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.

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Although advertisers talk about refinancing, it isn’t always a sure-fire way to find fast cash. Anyone who is thinking of refinancing needs to think about the pros and cons to the move. People who are chronic refinancers and jump on the lowest interest rates don’t always benefit in the long run. They have a long list of fees and closing costs that can add up and eat away at savings.

The real reason for a refinance

The first thing a homeowner should figure out is what their goal is for the potential refinance. Consumers need to be warned that refinancing doesn’t pay off debt, it just reorganizes it. Sure it is normally at a lower interest rate, but there are other variables that change to accommodate that change. Those variables may eat away at overall savings. Normally, reducing monthly payments is the most prevalent reason why consumers try to refinance, and debt consolidation is the second. According to Holden Lewis, economist for Bankrate.com, “Consumers need to talk to a professional to do the numbers and find out if the goal really is worth it. Getting rid of debt is a great thing, but if the rate cuts down on income drastically, it may not be the best option.”

When to refinance

After honing on the reason a consumer wants to refinance, the next thing to decide on is when. According to Bankrate’s 2008 Closing Cost Survey, the national average for closing costs on a $200,000 loan is $3,118. That is in addition to taxes, insurance and prepaid items like interest and association dues. Consumers need to remember that getting a lower interest rate extends the length of the loan and, in turn, can cost more in interest. For example, replacing a mortgage that has 20 years remaining with a 30-year mortgage results in a higher interest expense over the entire lifespan of the loan and may mean a much larger interest payment overall. There are two calculations to follow when trying to find fast cash from refinancing:

1. One calculation where the new loan has the same term as the old loan
2. One calculation where the new loan is the length of the planned refinance

From there, consumers can compare the interest savings to see if refinancing reaches their financial goals.

When to not refinance

There are specific instances when a refinance will not help. For example, if a homeowner doesn’t plan on staying in a home for very long, it’s most likely a better idea to stay in the current mortgage. Considering the number of months of savings they need to recoup closing costs, it may take longer than they plan on living in the property. Also, people who are underwater with their mortgages most likely should stay with their current mortgage. It’s highly unlikely a homeowner in an underwater position will find a lender.

Another reason to not refinance is hefty prepayment penalties. The penalty payment creates another expense for homeowners to factor into the overall cost of the refinance. Homeowners would be better served by waiting beyond the initial two or three years when the prepayment penalty is active. Most likely consumers will have a better chance of refinancing further down the road.

The benefits of refinancing

Despite the tricky calculations regarding refinancing, it still can benefit many homeowners if done in the right way and at the right time. Refinancing can help consumers find fast cash if they are smart about making the decision. A good financial planner or online banking tool can help steer consumers in the right direction when facing the prospect of refinancing or not.

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Experts are estimating that mortgage loan modification will help millions of Americans by the end of the recession but how does it affect credit repair, credit score and overall financial long-term viability? Consumers are concerned with the long-term effects of loan modification. This includes what tax implications are pending because of modifications. These concerns are appropriate in a time of economic uncertainty, where Americans are struggling to gain a footing on their personal finances.

Refinancing and its long term affects on credit score

In general a refinance should not affect a credit score. In general terms, a refinance is merely the same mortgage, only reworked to fit the customer’s changed needs. This holds true especially for homeowners refinancing under the federal program because one term of eligibility is that the person may not have missed a payment within the previous 12-month period. Norm Magnuson of the Consumer Date Industry Association warned that, “it is unclear what impact a federal loan modification will have on credit profiles…regulators have not yet determined how the loan modifications will be reported, if at all.”

Applying for a loan modification under the “Making Home Affordable” however, means that the homeowner already missed payments, and already hurt their credit health. In the long run, this program will help them get back on track, thus creating a positive payment history. This will help the credit score, long term.

Tax implications

The charges involved in mortgage refinancing are tax deductible. The appraisal fees and attorney costs are not. The total of charges that are deductible should be evenly divided and deducted over the entire life of the mortgage and not just taken as an upfront credit. Homeowners also have to be ready to adjust mortgage interest deductions if their mortgage interest rate goes down. This also will affect the deductions available.

Credit repair

Credit repair is a hot topic with so many Americans going through financial hardships during the recession. Squaring away a manageable mortgage payment can do immeasurable good to a credit score. After a few months of positive reporting due to payments on time, consumers should see their credit score moving upward slowly and be able to reap the benefits of their hard work.

Mortgage refinance or modification alone

Many homeowners are looking to save the added cost of a mortgage loan modification by doing the negotiating themselves. Experts say that this is a viable option if the homeowner is not eligible for a federal program. They need to be ready with documentation and the proper paperwork to assure their lender they are truly wanting to change their payment history, and have a way of getting back on track.

Government officials are warning people however, about programs that are reaching out to do negotiations for consumers under the guise of “loan modification specialists.” Many of these programs are fraudulent and charge consumers between $1,000 to $3,000 for their efforts. In the end, government-approved counselors are available to consumers and ready to aid them through mortgage difficulties, for free.

The recession’s aftermath

Credit repair, credit score and taxing after the recession is difficult to predict. Almost all analysts agree that credit will follow along the course of the economy, by stabilizing and gradually improving over the coming months. Tax benefits may, or may not, help the consumer depending on a variety of factors. In the end, though the upswing to the economy is a long-anticipated benefit that everyone is looking forward to.

It appears President Barack Obama’s foreclosure prevention plan came too late for some. Foreclosures in February this year were 30 percent higher than last year. A total of 290,631  homes received a default or auction notice, and that includes 161,976 households that were notified for the first time, according to RealtyTrac.

Loan modification

Obama’s foreclosure prevention plan became effective March 4. Since then, home owners in danger of foreclosure can file for loan modification. In addition, homeowners who have loans through tax-payer owned Fannie Mae and Freddie Mac can file for refinancing. Fannie and Freddie customers can qualify for refinancing even if they don’t have delinquent payments, but they must show proof of hardship.

Too late for some

Unfortunately, the government aid couldn’t help people whose homes were seized in February. People who got notices that they had defaulted on their personal loans might still have time to apply for the program. If you think you might be eligible for the program, you can get professional loan modification help here.

Big lenders held off on foreclosures

The high number of foreclosures in February is particularly surprising because several companies placed moratoriums on foreclosures that month. Six of the nation’s largest mortgage holders stopped foreclosure proceedings throughout the last half of February. Those companies were: Citigroup, Countrywide, Bank of America, JPMorgan Chase, Washington Mutual and Wells Fargo.

Not so hopeful

Economists say the effort to fix the housing crisis may not be too effective because it can’t fix the still weakening economy.

“More people have lost their incomes or are underwater on their mortgages, so a new housing plan won’t change those facts by itself,” Barry Eichengreen, professor of economics at the University of California, Berkeley, said in an interview.

Indeed, another news report today shows that U.S. household net worth dropped a record amount during the last quarter of 2008.

Freddie Mac, a company that has already received billions of dollars of government funding, is asking for another $30.8 billion from the U.S. Treasury.

Right now taxpayers own 79 percent of the company, after the government moved the company into conservatorship in September.

Troubled times

Freddie Mac says it needs the $30.8 billion in cash advance loans because of deep losses it sustained fourth quarter of its fiscal year. The company says it lost $23.9 billion in three months. Over the year in 2008, the company lost $50.1 billion.

Only a week ago, Freddie’s CEO David Moffett, who was appointed in September, announced he would step down from his post. John A. Koskinen was named interim chief executive and Robert R. Glauber interim nonexecutive chairman on Wednesday — the same day the company asked for the additional aid.

Pre-emptive strike

Freddie Mac seems to be preparing for backlash. It already issued a statement regarding the new request for aid:

“Freddie Mac is working hard to serve our expanded mission in this historic crisis, by doing all we can to help stabilize the financial markets and hasten the recovery in housing. We absorbed heavy financial losses last year, driven primarily by mark-to-market items and credit-related expenses. But we also provided vital liquidity to the strapped housing market — injecting more than $460 billion in mortgage funding in 2008.”

Loan refinance program

Freddie Mac plays a big role in Obama’s recently revealed foreclosure prevention plan. People who have mortgages held by Freddie Mac or Fannie Mae can apply for new loan terms to get lower interest rates or longer terms. This is a special privilege for Fannie and Freddie customers because only homeowners who are delinquent on their loans can apply for the other portion of the government’s loan modification program.

There’s no word yet on whether or how the new government aid will affect the loan refinance program.

You may already be safe from foreclosure!

President Obama’s plan to revamp the mortgage industry and save families – including the octuplet mom and her kids – from foreclosure is now in full gear, like a fast cash advance for the afflicted. As part of the package, mortgage lenders like Citigroup and JP Morgan Chase have gone into a temporary moratorium phase for new foreclosures. Mr. Obama’s housing plan, which launches March 4, will distribute a sum total of $75 billion.

But how can those in need take advantage? Thanks to The Street, there is a formula threatened homeowners can follow. If you need help, try some of the good ideas they have compiled for your benefit.

Obama’s plan will advance cash fast

The Homeowner Affordability and Stability Plan is the key to disadvantaged homeowners. Essentially, it will allow people to restructure their mortgages so that they can avoid foreclosure. If you owe more than 80 percent of your home’s value, more refinancing options to advance cash fast will be available.

Up until March 4, here’s what The Street suggests homeowners do to put them in the best possible position to benefit:

1. Continue to make your mortgage payments: “Homeowners that are current [on payments] but eligible for the new plan should continue to make their mortgage payments in a timely manner,” says Gail Cunningham of the National Foundation for Credit Counseling. “Doing otherwise could compromise their credit report and score.”
2. Know what’s on your credit report: If there are errors on your credit report – and this does happen – you want to report it and have the error removed. The easiest way to get a hold of your credit report is entirely free; download it from annualcreditreport.com. Making sure that all information is accurate will speed up the process through which your home loan is modified.
3. Consider the refinance option: For those of you who still owe more than 80 percent of your home’s value, you may be able to refinance if your original loan was guaranteed by either Freddie Mac or Fannie Mae. If you need more information on how low mortgage rates are in the area in which you live, Web sites like BankingMyWay.com can help.

President Obama envisions his plan keeping as many as nine million homes out of foreclosure. “The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly,” he said. “It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans.” May this fast cash advance keep more families safe and warm.

Related articles

• What’s In This New Obama Foreclosure Plan? [Foreclosure] (consumerist.com)
• Wither Phoenix? (andrewsullivan.theatlantic.com)
• Foreclosure Freeze Continues (azmortgageguru.com)

Obama hopes to help homeowners avoid this fate.

A mixture of bad credit and personal loans has caused millions of Americans to face foreclosure on their homes. Now President Barack Obama has revealed his plan to help up to 9 million Americans keep their homes.

Obama will use money from the $700 billion Troubled Asset Relief Fund that the Bush administration approved last fall. He will dedicate $75 million to keeping Americans with mortgages from having to turn into their keys.

Keeping families off the streets

Many homeowners are facing the reality of having bad credit because their personal loans have gotten too expensive for them to handle. Many also now own property that is worth less than the amount they owe on their mortgage.

Obama’s new foreclosure prevention plan will help about 4 million Americans who are facing foreclosure. His plan is to offer incentives to banks so they will refinance loans to get monthly payments down to manageable levels.

Property values

The plan will also help 4 million to 5 million people who are paying mortgages that are now worth more than their property, if their loans are through Fannie Mae or Freddie Mac. Because of the steep depreciation in housing values, nearly 14 million people are currently paying mortgages that are worth more than their property.

Because the government now owns large stakes in Fannie Mae and Freddie Mac, Obama says mortgages through those companies will be easier to refinance. People who aren’t behind on their payments but are paying mortgages on low-value property can refinance their total mortgages.

Warming  up cold credit market

Obama’s hope is that the plan will get credit moving, and he says relief will come to homeowners in just a couple of weeks. He plans to have the new rules in place by March 4.

Because banks are so leery of lending, people now must have immaculate credit to secure a loan. Obama’s hope is that if banks have enough incentive to lend, even people with bad credit can get personal loans.