Little-known secret to reduce mortgage payment

Request loan recast when financial disaster strikes 

A mortgage recast is an adjustment in the monthly payment that makes the payment fully amortizing. The recast will be a payment increase when the existing payment is less than fully amortizing, and a payment decrease when the existing payment is more than fully amortizing.

For example, let's say your home loan has a balance of $100,000 at 5 percent with 300 months to go and a payment of $450 that, if continued, will not pay off the balance. The payment recast is an increase to $584.60, which will fully amortize the balance over 300 months. However, if the current payment was $650, the recast would be a payment decrease to $584.60.

Payment-increase recasts occur on two kinds of mortgages. One carries an interest-only option, where the required payment for some initial period, often 10 years, covers only the interest. The payment-increase recast occurs at the end of the interest-only period.

The second type of mortgage open to a payment-increase recast is the adjustable-rate mortgage (ARM) that allows payments that are less than fully amortizing. These ARMs sometimes have recasts at specified intervals, often every five years, or the recast may be triggered by the loan balance reaching some limiting value, such as 110 percent of the original loan amount. This can happen at any time, or it may not happen at all.

Payment-increase recasts are designed to protect the interest of the lender by making sure that the loan will pay off as scheduled. All interest-only loans and all ARMs that allow payments that are less than fully amortizing have explicit provisions for recasts in the loan contract.

Provisions for payment-decrease recasts, in contrast, which are designed to meet the needs of borrowers, are not included in loan contracts. The lender can agree to a recast; can agree subject to a charge, which can range from nominal to extortionate; or can refuse it. I have encountered all three such responses.

The borrowers who request recasts usually have fixed-rate mortgages (FRMs) on which they have been making extra payments in order to pay off before term, and then unexpectedly encounter a financial reversal. With their income reduced, their objective shifts from paying off early to reducing the payment, for which purpose they need a recast. They deserve it, and the cost to the lender is nominal, but some lenders will take advantage of them just because they can.

The borrower's right to a payment-reducing recast ought to be mandatory for all home mortgage contracts. Borrowers should not have to grovel for what can be critically important to them and of little consequence to lenders. Making recasts into a right would have the side benefit of encouraging borrowers to make extra payments as a form of contingency insurance.

Note that payment-reducing recasts are needed for fixed-rate mortgages much more than for ARMs. The reason is that when the interest rate is adjusted on an ARM, the payment is automatically recast. On ARMs that reset the rate every year, no additional recasts are needed. On ARMs with initial rate periods of 5-10 years, however, the need for a recast can arise in the early years just as it does on FRMs.

Today, borrowers are motivated to make extra payments primarily by the hope of getting out of debt sooner. With a right of recast made explicit, they will also view extra payments as a worst-case backstop. The more you pay when you have the means, the larger the payment reduction you can command in an emergency. I can't think of an easier way to motivate consumers to save more.

Inman

Mortgage Rates Up!

Mortgage rates jumped sharply this week, with the average rate on the benchmark conforming 30-year fixed mortgage rate rising to 4.89 percent, according to Bankrate.com's weekly national survey. The average 30-year fixed mortgage has an average of 0.36 discount and origination points. 

To see mortgage rates in your area, go tohttp://www.bankrate.com/funnel/mortgages.

The average 15-year fixed mortgage zoomed upward to 4.26 percent, and the larger jumbo 30-year fixed rate did as well, settling at 5.39 percent. Adjustable rate mortgages were mostly higher, with the average five-year ARM climbing to 3.85 percent and the average 7-year ARM increasing to 4.22 percent. 

Mortgage rates have been on a consistent upswing, rising in four of the five weeks since the Federal Reserve's early November announcement of $600 billion in additional bond purchases to stimulate the economy. But the movement kicked into overdrive this week with the tax cut extension expected to generate hundreds of billions more in government borrowing. Bond investors haven't responded kindly to the prospects of additional supply, with bond prices falling and bond yields rising. Mortgage rates are closely related to yields on long-term government bonds.

The last time mortgage rates were above 6 percent was Nov. 2008. At that time, the average rate was 6.33 percent, meaning a $200,000 loan would have carried a monthly payment of $1,241.86. With the average rate now 4.89 percent, the monthly payment for the same size loan would be $1,060.24, a savings of $181 per month for a homeowner refinancing now.

Survey Results
30-year fixed: 4.89% -- up from 4.71% last week (avg. points: 0.36) 
15-year fixed: 4.26% -- up from 4.07% last week (avg. points: 0.36) 
5/1 ARM: 3.85% -- up from 3.74% last week (avg. points: 0.4) 

Bankrate's national weekly mortgage survey is conducted each Wednesday from data provided by the top 10 banks and thrifts in the top 10 markets. 

For a full analysis of this week's move in mortgage rates, go tohttp://www.bankrate.com/mortgagerates.


RISMEDIA

Mortgage Activity Surges in Florida and New York, Declines in SW

According to new consumer activity collected by MortgageLoan.com between October 15 and November 15, 2010, the New York City metro area and cities in Florida saw overall increases in mortgage and refinance requests. Requests in Boston, Texas, and the Southwest were mixed.

While the New York City Metro area showed a 17% increase in overall request volume, Florida was the real winner with a 71% increase in refinance requests in Miami and Ft. Lauderdale and a 47% increase in Orlando.

"The dramatic increase in refinance activity in Florida markets suggests that home values may be stabilizing in many areas," says David Coster, residential lending expert at MortgageLoan.com. "Recent home price surveys, which do not look at secondary markets, have shown further value drops. Yet our site activity provides anecdotal evidence that may indicate more positive attitudes among Florida homeowners relative to their refinancing prospects."

The Boston metro area market showed a 32% increase in mortgage purchase activity, yet a 23% drop in refinance activity. "It is suggestive of a situation in which first time homebuyers, in-bound relocated employees, or investors are taking advantage of lowered home values," says Coster. "At the same time, existing homeowners are still struggling with homes that cannot be refinanced due to value, credit, or employment issues."

The Houston, Texas area saw a 17% decrease in overall requests. Other Texas and Southwestern markets also saw declines in refinance activity, including a 38% decrease in Phoenix, Arizona, a 32% decrease in Albuquerque, New Mexico, a 26% decrease in San Antonio Texas, and a 24% decrease in Fort Worth, Texas. 

The overall site activity at MortgageLoan.com indicates a housing market that varies from market to market and from month to month. Still, signs of marginal improvement appear to be creeping into the data.


RISMEDIA

Mortgage Rates Rise Significantly

Mortgage rates increased again this week, with the average conforming 30-year fixed mortgage rate now 4.62 percent, according to Bankrate.com's weekly national survey. The average 30-year fixed mortgage has an average of 0.37 discount and origination points. 

To see mortgage rates in your area, go tohttp://www.bankrate.com/funnel/mortgages/.

The average 15-year fixed mortgage increased to 4.02 percent, and the larger jumbo 30-year fixed rate soared as well to 5.24 percent. Adjustable rate mortgages also climbed higher, with the average 5-year ARM inching higher to 3.71 percent and the average 7-year ARM rising to 4.01 percent. 

Mortgage rates jumped significantly this week, posting a second consecutive weekly increase since the Federal Reserve announced renewed measures to boost the economy. Worries that the Fed's quantitative easing program will spark higher inflation, coupled with stronger economic data on retail sales and weekly unemployment filings fueled the latest increase. Although mortgage rates have increased, they remain extremely low in a historical context and will not be an impediment to well-qualified borrowers for the foreseeable future. 

The last time mortgage rates were above 6 percent was November 2008. At that time, the average rate was 6.33 percent, meaning a $200,000 loan would have carried a monthly payment of $1,241.86. With the average rate now 4.62 percent, the monthly payment for the same size loan would be $1,027.68, a savings of $214 per month for a homeowner refinancing now.
RISMEDIA

Mortgages Cheap, But Hard to Get

With fixed mortgage-interest rates at an all-time low, it might seem as if real estate offices should have house hunters lining up, ready to sign on the dotted line. Last week, Freddie Mac announced that the average 30-year rate had fallen to 4.27 percent.

At that rate, a $200,000 mortgage — not including hazard insurance and taxes — would cost $986.22 a month. Add to that the decline in home prices, and it seems like a combination that's hard to resist.

But banks are extra-careful these days about whom they lend money, with the result that many looking to buy houses aren't able to qualify for the lowest interest rates — or for mortgages, period.

Real estate agents and mortgage brokers say they are trying to work with individual buyers to clear obstacles to borrowing created by cautious lenders, who are mindful of a several-year-long track record that, in August alone, produced 245,000 new foreclosures, 3.2 million loans that were more than 60 days delinquent, and 101,000 sales of repossessed houses nationally.

In some cases, the agents and brokers say, such efforts might include providing lenders more income documentation and clearing up borrowers' credit issues.

The situation is complicating a tough sales environment already battered by persistent high unemployment and prospective buyers' expectations that prices will go down even more. Moreover, many would-be sellers, especially those who bought during the 2005-2007 boom years, are dropping their prices only reluctantly. Some simply refuse, agents and brokers say.

To help buyers obtain mortgages, said Philadelphia agent Jeff Block, of Prudential Fox & Roach, he has "had to work closely with lenders ... but almost exclusively because of issues on the lender's end, and not with the buyer's financials."

"Needless to say, this is much more common with Internet and non-local lenders, but I can almost always find a way through it," Block said.

Weichert Financial Service president Steve Madonna said two prospective buyers in 10 cannot qualify for mortgages. "I am seeing people who qualify easily and people who don't qualify at all," he said.

Lenders look for four "tradelines," such as a car loan or credit card, that are at least 12 months old.

"I am finding many young people who are not using any credit cards at all," Madonna said. "They use their debit card 45 times a month, but it is the same as paying cash."

Philadelphia mortgage and real estate broker Fred Glick said that tighter requirements have cut the number qualifying for home loans about 50 percent from a few years ago.

"If they have equity, good credit, full income documentation, and the underwriter isn't taking acid that day, it's not bad," Glick said. Mortgages insured by the FHA and VA are available if buyers don't have sufficient down payments, "but you will have the mortgage-insurance payment or funding fee" that will add to the cost.

Marshal Granor, principal in Granor Price Homes in Horsham, Pa., said a lack of cash for closing costs also means some mortgage applicants won't make the cut.

And Jerome Scarpello, of Leo Mortgage in Ambler, Pa., said even qualified borrowers can be stymied by today's tighter lending rules — increased credit-score requirements, for example.

"If your score is under 700, some private mortgage insurers won't insure you," Scarpello said. "Under 620, you cannot get a competitive-rate loan."

The pendulum has swung so far to the other side, he said, that "good, quality, make-sense people are being told, 'No.' "

Broker Peter Buchsbaum, of Abington Mortgage in Horsham, said 95 percent of the people who contact him can qualify for the lowest interest rate and "the other 5 percent are capable of getting the rate, but maybe not for as much a loan as they are requesting."

He added, however, that the mortgage market is constricting each day, with some underwriting rules making sense and some not.

"My frustration is that the feds keep pushing interest rates as the answer to the real estate puzzle," Buchsbaum said. "Until prices stabilize and the public doesn't waste time trying to get loans from large banks, we'll stay in this rut."

To Narberth, Pa., Realtor John Duffy, it's looking like a return to the days when buyers needed stable employment, decent credit, and equity for a down payment.

"In the long run, that will help everyone," he said.

(c) 2010, The Philadelphia Inquirer.

What is the Real Cost of Financing?

Annual Percentage Rate (APR) is a tool that consumers can use as a starting point to compare loan programs. However, it's important to keep in mind that APR is not a perfect system, and not all lenders calculate APR in the same way. While the Federal Truth-in-Lending Act does require any mortgage broker or lender to disclose APR to the consumer, there is no rule written in stone for calculating this number that each and every lender agrees upon.

The point of calculating APR is to let the consumer know what the actual cost of their financing is in the form of a yearly rate. APR factors in certain closing costs and fees associated with the loan, and spreads this total over the life of the loan along with the actual note rate. The objective is to give the consumer a clearer picture of what their actual costs are, and this inhibits lenders from hiding fees or upfront costs behind low interest rates in their advertising.

Fees that are generally included in the APR calculation are points, pre-paid interest, loan processing fees, underwriting fees, document preparation fees, and private mortgage insurance. On occasion, lenders will include a loan application fee and/or credit life insurance. Fees that are normally not included in the APR calculation are fees from Title, Escrow, attorney, notary, document preparation, home inspection, recording, transfer taxes, credit report and appraisal.

Remember, all lenders do not perform the calculation the same way. Moreover, APR does not consider the possibility of making pre-payments, moving or refinancing. Unless the interest rate is tied to a fixed instrument, APR is even more confusing. Calculating APRs on adjustable rate and balloon mortgages is more complex because we really have no way of knowing what future rates will be.

If all lenders calculated APR the same way, we could make easy comparisons when deciding on what loan program to go with. Since they don't, the consumer should know that APR is simply a starting point for comparison. They should rely on the skills of a well-versed loan professional to assist them in obtaining the loan that meets their specific needs. The more important things to consider are how long the loan is needed. What are the long-term goals of the borrower? If the home buyer only expects to stay in the home for five years, there's not a lot of sense in looking exclusively at 30-Year Fixed rates because the APR seems more reasonable. If a young couple is buying a home, knowing they will refinance in eight years to pay for their son's college education, then once again, APR is not a realistic factor to take into consideration.

The Loan Executive should be prepared to answer questions about APR once the lender provides the Truth-in-Lending Disclosure Statement (Reg Z), such as why the “amount financed” listed in Box C is not the same as the actual loan amount, and why the APR is higher than the interest rate on the loan in most cases. The consumer will get a clear definition about the fees associated with their loan in the good-faith estimate, but the Truth-in-Lending Disclosure is often an area that is confusing to the borrower.

Do You Know the Red Flags of Mortgage Fraud?

Mortgage fraud is not going away any time soon. The FBI has been working with bureaus of investigation in states that recently passed residential mortgage fraud acts to stay abreast of the latest fraud tactics.

The FBI has found that fraudsters are evolving new ways to take advantage of others and hide their intent. For this reason, anyone involved in the mortgage industry needs to be educated on the red flags of possible mortgage fraud, such as those outlined below:

Flipping vs. Serial Flipping:A fraudulent flip is one that erroneously increases the value of the property by using an inflated appraised value. If a property was purchased for $175,000 and soon thereafter was sold for $500,000, most professionals would notice. However, serial flipping is trickier. Say a house sold for $175,000, soon after sold for $250,000, then $325,000, then $400,000 and then $500,000. Fewer professionals would even raise an eyebrow. This scheme takes more time, but the end result is the same: fraud.

Multiple Contracts & HUD-1 Settlement StatementsIn this scheme, unbeknownst to the seller, the contract and settlement statement that is sent to lender shows inflated sales price. This enables the buyer to obtain a higher mortgage. In the end, the seller believes the property was sold for $300,000, but lender, agent and buyer believe the sales price was $500,000 (the amount on which the agent’s commission is calculated).

Fraudulent Qualification DocumentsIn this scenario, the borrower’s ability to qualify for a loan is misrepresented by fabricated employment history, income, credit records, and bank statement balances. FBI calls this is an “emerging issue” and a result of sophisticated Photoshop and editing software.

Bogus Assignment FeesBuyer #1 enters into an assignable contract with the seller at an inflated price. Buyer #1 locates Buyer #2 who may be a co-conspirator or a naïve investor. Buyer #2 takes an assignment of the contract at the inflated price and agrees to pay Buyer #1 an assignment fee. Inflated appraisal is used and Buyer #2’s application may contain misrepresentations.

Bogus Liens or InvoicesA buyer contracts with a seller at an inflated price. At closing, the difference between the true sales price and the inflated contract piece is paid to a bogus shell company of the buyer or individuals affiliated with the buyer.

ChunkingChunking transactions are similar to flipping, but instead of multiple sales of the same property, it involves multiple loans to the same borrower. In this situation, a borrower purchases more properties than underwriting guidelines would allow or obtains multiple refinance loans secured by the same property.

Chunking usually begins with an unsophisticated borrower attending a “how to get rich quick” seminar. At or following the seminar, a third party contacts the unsuspecting borrower to encourage investment in a specific property with no money down. The third party acts as an agent for the borrower and simultaneously submits loan applications on the borrower’s behalf to multiple financial institutions for the various properties. The borrower may not be aware of this.

The third party acts as agent for the borrower during the closing, and often, unbeknownst to the borrower, pockets the loan proceeds. The “unsophisticated” borrower is left with numerous loans from various financial institutions and usually has insufficient cash flow to repay the debt.

Builder BailoutsThese bailouts often occur when a builder is highly motivated to move inventory that has been sitting in a declining or depressed market. According to the FBI, condominium conversions are particularly vulnerable to this type of fraud.

In a builder bailout, the builder may use a variety of ways to quickly dispose of the property. Some of the methods are:

• Aiding in fraudulent borrower qualification.
• Offering excessive incentives not disclosed to the buyer’s lender.
• Offering no down payment by inflating the sales price by the buyer’s down payment and forgiving the buyer of that amount.
• Inflating the sales prices and using bogus liens or invoices.

Straw Borrowers
This type of fraud intentionally disguises the true beneficiary of the loan proceeds.
It may be used to:

• Conceal questionable transactions;
• Replace a legitimate borrower who may not qualify for the mortgage or intend to occupy the property
• Circumvent applicable lending limit regulations by applying for and receiving credit on behalf of a third party who may not qualify or want to be contractually obligated for the debt. The straw borrower may be a friend or relative of the true beneficiary, or merely a paid participant.

Mortgage Elimination
Mortgage elimination is an attack on an existing mortgage through forced cancellations and unusual cancellations (usually called a “declaration of avoidance”).

Purchase Disguised as Refinance
In this scenario, the buyer executes a contract for purchase and convinces seller to quitclaim the title to buyer prior to closing. This is done with or without a security deed from buyer to seller and is done without the payment of the sales price to seller. At this point, the buyer then applies for a refinance of the property instead of a property purchase.

Reverse Mortgage Fraud
The FBI calls reverse mortgage fraud an emerging type of scheme that takes years to identify. In this scenario, fraudsters identify foreclosed, distressed or abandoned properties and use straw buyers to commit occupancy fraud. Seniors are recruited to purchase the property from the straw buyers without the exchange of money. After living in the property for 60 days, the seniors obtain a reverse mortgage. A fraudulently inflated appraisal is used as justification, possibly based on repairs or renovations that may not have been performed. At this point, a lump sum disbursement of the equity is requested, which the fraudsters abscond with at closing. Unfortunately, this type of fraud usually is not discovered until after the death of the borrower.

Short Sales
Many argue that residential mortgage fraud cannot be involved in a short sale transaction. The misstatement, misrepresentation or omission of fact to the seller’s existing lender would not be in the mortgage loan process. Nevertheless, mortgage fraud is often involved! Not against the seller’s lender (although other crimes may be involved), but usually against the buyer’s lender. Sellers, agents, buyers, and others involved in the process find a way for the buyer to pay some money to the seller for the purchase of personal property or as rent for the buyer taking possession prior to closing.

The issue is whether the buyer made a misstatement, misrepresentation or omission of fact in the mortgage loan process for the new loan being obtained. If the buyer is paying $2,000 to the seller for personal property or rent that expenditure would have to appear on the Loan Application Form or itemized on the HUD-1 Settlement Statement. Otherwise, the buyer is misstating assets. The lender believes the buyer has $2,000 more in liquid assets than the buyer actually has. If the buyer became committed to pay $2,000 for a car or furniture prior to closing, this would have to be disclosed to the lender. That requirement is not changed merely because the payment is to the seller. Even if the seller has not committed residential mortgage fraud against the existing lender by receiving the undisclosed funds, the existing lender could refuse to accept the negotiated payoff.

Buyer brokers in particular, beware! How can a broker or agent avoid becoming involved in such fraudulent activity? Here is my advice:

• Closely evaluate the “chain of sales”
• Communicate with other agents involved in the most recent transactions
• Consider if the sales price is congruent with the sales and list price of other homes in the area
• Communicate with the loan officer…and your broker…if unsure
• Consider the buyer’s apparent ability to qualify for the purchase
• Avoid assignment fees payable to “original” buyers
• Avoid multiple transactions involving the same borrower in a short period of time
• Realize that any attempt to satisfy a mortgage without payment in full typically is NOT going to work. In a short sale, it might work, but ensure the lender has given written consent for the acceptance of a lesser amount…
• …and, be sure the conditions for the lender to accept a lesser amount are fulfilled

Howell Haunson

Changes to Mortgage Underwriting May Affect Many Buyers

The real estate industry and especially the mortgage industry have been overwhelmed with changes, regulations and consolidations recently. In the last couple of months, many transactions nationally have experienced delayed closings or worse as a result of the application of new guidelines affecting APR, Good Faith Estimates (GFE), Truth in Lending (TILA) and condo project approvals to name a few.

There is one more issue that is critical for real estate agents, loan officers, and anyone else who deals with consumers purchasing a home or obtaining a refinance. Effective with applications on or after June 1, 2010, Fannie Mae has issued new lender mandates (FNMA LL-2010-03 Loan Quality Initiative) on a national basis that, if not understood properly, could have devastating consequences for many buyers and sellers. We want to be certain that everyone understands the implications of the new rules and ensure that all interested parties know what they need to know to minimize negative repercussions.

The intent of this initiative is to assure that all applicant information is disclosed and is honest and accurate as of the moment of closing. Lenders will now be required to re-pull credit report information just prior to closing, re-verify employment, validate Social Security numbers, verify intent to occupy and verify that all parties to the transaction have been checked against the national “excluded party” list, which is managed by HUD and by the General Services Administration. Changes in any of these factors are likely to result in a re-underwrite, the need for additional documentation, or suspension of loan closing.

The most onerous of these is the credit re-pull. It is important that this is done as a “soft pull” so it does not show as an inquiry, which could potentially change the borrower’s credit score. Firms will, however, have to match the outstanding debts and inquiries with the report used to approve the loan. Additional credit or increased balances that change the debt-to-income ratio more than 2% (or less if it now exceeds guidelines) will require the loan to be suspended and re-submitted to underwriting.

Any additional delinquencies will result in a new, full credit re-pull and re-underwriting, utilizing the new credit. Any and all inquiries from other lenders or credit suppliers must be verified by the credit bureau and certified that new debt did not occur. If new credit has been extended, the new debt must be included in the borrower’s debt-to-income ratio and the loan must be re-underwritten.

Other considerations are W-2 employees that may own more than 25% of a business, mandating business returns and cash flow analysis and full disclosure of child support and alimony. Changes could render the applicant unqualified or could delay the closing. As a result of TILA, GFE and risk-based pricing changes, additional debt could result in re-pricing the loan due to a change in credit score, which even if approvable, would delay the closing three business days as re-disclosure would be required.

So How Do We Manage the New Process?
Real estate agents and lenders must impress upon the applicants the need for full and honest disclosure at the time of application, during the loan process and at closing. Buyers must be cautioned against applying for new credit during the process, changing jobs (30-day pay stub requirements are being enforced), and charging to their credit cards. It is imperative that they notify the lender if anything changes from application to closing.

We must all be aware that an applicant that signs an erroneous initial or final closing application could be committing fraud. Lenders choosing to approve loans without the proper loan quality processes and documentation are only endangering the buyer. Any lender or real estate agent that encourages someone to falsify information could be equally responsible. It is noteworthy to mention that many loans go through an immediate quality control audit post closing, so this could affect highly qualified applicants as well. Identified fraud of this nature could be investigated by the FBI.

While this new policy was implemented first by Fannie Mae, it is already a mandate of all national lenders and, based on experience, will soon be required on every loan. It is important to keep this in mind on every deal, not just ones that may involve Fannie Mae.

By Jim Dinkel and Ken Trepeta

Both 30 Year and 15 Year Fixed Rates are down to their lowest levels EVER!

Plus – in most parts of the country, home values as reported by both the National Association of Realtors and the S&P Case-Shiller Indices are higher than last year. If you were unable to refinance last year, the combination of your current home value and historic interest rates may provide you a greater opportunity to save money than ever before

Finally, even if your home has lost value from when your loan was originated, you may still be able to refinance. There are some special programs available that might allow you to refinance without private mortgage insurance, even if your loan will now exceed 80% of the present value..

Create Your Own Buyer Stimulus Package

The Federal Government's Homebuyer Tax Credit may have expired on April 30, but just because Uncle Sam has turned off the financial spigot aimed at housing doesn't mean home buyers still can't get "something extra" during their purchase... click here for entire article and video.

What’s Ahead for Home Loans in 2010

This year could bring significant changes from 2009 for those seeking home loans. Over the last year, home prices fell to 2003 and earlier levels in many parts of the country. In addition, home loan rates declined to the lowest levels on record and this combination led to the highest home affordability levels ever recorded. Here's a recap of what happened in 2009 and what you need to know for the year ahead.

Would You Like a Sweetener with that Rate?

Interest rates throughout 2009 were artificially low. That's because in late 2008, the Federal Reserve put into place a program for purchasing Mortgage Backed Securities with the intention of lowering mortgage rates. They were successful with reported rates by Freddie Mac falling below 5.00% several times in 2009.

Without this program mortgage rates would have been at least 1.00% higher, and potentially even higher than that. Did you know that a change of 1% in a home loan rate impacts the amount someone can borrow by roughly 10%? For example, if rates are in the low 5.00% range today and they shoot up to the low 6.00% range, $250,000 home buyers may become $225,000 home buyers.

Look for rates to return to 2008 and previous levels as the Fed ends the program on March 31, 2010. While rates will not immediately increase to 6.00% or higher, know that without additional intervention, rising rates are inevitable. Expect that under worst case scenarios, rates could dance around the 7.00% range.

Show Me Your Docs

Contrary to what you may see or hear in the media, money is widely available for people who want to finance their homes. There is one caveat, though. People need to be able to demonstrate that they qualify for the loan amount they are pursuing and that they have been willing to repay debt they have accepted in the past.

To obtain financing today, a borrower needs to supply the lender with all documentation pertaining to their income, liquid assets and potentially items related to their credit reporting. The best preparation path to follow is to gather most recent paystubs for 30 days of earnings, two years W-2s with complete tax returns and three months statements, all pages, for any liquid assets used for qualifying.

The free wheeling days of borrowing whatever people thought they could repay are gone. While some exceptions may be granted for strong compensating factors, total debt to income level will be capped at 45%.

If you haven't checked out your credit reports recently, now is a good time to do so if you plan on seeking financing in the next 12 months. You can pull up your reports for free at AnnualCreditReport.com. Examine your reports for any inaccuracies and work to get them corrected prior to seeking financing. You can also seek assistance from your mortgage professional.

Have We Hit a Bottom in Housing?

If you simply look at the data that is reported, one could surmise that the bottom in U.S. home prices was hit in 2009. One nationally respected index for home price reporting, the S&P/Case-Shiller Home Price Indices, indicates that home prices turned for the better around mid-year in 2009.

While all markets are different and some may continue to show signs of weakness, most communities have demonstrated strength and should continue to do so. However, some potential headwinds do exist for the second and third quarter of 2010, following the expressed expiration dates of several stimulus programs: The Mortgage Backed Securities purchase program and home buyer tax credits, both of which are directed at the housing and the mortgage markets.

Foreclosures and short sales will also continue to influence many of the hardest hit markets as unemployment and resetting adjustable rate mortgages weigh on distressed homeowners.

Dates to Remember

Two dates lie on the horizon that will impact interest rates and potentially home prices. The first program scheduled to end is the Federal Reserve's program for purchasing Mortgage Backed Securities. Announced in November of 2008, the Fed began purchasing $1.25 trillion in mortgage bonds in 2009 which will culminate at the end of March. As the intention and result of this program was to lower rates, mortgage rates will likely begin to rise after the program concludes.

In addition, April 30, 2010 is the last day to enter into a home purchase contract and still potentially qualify for a federal income tax credit of up to $8,000 for first-time home buyers and up to $6,500 for repeat home buyers. The credit can be claimed only on contracts that close by June 30, 2010.

Act Now...Not Later

While no one knows for certain what the future holds, one thing does appear clear. Home loan rates and home prices both will be higher in the future. If you or anyone you know is looking to purchase or refinance a home, waiting could be costly!

Learn About Making Your Home Affordable Again

Your Path to a More Affordable Mortgage ... http://www.makinghomeaffordable.gov/

Government unveils new mortgage help

By MARTIN CRUTSINGER

WASHINGTON (AP) - The Government is unveiling a new program to provide support to state and local housing agencies to provide help to thousands of home buyers and renters.

The administration said the new program would help to support low mortgage rates and expand resources for low and middle income borrowers who want to buy or rent a home.

The program will feature two parts - a new bond purchase program to support new lending by housing finance agencies and a temporary credit and liquidity program to improve access by housing agencies to credit sources for their existing bonds.

The new program will operate under a law that Congress passed in 2008 to bolster the housing industry, which has been battered by the worst slump in decades, a downturn that saw home sales and home prices plunge and mortgage defaults soar to record levels.

The government said the new effort was designed to provide hundreds of thousands of affordable mortgages for working families and enable the development and rehabilitation of tens of thousands of affordable rental properties.

Treasury, the Department of Housing and Urban Development and the Federal Housing Finance Agency said in a joint news release that the new program would provide temporary support to local housing financing agencies and encourage them to return to relying on market sources for their capital as quickly as possible.

The local and state housing finance agencies, which provide loans to people with low or moderate incomes, have had a hard time raising money to fund loans due to the housing crisis and credit crunch.

"This initiative is critical to helping working families maintain access to affordable rental housing and homeownership in tough economic times," Treasury Secretary Timothy Geithner said. "Through this initiative, the administration aims to help (the housing finance agencies) jump-start new lending to borrowers who might not otherwise be served and to better support the financing costs of their current programs - key components in stabilizing the housing market overall."

Long-Term Mortgages Near Record Low

Thirty-year, fixed-rate mortgages moved closer to the all-time low of 4.82 percent reached in May, falling to 4.87 percent this week from 4.94 percent a week ago, according to Freddie Mac.

5 Tips when Shopping for a Mortgage

Click here

FHA Program to Help Struggling Home Owners

The newly enhanced FHA Making Home Affordable Loan Modification program will help cash-strapped home owners reduce their monthly mortgage payments and stay in their homes, NAR says. Read more >

Deed of Trust or Mortgage?

When someone borrows against a piece of Real Property using a Mortgage, they (the borrower) maintain Title to the property, and the Mortgage is a Lien on that property.

When someone borrows against Real Property using a Deed of Trust, the property is deeded to a neutral third party called a Trustee. This Trustee holds title to the property, and distributes title to the property under the terms of the Deed of Trust. If the borrower (called the Trustor) pays off the loan, title is given to the borrower. If the borrower fails to pay as agreed, the Trustee has the power to hold a public auction, and sell the property for the benefit of the lender (called the beneficiary). Just as with the Mortgage, the funds from the sale would go first to paying off the beneficiary (lender) and anything above that would go to the borrower, if there are no junior lien holders (2nd mortgage, ect.).

To foreclose on a mortgage takes 6 months and thousands of dollars, where as a Deed of Trust takes 3 months and an attorney.

President's Homeowner Affordability and Stability Plan

On March 4, 2009, The Obama Administration announced new U.S. Department of the Treasury guidelines to enable servicers to begin modifications of eligible mortgages under the Administration's Homeowner Affordability and Stability Plan – announced by President Barack Obama on February 28, 2009. NAR has reviewed these policies and has developed a summary of the plan. You can also get more information from the brand new website set up by the Treasury Department: www.financialstability.gov.

Housing plan aims to help 9M, but leaves out many

By ALAN ZIBEL
WASHINGTON (AP) - The Obama administration's housing plan is intended to help 9 million struggling homeowners avoid foreclosure, but it leaves out tens of thousands of borrowers in the most battered housing markets who won't qualify because their homes have lost too much value.
The program detailed Wednesday offers refinanced mortgages or modified loans with lower monthly payments. Yet its refinancing plan is limited to borrowers who owe up to 5 percent more than their home's current value. Loan modifications, supported by $75 billion in federal funding, are unlikely for severely "underwater" borrowers.

In the California cities of Stockton, Modesto and Merced, more than one out of every 10 homeowners with a mortgage won't qualify for any help because they owe more than 50 percent more than their house's current value, according to data from real-estate Web site Zillow.com.
The plan doesn't help homeowners in states "that are at the epicenter of the housing debacle," said Greg McBride, a senior financial analyst at Bankrate.com.

The ineligible households are concentrated in California, Florida, Nevada and Arizona, but can also be found in struggling cities such as Detroit and Grand Rapids, Mich. Even houses in the outlying suburbs of the nation's capital, where the economy is relatively healthy, have dropped substantially in value.

For a homeowner who borrowed $380,000 and now has a house worth $270,000, "I just don't know what you do with that," said Jared Martin, a mortgage broker in Bethesda, Md.
Government officials acknowledge that the initiatives are only a partial fix for a sweeping problem that has helped plunge the U.S. economy into the worst recession in decades.
"This is not going to save every person's home," said Robert Gibbs, the White House press secretary. "The plan is not intended to ... augment somebody's loan for a house that they couldn't afford under any economic situation, good or bad."
Of the nearly 52 million U.S. homeowners with a mortgage, almost 14 million, or nearly 27 percent, owe more on their mortgage than their house is now worth, according to Moody's Economy.com. Nearly half of all borrowers in Nevada were "under water" on their home loans as of December, according to First American CoreLogic.
In troubled Stockton, nearly one in five borrowers owe more than 50 percent above what their home is now worth, making it unlikely that they will qualify for any aid.
Though banks such as JPMorgan Chase and Wells Fargo & Co. (WFC) issued statements praising the plan, there was also skepticism that banks would be willing to participate.
"I've just seen so many of the programs not work," said Pava Leyrer, president of Heritage National Mortgage in Randville, Mich. "It gets borrowers' hopes up. They call and call for these programs and we can't get anybody to do them."
The program has two parts: one to work with lenders to modify the loan terms for up to 4 million homeowners, the second to refinance up to 5 million homeowners into more affordable fixed-rate loans.

For the modification program, which runs through 2012, borrowers who are eligible will have to provide their most recent tax return and two pay stubs, as well as an "affidavit of financial hardship" to qualify. In the affidavit, applicants will have to cite the reasons behind their financial woes, such as job loss or a drop in income. The government will then take steps to verify the information.
Borrowers are only allowed to have their loans modified once, and the program applies for loans made on Jan. 1, 2009, or earlier. Mortgages for single-family properties that are worth more than $729,750 are excluded.
Lenders could reduce a borrower's interest rate to as low as 2 percent for five years. Rates would then rise to about 5 percent until the mortgage is repaid.

The refinance program is only offered to homeowners with loans held by Fannie Mae (FNM) or Freddie Mac. (FRE) They have until June 2010 to apply.
Consumers should contact their loan servicer - the company that sends out their monthly bill - to find out if their mortgages are held by Fannie or Freddie. The two mortgage finance companies own or guarantee almost 31 million home loans, more than half of all U.S home mortgages, and say they are lowering some fees to allow more borrowers to qualify.
In Seattle, home prices are down about 13 percent from a year ago, compared with about 30 percent in Las Vegas, Miami and San Francisco.
---
On the Net:
http://www.FinancialStability.gov

5 Tips for Homebuyers Seeking a Mortgage

Here's a warning for potential borrowers: Nervous lenders have tough new rules and are paperwork crazy. Here are some tips for home buyers. Read more >