Me Myself N My Mortgage Theories

Hi all,

Here’s a brief outline of the top 3 mortgage news this week.

1. FHA has come up with new condo rules

The FHA has set 4 rules for condo mortgages. These rules will come into effect from 2nd November, 2009. As per the new rules, insuring a mortgage on a condo unit is not allowed unless all the units satisfy the criteria for getting approval on FHA mortgage. Also, 30% of the units in the condo project should be financed by FHA mortgages. Otherwise, FHA won’t insure a condo unit within the project. Know more…

2. California bans upfront fees on loan modification

The State of California has banned upfront fees charged by loan modification services. The purpose is to protect borrowers from being a victim of loan modification scams. As per law, any real estate licencee or attorney should refrain from charging an upfront fee from a borrower with the promise that the former will modify his home loan or offer services related to forbearance. However, the ban on the upfront fees is restricted to residential mortgages taken against 4 or less than 4 dwelling units. Get more details…

3. New program for homebuyers and renters

The Obama Administration has come up with a new program with which it’ll help local and state housing authorities provide support to homebuyers and renters. The purpose of the new program is to create homeownership opportunities through mortgage financing at low interest rates and provide assistance to those who’re looking to rent a home. It’ll also help housing agencies recover from the financial crisis due to credit crunch and housing market slowdown.

Under this program, the Government expects state housing finance agencies to provide home financing through a bond purchase program. There’s also a temporary credit and liquidity program to be introduced by the housing agencies. Find more details…

The financial meltdown (2007-2009) has indeed taught us a few things that perhaps we never wanted to learn. So far, we’ve believed that “Home prices never go down”, “Our 401k Plan is one thing we can depend upon at retirement”, “Buying a house is a long term savings strategy” and so on… But the financial meltdown seems to have proved us wrong. Here are the 3 things we’ve learned from the financial crunch that crippled our personal finance and the financial market as a whole.

1. Buying a home may not be ideal to build up long term savings

It’s been a common practice for home-buyers to take out equity loans on their homes in order to pay off debt, save for college expenses as required by their children or raise their retirement savings. Any investment relying on borrowed money is a bit risky. Prior to the financial crunch, more and more homeowners got lured by the easy lending criteria of home equity loans. They applied for such loans as they wanted to use their home as a source of investment.

However, with the financial meltdown getting deeper and home prices going down each day, borrowers with equity loans owed more on their mortgage than their homes were worth. Not only did they lose their savings but also they couldn’t sell their homes without paying a lump sum towards clearing the mortgage debt.

2. Housing prices may go down sometimes

The Great depression of the 1930s did prove how far home prices can slide down. Even the downturn in the housing market in 1990 wasn’t enough for us to take steps to avoid getting into mortgage/housing problems. So, when the real estate market did pretty well in 2005, everyone had the belief that as long as our incomes went up, we could surely afford bigger homes.

However, our incomes didn’t go up keeping pace with home prices after the recession in 2001. Moreover, several borrowers were approved without checking whether they had the financial strength to pay back the loans completely. Appraisers were under the pressure to provide inflated appraisals and underwriters got too casual when it came to determining the risk in offering home loans.
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Hi all,

Here’s a rundown of the top 4 finance news this week.

1. Home affordable Refinance has helped 60,000 borrowers: An US government data release on 13th August, 2009 reveals that so far 60,000 borrowers have been able to refinance their mortgages under the Home Affordable Refinance program.

The refinance program is limited to mortgages backed by government sponsored agencies - Fannie Mae and Freddie Mac. Borrowers could take advantage of this program provided their mortgages didn’t exceed 105% of the current home value.

2. Mortgage clinic for homeowners: The Neighborhood Assistance Corporation of America along with Bank of America and Citigroup organized mortgage clinics to modify loans for homeowners. They have traveled across the South and Midwest negotiating with lenders on behalf of homeowners in order to slash mortgage costs and have their interest rates reduced to as low as 2%. There were 300 counselors to review financial statements of homeowners and calculate a mortgage payment they can afford. Know more…

3. Mortgage rates go up: 30 year fixed mortgages rates have gone up this week, thereby bringing down the number of loan applications. According to a survey conducted by the National Mortgage Bankers Association, national average weekly rates on 30 year mortgages have increased to 5.38%, up from 5.17% last week. Average rates on 15 year fixed mortgages have climbed to 4.17%, up from 4.60% last week. Due to rising rates, loan applications have reduced by 3.5% as compared to the previous week.

4.Credit card rules to change from next week: Some of the new credit card rules, which were scheduled to take effect from July, 2010, would actually be followed from next week. The rules taking effect from next week are:

*Credit card issuers will have to provide a 45 days’ notice to debtors prior to raising their interest rates or changing the terms and conditions of the contract.

*Card issuers should send bills to customers 21 days ahead of the payment due date.

President Obama has drafted a consumer protection bill that would create a Consumer Financial Protection Agency. The purpose of this agency is to ensure that consumers are protected from unscrupulous lending practices. Moreover, the agency would make sure that consumers get a better understanding of financial products and services.

What the new Bill aims to do…

It is expected that the new Bill would bring about more transparency in financial transactions, simplify financial documents for consumers, and improve the operations of unregulated financial services. The aim here is to create a platform where banks and companies would be subject to a single set of rules and laws being enforced.

The Consumer Protection Agency will be regulating transactions related to mortgages, credit cards, payday lending, overdraft fees and make the rules consistent among different types of products. Besides, efforts will be taken to minimize the number of disclosures required in home buying/mortgage transactions.

What the industry has to say about the new Bill…

The industry is a bit skeptical as to whether the new Bill will be effective in protecting consumers. Some lawmakers are of the opinion that the Consumer Protection Agency may pose a threat to economic liberty.

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The CalHFA (California Housing Finance Agency) is all set to restart its down payment assistance programs and launch a new mortgage program for first time buyers. One helpful feature of the programs is that, they can be used independently of CalHFA first loans.

What are the down payment assistance programs on offer?

There are 2 down payment assistance programs being offered by the CalHFA. These are given below:

1. California Homebuyer’s Down Payment Assistance: The CHDAP or California Homebuyer’s Down Payment Assistance Program is a deferred loan worth 3% of the home value. First time homebuyers need not repay the loan until their homes are sold, refinanced or paid in full. This assistance program can be used with FHA loan and the new mortgage product launched by CalHFA.

2. School Facility Fee Down payment Assistance: This program provides qualified home buyers with a partial or full rebate of school facility fees. The average rebate is around $5,100. But the amount varies according to school district and square footage of the home. It works like a conditional grant, not a loan. So, the buyer need not repay it if he occupies property for 5 years. However, if he doesn’t stay on the property for minimum 5 years, then he has to pay off the grant on a pro rata basis.

What is the new mortgage program on offer?

Cal30 is the new loan program being offered by CalHFA. It is a 30 year fixed rate mortgage which requires stable monthly payments at low rates of interest (approx. 5% and slightly above). It is similar to a fixed rate mortgage insured by the FHA. So, if you’d like to go for it, you’ll need to have a credit score of 640 and make a down payment worth 5% of the home value.

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The economy seems to be in recession ever since the credit crunch and rising foreclosures and their impact on the housing market. Mortgage rates have gone up thereby bringing down home sales price. So, the year 2009 isn’t the worse time to buy a home. But homebuyers need to be a bit careful when they get into the market and they may have to take a few risks during this recession period. Given below are 4 tips that’ll help you buy a home successfully during a recession.

1. Make sure you’re financially secured: The biggest fear during a recession is whether you’d lose your job, that too, after closing a financial transaction. So, if you’re buying a home, just make sure you have solid job security.

Apart from job security, you need good credit, enough funds to make a down payment and you should be able to provide documents for income verification. In fact, you need to fit into the current lending standards which have actually tightened since the credit crunch. So, if you don’t have good income and credit and you’re uncertain about your job security, it’s better to wait till you’re financially secured.

2. Check your affordability: The year 2009 isn’t the right time for you to stretch your money and invest it into several options simultaneously. Therefore, when you go for a mortgage, make sure you check your affordability. Try keeping your monthly housing payment within 35% of your gross monthly household income. Moreover, going for a fixed rate loan would be better as your payments would be quite stable.

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The Obama Administration has come up with yet another plan to help distressed homeowners – this time it’s all about modifying second mortgages on your homes.

How does second loan modification work?

Under the second mortgage modification program, troubled homeowners can get their second mortgages modified by loan servicers, whom the government will pay $500 upfront and $250 a year for 3 years. The administration expects a good number of big banks to be a part of this Federal program.

Once the banks and lenders sign necessary contracts, they’ll be legally obligated to offer loan modification on second loans when they have already modified first mortgages. The banks and lenders modifying second liens will be receiving additional incentives to wipe out second liens voluntarily.

Under the program, loan servicers will be modifying second mortgages wherever the first mortgage loan on the same property has already been modified. The servicers will mostly extend the term of the loans and reduce the interest rate so as to help you pay off both the modified loans comfortably.

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Now that the Obama Administration is encouraging lenders to offer mortgage loan modification plans, it’s a common question for distressed homeowners as to whether they’ll modify their mortgages or include it in Chapter 13 plan.

Here’s an example of a similar scenario:

Jack’s wife Sara has credit card debts and intends to file Chapter 13 bankruptcy. Each of her credit card debt amounts to $45000. They have a house in both their names and there are 2 mortgages on it. They’d like to keep the house but they have no savings. Jack is confused as to whether he’d request the lender for a loan modification on the first mortgage or should he just ask his wife to include the first loan in the Chapter 13 plan.

Now, to find out a solution in Jack’s scenario, one needs to consider the 3 factors as given below:

1. What’s the property value?

It is important to know whether Jack is upside down on the first mortgage, that is, whether or not the balance on the first mortgage exceeds the property value. If it is so, then Jack can include the first mortgage in Chapter 13 plan and have the second mortgage eliminated after completing the payment plan under Chapter 13.

2. Is your first mortgage a fixed or an adjustable rate loan?

If the first mortgage is an adjustable rate loan and the rate is likely to adjust while you’re in bankruptcy, chances are that payments could go up thereby making it difficult to repay the mortgage. So, in such a situation, it is better that you request the lender for a loan modification while including only the credit card debts under Chapter 13 plan.

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If you’d like to reorganize your debts and pay them off by filing bankruptcy, then Chapter 13 is what you may have thought of. This is what helps you to restructure your debts and pay them back over the next 3-5 years. However, prior to filing Chapter 13, consider the 3 things as given below:

1. Adjustment of your loan payment: Even though you can restructure loan payments by filing Chapter 13 bankruptcy, things may not be that easier for you. This is because the loan payment may increase while you’re in Chapter 13 bankruptcy.

The lender is not obligated to negotiate with you and modify your loan terms. Moreover, you may be able to adjust payments on one mortgage but not on the other on your primary residence.

2. Getting rid of second mortgage: Chapter 13 filing may not be enough to help you restructure your second mortgage payments. Say for example, you have a first mortgage balance worth $350,000 and a second loan balance worth $80,000. Now, if your home value is $400,000, then you’ll hardly be able to pay off your first mortgage dues.

As per laws in California, in the midst of housing crisis, one can eliminate liens due to mortgages only if such liens are not secured by the equity in a property. So, if we consider the example given above, the second mortgage would be actually an unsecured lien as you won’t be able to pay it off under Chapter 13 repayment plan. So, the second mortgage lien can be eliminated from the title once you complete the 3-5 year repayment plan.

3. Your affordability to keep the home: Prior to filing Chapter 13, you need to understand and find out if at all you can afford to keep your home. Only then filing Chapter 13 and starting over your payments make sense.

Are you jobless and don’t know how to keep up with your mortgage payments? Well, ask your lender if he’s offering mortgage unemployment insurance. This is a kind of insurance policy especially being offered by home builders and real estate agents in recent times. The purpose of such a policy is to help one meet his monthly payments when he’s unable to find a job at the earliest.

What does the insurance policy cover?

The policy usually covers monthly mortgage payments between $1800 and $2500 for a maximum time period of 6 months. The policy covers property taxes and homeowners insurance as well. The coverage however depends on the market in your area of residence.

There are buyers who’re even getting back their mortgage payments as refund provided their appraised value falls short of their home sale price after they’ve stayed in their homes for 3 years or so. And last but not the least, certain companies are allowing home buyers to walk away from their properties in case of job loss or if they’re just behind on their loans.

Buyers who simply walk away don’t need to worry about their mortgage payments at all! But then doesn’t it affect their credit? Well, it surely does but the impact isn’t as bad as a foreclosure on their homes.
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