is critical to achieving success.

Mortgage Companies have made Important Changes

Prior to fall of 2009, the modification process was rather straight forward. The borrower called his or her mortgage company and asked. The mortgage company then requested financial information, pay stubs, tax returns, hardship letters, and any other piece of paper they could add to the debris field. According to modification experts at the Shamaya Law Firm in Michigan, this was all to slow the process down and keep the borrower paying in and the fed’s money inside the bank’s vaults. The mortgage industry started to take a lot of heat when lawyers started getting involved and these slow down tactics were revealed. Lawyers provided this service for fees ranging between $2500 and $3500 with the promise that the modification would be done in 120 days or less. According to Shamaya LLC, the industry has now gone to “trial” modifications or “temporary forbearance” agreements which stretch the process out for about 90 days. After completing this trial period of three payments, which may be higher or lower than the regular payment depending on the financial institution, then a “permanent” modification process begins. Many borrowers are now seeing results in 120 days, and thus the legal services market for modifications is drying up.

Helpful Hints

The main thing is to be honest. Don’t falsify or skew information to try to gain an advantage. You need to be solvent. Painting too bleak a picture can actually get you denied for your modification. The mortgage company will feel that even with a lower payment, you can’t afford your house and go ahead and foreclose. You should try to keep yourself between $100 and $200 to the positive side on your monthly balance sheet. Finally, document every phone conversation with name, ID number, date, time, and content. You need to save every fax confirmation sheet and every document you send, no matter how many times you send the same document. A helpful tip is to go to a local bank branch of your mortgage company. It is difficult for the mortgage company to say they didn’t receive a fax from themselves. Also, many branches will do this for free.

In the world of mortgages there is a lot to learn. If you are a first time home buyer and are in need of a loan, do some research to find out what types of loan products are out there for you. There are pros and cons to each type and there is no one loan that fits everyone. Use the help of a mortgage broker to find out which one is right for your lifestyle.

Thirty-year fixed-rate mortgage loan

These are the loans the mortgage lending business is built on. If your parents had a mortgage, this most likely is the one they used. It’s the most straightforward of loan products because nothing changes throughout the duration of the loan. It is set for 30 years at one specific rate. You can view your amortization schedule and see how the loan plays itself out in terms of interest and principal over the years. This is the safest of options because of its reliability.

Fifteen- or 20-year adjustable-rate mortgage loan

These loans offer a way for borrowers to pay off their loans before retirement. They give you the chance to refinance after either 15 or 20 years. In general, these loans have higher interest rates than a 30-year fixed rate loan, but that ARM could also be considerably cheaper. If you have expendable income to put into possible payment hikes, you could end up saving money with these types of loans.

One-year adjustable-rate mortgage loan

This is a great loan for college graduates who see a bright financial future regarding their earnings. They offer a low interest rate for the first year and then after that, the interest rate increases. There is an interest rate cap on the loans and the rate can go up or down every year after the first. The one caution here is to know that there is a difference between a “rate cap” and a “payment cap.” The rate cap is what you want. It sets a ceiling on how high your interest can go. On the other hand a payment cap only means that your payments can’t go higher, but your interest can still continue to rise.

Interest-only mortgage loan

The interest-only mortgage may sound great, but it’s only for a few borrowers. This can be a great product for someone relocating for a job because it only charges interest. That can make the payment considerably lower. Don’t be fooled,however: This isn’t for the average borrower. Worst case, the wrong person gets this loan and ends up paying only interest for years on their loan. When they go to sell, they may owe more and have to take money out of savings to pay back the full mortgage amount.

No- or low-documentation mortgage loan

The self-employed oftentimes have trouble finding the right loan product. The types of loans for the self-employed are called no- or low-documentation loans. They automatically come with higher interest rates due to not having to produce paychecks or references. They can help people with variable incomes qualify for loans easily. One warning however is that normally this type of loan requires substantial down payments of about 20% or more.

The mortgage-lending market

The lending market is flexible in that there is a wide variety of loan products to choose from. These are the main ones and the most popular, but there are many others. Talk to a good mortgage broker and let them suggest what mortgage products are right for you.

People without kids are more likely to walk away from their homes.

Many people have reasons for wanting to stay in their home, regardless of how much they’re paying. People don’t want to uproot their families or don’t want to go through the hassle of moving. However, some people are so fed up with the housing market that they’re willing to allow their mortgages to go into default and walk away from their property.

Those who choose this option generally don’t have a whole lot of money already invested in the home, don’t have kids or actually cannot afford the monthly payments anymore. Even those who got the best personal loan rates are looking at what their house is worth versus what they are paying for it and deciding that allowing foreclosure is the best decision. Here are some reasons people have chosen to do so.

10. Cheaper monthly payments

Some homeowners, realizing that it could be years before they’d be able to make a profit on their home, have decided to let their mortgages default in favor of paying less expensive rent each month.

9. Too long to wait for profit

People who purchased property before the recession and have owned it only a few years, believe they’ll save money in the long run if they simply let the bank take the house. One condo owner in Miami says he believes it could take until 2025, possibly 2040, for his condo to be worth what he paid for it again.

8. Need to move now

Many people who have to move because of employment or other reasons are finding that letting the bank take the house is simply faster and easier than trying to sell right now, in a market where no one wants to buy.

7. Political outrage

A lot of people simply are angry that the Wall Street executives who got bailed out by the government are getting bonuses again, while they are struggling to pay mortgages on practically worthless property.

6. Loan modification disappointing

The federal loan modification helped some people somewhat, but many feel it wasn’t enough. The New York Times says the plan “raised the expectations of many but satisfied only a few.”

5. Home is worth 75 percent of purchase price

Research cited in the New York Times says that once property loses 25 percent of its value, homeowners begin to seriously consider walking away.

4. Fear of future deflation

Though many economic experts believe the housing market will eventually return to normal levels, some people worry that their property will only depreciate in value. They don’t want to continue to pay for something that is losing value every day.

3. No encouragement or improvement

Though some economic indicators point to improvement, the housing market has stayed stagnant. Many people who aren’t planning to stay in one place for long, and thus foresee ending up trying to sell worthless property, would rather just let the bank deal with it.

2. No sentimental value

Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research, said part of what motivates people is that they simply become unattached to their homes when they decrease in value so much. “People’s emotional attachment to their property is melting into the air,” he said.

1. All of the above

For most people who decide to go through with walking away from their homes, it’s a combination. The frustration of “feeling like a sucker,” the  lack of government intervention, the high monthly payments, low property value and bleak outlook are too much. They’d rather simply mail their keys to the bank and walk away, free from future financial burden and a failed investment.

Borrowing money for a home purchase has some rules. The world of lending is intricate and anyone who wants funding needs to be able to wade through the many different loan products available. Mortgages are confusing these days and every different type of loan has variables that determine a different overall cost and payment throughout its lifespan. Many mortgage products are an apple-to-apple comparison and a basic education can help consumers make the right decisions for their individual financial situations.

The 30-year fixed mortgage

The most common type of mortgage is the traditional 30-year fixed model. It combines a fixed interest rate with a long-term lifespan. That breaks down payments and makes them manageable for millions of American households. This is the best loan for borrowers who are planning on staying in one house for a long period of time and those who want the stability of a monthly payment that doesn’t change. Though throughout the past few decades this is the type of mortgage that prevailed, in the past five years other more unusual mortgage loans began to take hold. Many experts claim that this is the reason for the lending crash that contributed to the recession. They believe that too many lenders tried to stray from the traditional time-tested 30-year fixed mortgage for the purpose of extending loans to more customers.

The 15-year fixed mortgage

This mortgage is very similar to the 30-year fixed mortgage. The difference is that interest rates on these types of loans traditionally are lower due to banks having a lower long-term risk. Borrowers pay off this type of loan in half as much time as its 30-year counterpart and it grows equity faster as a result. This is a great option for borrowers who want to pay back their mortgages faster. It is also a good option for borrowers who want to refinance their mortgages without extending the term back out to the 30-year model.

1-year ARM

ARM stands for adjustable-rate mortgage. This type of loan has no guaranteed mortgage rate over the course of the loan. There is an introductory rate on these loans that lasts for 1-year. Rates for these loans are significantly lower than those for other types of loans and the term is usually 30 years. For consumers borrowing money short-term, this could be a good option. Buyers who don’t plan on staying in one home for a long time can find lower monthly borrowing costs. It also works well for borrowers with the ability to make higher payments due to larger incomes.

5/1 ARM

The 5/1 ARM is another adjustable-rate mortgage that has a fixed rate for the first five years. After the initial five years, the rate adjusts periodically. Normally these are also 30-year long loans. These types of loans are good for borrowers who plan on selling within five years and want to keep their mortgage payments as low as possible. Again, borrowers with income to sustain higher payments can use these types of mortgages to their advantage. The thing to remember about this loan is that the interest rate is not guaranteed. Buyers benefit from a fall in the interest rate, but are stretched when it rises.

Other types of loans

Prior to the recession, lenders came up with various other loan structures to serve those borrowing money. There is an interest-only mortgage that allows a buyer to pay just the interest and leave the balance untouched. Balloon mortgages offer lower rates, but then require a large sum payment. Assumable mortgages can be transferred from a homeowner to a buyer to eliminate the need for a new mortgage for the sale. All borrowers should talk to a financial expert who specializes in mortgage loans prior to buying. They can assure that the mortgage product they get is truly the best one for their situation.

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Reverse mortgages are secured loans that come with a catch. Just ask Ernest Minor of Marysville, California about them. He had a reverse mortgage and hoped it would pay for his wife’s medical bills. She eventually passed away and his loan came due. He received a bill for $200,000 from the mortgage company. Because of the recession, the home is assessed at $130,000. Minor admits that he most likely will be evicted from the property because he doesn’t have the funds to make a balloon payment on his mortgage.

The purpose of a reverse mortgage

Reverse mortgages are not bad loans; they are just loans that benefit a specific consumer. They can be a great tool for senior citizens who want to remain in a house, have equity and need to get rid of a mortgage payment. The reverse mortgage allows them to trade some equity for cash and receive it in the form of monthly payments. The problems start when consumers are attracted to the “cash out” option, but don’t fully understand the details of what a reverse mortgage is. There are complicated rules to them and interest rates can balloon to unmanageable amounts. A consumer who isn’t careful can end up with no equity left in their home and no way to maneuver unexpected costs later in life.

Lenders like the reverse mortgage

Many lenders are pushing the reverse mortgage in the market. The good news for them is that consumers are trading in their equity. Baby boomers everywhere are attracted to the reverse mortgages because they are wooed by the possibility of taking pricey vacations, buying new cars, and purchasing other luxury items their equity can cover. In fact, the problems with these loans are spreading so quickly that legislators and regulators are taking notice. Senator Claire McCaskil said, “The people who are making these secured loans and advertising them so heavily to seniors on cable TV get the rewards but escape the risks that come with them. It is going to be the sequel to the subprime-mortgage mess.”

Reforms in the reverse mortgage industry

Many legislators are beginning to make a push for changes in the reverse mortgage industry. Some of the main reasons for the changes are:

• A consumer investigation showed that loan bailouts have soared over the past few months. The annual sum of reverse mortgages taken over by federally-insured funds has more than quadrupled over the past four years.
• Taxpayers are subsidizing reverse mortgages. In the past, insurance premiums paid by borrowers have covered bailouts of mortgages. Now the Department of Housing and Urban Development reports that $798 million in taxpayer money is going towards covering potential losses that won’t be covered by the premiums.
• Borrowers are being taken in by reverse mortgages in record numbers. Lenders are pushing various mortgage products to the consumer market, such as deferred annuities and reverse mortgages, without assessing accurately the specific needs of the consumer. Mortgage counseling is sorely lacking in the consumer market, and that is hampering wise decision-making in the world of personal finance.

These problems are calling for much reform in the world of reverse mortgages. Now that there are such a large number of borrowers falling prey to the mortgage products, legislators are moving quickly to educate and protect homeowners.

The world of the reverse mortgage

When it comes to handling secured loans, there are complex rules to understand. Though the reverse mortgage’s advantages may seem like a good idea, consumers are cautioned to not act quickly but, rather, do research and understand what they are getting into. To secure a healthy financial future, it’s crucial to understand the terms and conditions of a home loan. Immediate purchasing power may sound good, but future consequences may be too much for homeowners to stomach.

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Are you a first time home buyer seeking to enter the home buyers market, or perhaps a current homeowner looking to refinance or take out a second mortgage on your current home? There are still many good options available for those seeking some type of mortgage loan.

Choosing your best option

With so many different mortgage options still available, home buyers and those looking to capitalize on equity they may still have in their home can find it difficult to determine which type of loan would be the best option. There are still many lenders on the Internet and within local communities who are writing mortgage loans. Depending on where you live in the world, you can find any number of options available to purchase your first home.

One consideration you will want to make, is truly evaluating how much mortgage you can reasonably afford. As the current global economy substantiates, we all would be best served to conservatively evaluate our own financial situation to avoid making a very costly financial mistake. As time has proven, hindsight is 20/20.

Research your loan, knowledge is power

If you are a first time home buyer, one of the standard rules banks used to employ, before lending and investing became not so strange bedfellows, was the general principle an individual could afford a mortgage loan of 2.5 to 3 times his/her annual gross salary, adjusting for other debt carried in relative proportion. A person who made $50,000 annually could afford a mortgage loan anywhere between $125,000 to $150,000, provided they were debt free and had no other monthly revolving debts to consider. That standard was, for the most part, the fundamental standard in 1999 and is more likely the standard we will return to.

More research, better options

If you have a down payment and good credit, you are very likely to still find a reasonable interest rate on the home you desire. Knowledge is power. If you are a savvy purchaser and do the due-diligence, you could save thousands by taking advantage of special offers and other available options. Be prepared though, with home values plummeting globally, you want to ensure that you are comfortable with the potential risk that your purchase may significantly decrease in its overall value. Though housing prices have shown signs of stabilizing in some areas, there are still substantial risks in paying too much for a home. Even those who think they negotiated a good deal will likely be unable to sell their home should interest rates rise and unemployment remain high.

If you want to purchase a home, think of it as just that: a home. Consider how long term you are planning to stay before selling and moving up to a larger home.

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.

With the world economy firmly entrenched in a reset mode, loans of all types are becoming more difficult to obtain. That is not to say that it is impossible. The fact of the matter is, financial institutions, banks, and credit unions will always make loans. It is the lifeblood of the financial industry.

The business part

With a record number of foreclosures, the inventory of available homes is large. That makes the market very saturated with homes that are in the hands of the home buyers. Therefore, banks will need to make home loans. The process for securing home loans may indeed be more difficult, but home loans are still very much available. Potential home buyers have many choices on where to secure home loans.

Changes made, documents are now a priority

One of the first differences home buyers will notice when trying to secure a new home loan is that the need for accurate documentation is now a priority. In the past, consumers could literally loan with no down payment, no documentation to prove income, and a substandard credit score. Essentially, with a signature a home buyer could secure a new home loan.

Today’s requirements

Those days are past. Today, lenders are requiring borrowers to provide accurate documentation to support a new home loan. That means being prepared as you begin your search for new lender.

More documents are needed

Gather all your financial statements and documents. Make sure that you pull a recent credit report on yourself. If you have pristine credit, securing a new home loan will not be an issue. However, if your credit score is below 650, it’s likely you will have to provide documentation to answer why your credit score is lower. This does not preclude you from a new loan, it just means providing more documentation.

This may mean having to provide explanation letters to prospective lenders about why your credit score or credit report shows a negative. Provided that you have overcome the issues that produced a negative score, and can provide documentation to that effect, lenders may be willing to provide a home loan for you.

The competition between lenders

It’s likely that you are bombarded with lenders advertisements trying to entice you into using their company. This can work to your advantage. Here is how. Make sure that any lender you communicate with understands that you are shopping on your own among several lenders. There is nothing like the thought of competition for a prospective lender to work harder for you. This may result in a lower interest rate, or other financial benefits. The point is to shop one lender against the other for your benefit. Lenders need borrowers as much as borrowers need lenders.

Financial disaster may come knocking, but that doesn't mean they have to be a permanent houseguest. There are personal loans, you know. (Photo: flickr.com)

People are using unsecured personal loans to fight their way out of debt. The recession wreaked havoc on finances—both business and personal. Consumers are still regrouping and trying to dig their way out of the aftermath of the economic downturn. Many people suffered huge losses including bankruptcy, foreclosure and divorce. Here are some ways to mitigate the consequences of each one.

Life After Bankruptcy

Kevin Chem, president of Total Attorneys in Chicago, said, “Only by doing a detailed analysis of your debt-to-income ratio and your ability to impact a change in your expenses or income are you going to get an idea of whether you should consider bankruptcy.” These days bankruptcy isn’t as negative a word as it once was. In fact, experts agree that filing for bankruptcy can sometimes be a better option for building credit than continuing to struggle. Chem added, “If you are borrowing money constantly from family in order to pay your bills or if you are getting notices of garnishments on the job, it may benefit you to look into bankruptcy.”

If you do go through a bankruptcy, your slate is clean. Once your debt is eliminated you may be in a better position in terms of your credit health. You won’t be a prime candidate for the best rates, but you will be able to get some credit. The best way to fix your finances after filing bankruptcy is to stop spending. Experts suggest that filers need to realize that what got them in trouble in the first place was over-spending and they need to be willing to stop. Chem adds that people should get some form of secured credit and start building a credit history right away. It’s the best way to bring scores up.

Life after Foreclosure

According to the Mortgage Bankers Association’s National Delinquency Survey, about 13 percent of mortgage loans are currently in foreclosure status, or at least one payment past due. Of course if you are past due, it’s best to call your mortgage company and discuss options as soon as possible. Most companies have loss mitigation departments that focus on helping homeowners in financial distress.

If you end up having to go through a foreclosure, there are also some things you can do to help your credit. Foreclosure will show up on your credit report for seven years, but its impact will lessen with time.

Michael Kay, Certified Financial Planner in New Jersey, said, “People who are in the midst of foreclosure can only see the problem and they can’t see a solution. Because they are just so invested in those feelings of failure, disappointment, and shock, the first thing I would say is acknowledge that you are where you are. Then get into offensive mode. Stop wallowing in misery. Yes, it is a bad situation, but let it go and commit to moving forward from where you are.”

Though you are in a financial difficulty, you still most likely will be able to get credit, unsecured personal loans and other lending aids if you are careful. Figure out why you fell behind and do an honest assessment of what happened. Then commit to changing your ways and start building credit little by little.

Divorce Thrown into the Mix

Divorce is another issue that many people are going through as a result of the financial stresses of the recession combining with marital stresses. One of the biggest concerns with divorce is the huge legal cost, but there are ways to mitigate it. First, try to divorce amicably. For the best options, try to come to resolutions on your own. Lisa Rosenberg Moore, family law attorney in New Jersey, stated, “You are being billed at an hourly rate and every hour you sit on the phone with your lawyer starts to add up.” The best thing to do according to Moore is to focus on how to best create a financial solution for your children and money, rather than focus on hurt feelings.

Getting Through Difficult Times

In the end, financial and family disasters have the ability to alter lives greatly. Though bankruptcy, foreclosure and divorce are difficult to maneuver, there are ways to manage. Be sure to be honest and take a look at what created the situation, then commit to altering your habits. With some intentional and proactive work, you should be able to qualify for credit cards, unsecured personal loans and mortgages sooner than you think.

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