John Barker's Mortgage Blog

Short sales

2012-01-26T14:13:00.001-06:00

Since I first published this article on short sales, they have become even more widespread and many of my clients have been seeking loans to purchase a "short sale." Many people are still not sure how they work, so I thought it a good idea to reprise the article.

With the continued downslide of the economy, 'short sales' are often the only way some homeowners can get out of a mortgage they can no longer afford without going into full foreclosure. A short sale is when the lender will accept less than the full amount due on a mortgage when a property is sold. (Usually, the lender will accept the short sale to avoid the time and expense of a foreclosure.)

When a borrower is in default on a mortgage they not only owe the back payments but also may owe late fees, property inspection fees, attorney fees, etc. This can add up quickly to eat up all the equity the borrower had in the property. If the borrower is unable to bring the account current the lender will then foreclose on the property. With a foreclosure, the lender can lose up to 40% of the mortgage amount because of the extra costs involved with foreclosing on a property: attorney fees, court costs, lost interest, eviction costs, property maintenance costs, and selling costs. Foreclosing on a property can also take up to two years in some states. Therefore, it is sometimes in the best interest of the lender to accept the short sale.

It also can be in the best interest of the borrower. They will not have to endure the time and stress of a foreclosure and their credit may not be as adversely affected as it would with a foreclosure. It is quicker and easier and does not subject the borrower to the embarrassment of a foreclosure.

How does it work?

The first thing the borrower should do when they can no longer afford a property is to contact the lender immediately. The last thing a lender wants to do is foreclose on the property. Lenders typically have departments that work with people who are behind on their payments to resolve the situation. If you cannot resolve the default with the lender, and you want to see if they will accept a short sale, they will direct you to the department that handles short sales.

The lender will usually require the borrower to submit a lot of information to the lender in order to consider the short sale. The information required may include:

Income documentation such as W-2s and pay check stubs to verify the borrowers’ income.

Bank statements to verify the borrowers’ assets

Hardship letter – this letter will describe for the lender the reasons the borrowers are in the financial position they are in and will ask the lender to accept the short sale. Borrowers should make this letter sound as sad as possible and back up the story with any documentation you may have such as medical bills, etc.

Fair market value for the property – depending on the lender they may require an appraisal or may accept an opinion from a local Realtor know as a Comparative Market Analysis (CMA).

Preliminary proceeds sheet from the sale of the property. This will show the proceeds of the sale of the property after the mortgage is paid off and all other closing costs and fees are paid. This will be negative in the case of the short sale and this negative amount is the amount of the shortage.

Listing agreement and purchase agreement when they are available.

When the lender reviews all of this they may or may not approve the short sale. If they do not approve the short sale they will proceed with the foreclosure. If they do agree to the short sale you will close on the sale of your property and the lender will take the loss.

So, is the borrower off the hook?

Not necessarily. The lender still has options to try to collect this shortage. As a condition of the short sale the lender may require the borrower to sign a note to repay the shortage. They may also file a collection or a judgment for the amount of the shortage. This is something that an attorney with expertise in this area of real estate needs to be consulted.

Also, the IRS may come after the borrowers for income taxes on the amount of the shortage. If the shortage was forgiven, the lender will report the shortage as income to the IRS and the IRS will collect taxes on this amount. Again, for the specifics on this please consult a tax professional.

HARP 2.0 Should Help Millions Refinance Their Mortgage

2011-11-02T14:17:00.000-05:00

The Home Affordable Refinance Program (HARP) was designed to help homeowners, whose home values have fallen, to refinance their mortgage to take advantage of the historically low rates we have been experiencing lately. The changes to the HARP program should sidestep a lot of the reasons lenders were unwilling or unable to help more homeowners.

Under HARP, homeowners who had little to no equity, or were upside down on their properties, could refinance their mortgage at today’s low rates. If a borrower did not have mortgage insurance originally, it would not be required on the new loan even if the new loan to value ratio (LTV) would normally require it. And, if a borrower did have mortgage insurance, the new mortgage insurance requirement would be at the same level of coverage they had before. And, the borrower could refinance even if their first mortgage was up to 125% of the value of the home.

With the changes to HARP that 125% limitation is lifted – allowing a borrower to refinance their mortgage regardless of how much negative equity they have in the property. This will open the program to more borrowers excluded under the original HARP.

But, I’ve read that many lenders did not participate in the original HARP – why will this be any different?

Under HARP, many lenders would only refinance borrowers up to a 95% LTV. Some would go to 105% LTV but very few would go to the maximum of 125% LTV. Why? Because, generally, when a mortgage is refinanced by a lender, the representations and warranties attached to the original loan and property are carried over to the new lender. So, the investors (Fannie Mae and Freddie Mac) can force the lender to buy back that mortgage due to defects overlooked by the previous lender. Many lenders were not willing to take that risk, especially on a refinance with no or negative equity. Therefore, the few lenders that were willing to take the risk of a 125% LTV refinance only took that risk on loans that they were already servicing and therefore already exposed to the buyback risk.

Under the changes to HARP, Fannie Mae and Freddie Mac will waive the reps and warranties for refinancing mortgage that are already owned by Fannie Mae and Freddie Mac and were originated before June 1, 2009. Even though this may increase the risk to Fannie/Freddie, the increase in risk should be negligible. Experts say that most defects that trigger reps and warranties occur in the first couple years of the mortgage. Also, in order to qualify for the program, borrower must be current on the loan, have no late payments in the past 6 months, and at most one late payment in the past twelve months. These borrowers pose less of a default risk than those with recent late payments on their mortgage.

Not all of the guidelines and details have been completed. Fannie Mae and Freddie Mac are going to have the new HARP guidelines finalized b November 15, 2011 and HARP should be live by December 1, 2100.

Stay tuned to Barkerblog.com for more information on HARP 2.0 as it becomes available.

If you think you can benefit from these changes, contact me ASAP so we can get your application started – this is sure to create a lot of demand for refinancing and ledners can easily get overloaded.

I can be reached at BarkerLoans@gmail.com or 708.473.7688. Or, if you want to apply online, plese go to www.BarkerLoans.com and complete the full application. There is no cost or obligation to apply.

Why can’t I get the lowest possible mortgage rate?

2011-10-30T14:10:00.000-05:00

It’s frustrating! You read the headlines, “Mortgage rates lowest in 60 years!” Then, you call the lender and the rate quoted is higher than what you‘ve seen online. You wonder, “What’s going on here?”

There are a lot of reasons that the rates you are being quoted may not be as low as the rates you see advertised. Here are a few of them:

1) They aren’t real. A lot of internet rates are not honest quotes. And, those that are may already be expired or may have have conditions on them that only a tiny fraction of borrowers can meet.

2) You have to pay discount points. Fannie Mae and Freddie Mac Weekly rate surveys show rates from the previous week and will likely require you to pay discount points. On a recent Freddie Mac rate survey, the rate on a 30 year fixed rate mortgage was 4.10%. But, further in the article it stated that the 30 year fixed rate mortgage carried an average of 0.8% of a discount point. A discount of 1.0% (1 Point) can be a 0.125% - 0.500% difference on the interest rate.

3) Your credit score isn’t high enough. Fannie Mae & Freddie Mac have Loan Level Pricing Adjustments (Click here for my blog article on LLPAs). If your interest rate Is below 740 and your Loan to Value Ratio (LTV) is greater than 80% there will be adjustments to your interest rate. For example, if your middle credit score is 700 and your LTV is 75.01% - 80.00%, there will be a loan level pricing adjustment of 0.75%. This is an additional fee (points) that will have to be paid with your mortgage. Since most people do not pay points on their mortgage, this will result in a higher interest rate.

4) Your loan isn’t large enough. The rates you see listed are often for very large loan amounts. Larger loan amounts provide more revenue but don’t cost more to originate than smaller loans, so the lenders can make the same or more profit, even at a lower interest rate.

5) You are in the wrong area. Some lenders have different rates for different geographic areas of the country. This may be due to higher default rates in certain areas or higher costs to originate loans in those areas.

6) You have more than one loan. If you have subordinate financing on your transaction (either purchase or refinance) there may be LLPAs as a result. For example, if you are buying a house with an 80/10/10 (80% LTV on the first mortgage, 10% on the second mortgage and a 10% down payment) there is an LLPA of 1.0% on this transaction. This could result in a rate increase of up to 0.5%. People using an 80/10/10 are trying to avoid mortgage insurance on the first mortgage so they may still be saving money. A lot of people who want to refinance their first mortgage, and already have a second mortgage, are noticing significantly higher than those they read about. Many homeowners took out large second mortgages when their home values were at their peak. Now, they either have little to no equity in their property or they may even be upside down on their property (they owe more than the property is worth). If these borrower are able to refinance, their rates wills urely be higher that the best possible rates.

7) Wrong property type. If you own or are purchasing anything other than a single-family, detached residence your rates will be higher. Condos, townhomes and 2-4 unit buildings may have add-ons to the rates or points.

8) Refi versus purchase. Also, the best possible rates are usually for purchase transactions. If you are refinancing, or taking cash out on your refinance, you will see higher rates.

9) You aren’t going to live there. Last, the occupancy of the property will affect the interest rate. If the property is a second home or investment property your rates will be higher.

This list is by no means an all-inclusive list of the reasons you may not be able to get the rock-bottom, lowest-possible rates you’ve been reading about, but it gives you some ideas. Make sure you are working with a reputable, experienced lender who will give you knowledgeable and honest answers to the rates you are being quoted.

And you can always reach out to me at BarkerLoans@gmail.com or by calling 708.473.7688 to answer any questions you have or to help you with your financing needs. There’s never an obligation, and always free information!

Who could use some extra money for the holiday season?

2011-10-27T11:50:00.003-05:00

Did you realize that Christmas is less than 60 days away?
Hanukkah begins in only 55 days!
Are you ready?
Could you use some extra money to help with the holiday expenses?
What if you would skip your December mortgage payment?

If you were to refinance your mortgage and close in November the first payment on your new mortgage would not be due until January 1, 2012! And, your mortgage payment would be lower to start the New Year. How nice would it be to have the amount you pay for your mortgage available to help with the holiday expenses?

Call me today to see how much money you could save by refinancing and get the application started to make sure we can close your loan in November.

I can be reached at 708.473.7688 or BarkerLoans@gmail.com. To apply online go to www.BarkerLoans.com.

The Fed Does the “Twist”

2011-09-23T11:39:00.006-05:00

Mortgage rates could fall even lower!

No, we’re not talking about the Chubby Checker hit from 1960. We’re talking about the Federal Reserve’s latest attempt to keep long-term interest rates low in order to boost the sagging economy. Operation Twist, as some have nicknamed it, is a plan by the Fed to sell short-term treasuries (3-year and shorter) and purchase long-term treasuries (6-year and longer) in an effort to keep the long-term interest rates low. The Fed will also use the principal payments from its portfolio of mortgage-backed securities to purchase longer-term treasuries.

The Fed has committed to purchase $400 Billion in longer-term treasuries over the next year. By buying these treasuries the price will increase thereby reducing the rates on the securities. Fixed interest loans and mortgage should see a slight improvement in rates due to this program.

One of the targets of this program is the housing market.
The Fed hopes that by keeping rates low it will spur some home buying. However, I think the impact on the housing market will be limited at best. With mortgage rates already at historic lows, prospective homebuyers are not putting off a potential home purchase because rates are too high. They are putting off a purchase due to lack of confidence in the economy, fear of future job loss, current home they are unable to sell, and property values that continue to fall – none of which have anything to do with mortgage rates.

Current homeowners looking to refinance may benefit, though. Even though interest rates have already been historically low, many people may still be able to save money as rates decrease. Hopefully, this savings will help consumers pump more money back into the economy and help prevent a second (or double-dip) recession.

The impact on the overall economy won’t be known for months. But, if you are a homeowner looking to save some money, give me a call today to see if refinancing is right for you. I can be contacted at 708-473-7688 or BarkerLoans@gmail.com.

Property need some TLC? Try an FHA Streamlined 203K

2011-08-09T09:51:00.003-05:00

FHA Streamlined 203(k) Loan

Perfect for purchasing a foreclosure, short sale, or fixer-upper

With the increase in the amount of foreclosures, short-sales, and fixer-uppers on the market, many people are looking for ways to purchase a home that need some work without paying for all of the costs out-of-pocket. FHA offers a streamlined version of the traditional 203(k) rehab loan. The Streamlined 203(k) loan offers that homebuyer the ability to finance up to $35,000 of improvements to the property into the mortgage.

The Streamlined 203(k)is designed for non-structural repairs to the property. You cannot move load bearing walls or add an addition to the property with the Streamlined 203(k) loan. However, there are a lot of repairs that can be covered:

Repair/ replace/upgrade roofs, gutters/downspouts, HVAC systems, plumbing systems, electrical systems, flooring.
Remodel kitchens, baths, etc.
Painting – interior and exterior
Weatherization of property – doors, windows, insulation, etc.
Finish/re-finish basements or attics
Handicap-accessible improvements
New appliances
New siding
Basement/crawlspace waterproofing
Lead-based paint stabilization or abatement
Repair/replace/add exterior decks, porches and patios

Following are the limits to the extent of work that can be performed with a Streamlined 203(k) loan:

Major rehab/remodeling that may require the addition or relocation of a load-bearing wall.
Any new construction including adding an addition to the property
Repairing any structural damage to the property
Any work that cannot be started within 30 days of closing or completed within 6 months of closing
Any work that requires detailed plans, drawings or architectural exhibits
Any work that would require the homeowner to vacate the property for more than 30 days.

In addition to the above, the Streamlined 203(k) loan also does not require the use of a consultant nor the use of a general contractor to complete the work. And, if the amount of work to be performed on the property is less than $15,000, the mortgagee (lender) may not require an inspection of the completed work. The Streamlined 203(k) can also be used on a refinance to remodel/rehab a property you are currently living in. However, it can only be used on owner-occupied properties.

If you are thinking of purchasing a property that will need some work after closing, please give me a call so we can go over the details of the requirements of this loan. I can be reached at 708-473-7688 or BarkerLoans@gmail.com

Down Payment Assistance Is Not Dead!

2011-05-26T14:06:00.002-05:00

Down Payment Assistance Is Not Dead!

Many first-time homebuyers, who would otherwise qualify for a mortgage, lack the funds to cover the down payment and closing costs necessary to purchase a home. In fact, this is the largest barrier to becoming a homeowner.

Some people are fortunate enough to be able to get a gift for the down payment from a parent or other relative. But, with the recent economic down turn fewer people have money to give. And, with the seller-assisted down payment assistance programs being banned a couple years ago many first-time homebuyers have had to sit on the sidelines and wait to afford a new home.

Down Payment Assistance is Alive and Well!
At Envoy Mortgage, we offer a program that will assist these first-time home buyers purchase their new home -- and maybe help the housing market turn around. Here are some of the features of the program:
• Up to $6,000 in down payment and closing cost assistance
• Up to 100% financing available
• Fixed rate with terms up to 30 years
• Available with FHA or conventional loan programs
• Reduced mortgage insurance for conventional loans
• Available to first time home buyers, veterans or spouses of veterans (In certain, targeted areas, these restrictions do not apply – contact me for more information)
• Below-market interest rates
• Up to 45% debt-to-income ratios

With this program, we have been able to help first-time homebuyers make the leap into homeownership. Call me today for more information on this program.

Yet another reason to choose me and Envoy Mortgage for all your financing needs!

Fannie Mae HomePath® Buyer Incentive Program

2011-04-20T11:14:00.010-05:00

Fannie Mae has added a buyer incentive to their HomePath® mortgage program (For more information on the Home Path Program go to Fannie Mae Home Path Mortgage ). Fannie Mae is currently offering buyers up to 3.5% in closing cost tassistance through June 30, 2011.

The HomePath® property buyer must meet the following qualifications to be eligible:

Buyers and/or selling agents (the agent representing the buyer) must request the incentive upon submission of initial offer in order to be eligible.
The initial offer must be submitted on or after April 11, 2011 and close by June 30, 2011. If an initial offer was made prior to the effective date, the offer is not eligible for the incentive.
The sale must close on or before June 30, 2011. No exceptions will be made to this deadline.
Only buyers purchasing a HomePath property as their primary residence may receive up to 3.5% in closing cost assistance. Second homes and investment properties are excluded from the incentive.
Buyer must sign the Owner Occupant Certification Rider to the Real Estate Purchase Addendum.
If a buyer's total closing costs are under 3.5%, the difference will not be available as a credit to the buyer.

Note: Fannie Mae can give no assurance on the time required to close, but initial offers submitted after May 15, 2011 are particularly questionable for closing by the incentive deadline of June 30, 2011.

Call me today to find eligible properties in your area and to start the mortgage approval process. I can be reached at 708.473.7688 or BarkerLoans@gmail.com. To apply online please visit www.BarkerLoans.com.

Fannie Mae HomePath® Mortgage

2011-03-11T11:11:00.000-06:00

The HomePath® program is a special financing program to provide financing for purchasers of Fannie Mae Real Estate Owned (REO) properties (as a result of foreclosure or other similar action such as deed-in-lieu of foreclosure) that Fannie Mae has deemed eligible for HomePath® Mortgage financing.

FEATURES AND BENEFITS:
• Low down payment (Up to 97% LTV available)
• You may qualify even if your credit is less than perfect
• Available for primary residences, second homes and investment properties
• Down payment can be funded as a gift, a grant, or a loan from a nonprofit organization, state or local government employer
• No appraisal required
• No mortgage insurance required

FLEXIBLE TERMS:
• 15- and 30-year fixed rate
• Adjustable options available

ELIGIBLE PROPERTY TYPES**:
Single Family Properties Only
Planned unit developments (PUDs)
Modular homes
**Geographic and unit restrictions apply. The property must be designated on HomePath.com as eligible for HomePath financing. Programs available only to qualified borrowers. Programs subject to change without notice. Underwriting terms and conditions apply. Some resitrcitions may apply. HomePath is a registered trademark of Fannie Mae. 0510

Call me today to find eligible properties in your area and to start the mortgage approval process. I can be reached at 708.473.7688 or BarkerLoans@gmail.com. To apply online please visit www.BarkerLoans.com.

FHA Announces Change to Mortgage Insurance

2011-02-15T12:18:00.007-06:00

In a move to bolster the Mutual Mortgage Insurance Fund (MMI), FHA has announced an increase to the annual mortgage insurance premium paid by borrowers with FHA-insured mortgages. While the Up-front Mortgage Insurance Premium will remain unchanged at 1.0%, the annual Mortgage Insurance Premium will increase from 1.0% to 1.25%. The increase will amount to a monthly payment increase of $20.84 for a $100,000 mortgage and an increase of $41.66 for a $200,000 mortgage.

At the end of 2010, the MMI had reserves of $3.6 Billion – well below the minimum requirement. The increases are expected to bring an additional $3 Billion into the MMI annually, based upon the current projections.

"After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA's capital reserves and help private capital return to the housing market," says FHA Commissioner David H. Stevens. "This quarter point increase in the annual MIP is a responsible step towards meeting the congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost-effective mortgage insurance option for borrowers with lower incomes and lower down payments."

The changes to the annual mortgage insurance premium will take effect with all loans insured after April 18, 2011.

Fannie Mae Announces Changes to LLPAs

2011-01-18T12:06:00.001-06:00

What is an LLPA?

LLPA stands for Loan Level Pricing Adjustment. An LLPA is an additional fee on top of any points and closing costs paid for a mortgage based upon the Loan to Value Ratio (LTV) and the borrowers’ credit score. So, the higher the LTV and lower the credit score the more you will have to pay for a mortgage. This can take the form of additional points and/or higher rates. LLPAs are risk-based adjustments to the cost of a mortgage (e.g. rates and points).

Effective with loan locked on or after January 18, 2011, loan level price adjustments (LLPAs) will change as outlined below. This is in response to recent Fannie Mae changes.

Changes have been made to:
• LLPAs by Credit Score/LTV
• LLPAs for Subordinate Financing
• LLPAs remain the same for DU Refi Plus

For the first time, the LLPAs for some LTV/Credit score combinations are actually lower. This is in response to higher quality loans being delivered to Fannie Mae and Freddie Mac, the Government Sponsored Entities (GSEs) that own most conforming mortgages in the country.

For information on LLPAs for programs or property types not listed here, please contact me at BarkerLoans@gmail.com or 708-473-7688.

Why Do I Have 3 Different Credit Scores?

2011-01-13T12:00:00.011-06:00

I get this question from customers all the time. Mortgage lenders typically pull credit reports from the 3 main credit repositories – Transunion, Equifax, and Experian. All three of these repositories generate a credit score, which is a numerical representation of your credit history. While the exact formula for computing these scores is a trade secret, we know that your credit score is affected by your payment history, amount of credit available, amount of credit used, and any collections and/or judgments against you.

But why wouldn’t they all have the same score for the same borrower? There are many reasons the scores may differ, but the main ones are:

Not all creditors and lenders report to all 3 credit repositories. So, the three repositories do not all have exactly the same information

Creditors report to the repositories at different times. Your balance with ABC credit card may be different at the 3 repositories because one may not reflect the last payment or purchase you made on your account and another may.

There are several different scoring models that are used. In fact, each repository uses different scoring models depending on the purpose of the score or the requirements of the creditor/lender. So, different models will analyze your credit data differently and give you a different score.

This is why most mortgage lenders pull credit reports from all 3 repositories and use the middle score. By using the middle score, lenders are attempting to get as accurate a credit profile as they can for their customers.

What can I do to improve my credit score?
First, and most importantly, use credit wisely. Do not over extend yourself with credit and always make your payments on time.

Second, the amount of credit you use should be as small a percentage of your available credit as possible. For example, if you have $10,000 of available credit, your score will be higher is you are only using $500 of that available credit than if you are using $7,000 of it.

Third, make sure you know what is on your credit report. The Fair and Accurate Credit Transaction Act of 2003 (FACTA) allows a consumer to request a copy of their credit report, free of charge, from all 3 repositories. To learn how to obtain your free credit report, and for other reasons to monitor your credit, read my blog article, FREE Credit Reports.

For more information or help with your credit, please contact me at BarkerLoans@gmail.com or 708.473.7688.

FREE Credit Reports

2010-12-11T06:40:00.000-06:00

Most of us know that we should be checking our own credit reports periodically to make sure the information is accurate. And, we have all seen the banner and pop-up ads offering us free credit reports. But, can we really get our credit reports for free?

Yes, you can. The Fair and Accurate Credit Transaction Act of 2003 (FACTA) was passed by Congress to, among other things, allow consumers to monitor their own credit reports from the three main credit repositories – Equifax, Experian, and Trans Union. These free credit reports may be obtained on the internet, over the phone, and through the mail through a centralized source that was established specifically for this purpose (you cannot obtain a free credit report by contacting the credit repositories directly.)

On the internet go to http://www.annualcreditreport.com to get copies of all three credit reports. You can also call 877-322-8228 to obtain the credit reports by phone or you can download a form to mail in at http://www.annualcreditreport.com/cra/requestformfinal.pdf.

Why should you check your credit periodically?

First, the credit reports may contain information that is inaccurate. Most of the credit you obtain, and the rate you pay, are based upon your credit history and credit score. If your credit reports have inaccurate information you may be paying more for credit than you should.

Second, all of us have heard of identity theft on the news. The key to minimizing the damage done by identity theft is to stop it as quickly as possible. By checking your credit report at least annually you can spot activity that may be identity theft and take steps to stop it as soon as possible.

What if the information on my report is inaccurate?

All three credit repositories will list the steps you need to take to dispute an inaccurate listing. When you receive your reports, simply follow the steps for each of the three credit repositories.

Another site that has a lot of great information on FACTA, identity theft, and privacy issues is www.privacyrights.org.

Changes to FHA Mortgage Insurance Premium (MIP) take effect today

2010-10-04T15:15:00.000-05:00

For the second time this year, FHA is changing their mortgage insurance premium (MIP). FHA does not make loans directly, rather FHA guarantees mortgages made by approved lenders. The FHA MIP is mortgage insurance for FHA loans that protects the lender in case of borrower default on the loan.

FHA charges two types of MIP
(1) Up-Front MIP (UFMIP) which is paid at closing and added to the base loan amount and
(2) Annual MIP (AMIP) which is collected each month with the regular mortgage payment.

So, for a $200,000 FHA mortgage with a term of 30 years and an LTV greater than 95% the UFMIP would be $2,000 instead of $4,500 and the AMIP would be $1,800 instead of $1,100 (or, $150/month instead of $91.67/month)

FHA Streamlined Refi Offers Great Options to Lower Rate

2010-09-21T09:22:00.007-05:00

FHA allows a current FHA Mortgagor to refinance their mortgage under the Streamline Refinance Program. Streamline refers to a reduced amount of documentation needed to refinance the mortgage. The basic requirements of the program are:

The mortgage to be refinanced must already be FHA insured.

The mortgage to be refinanced should be current (not delinquent).

The refinance is to result in a lowering of the borrower's monthly principal and interest payments.

No cash may be taken out on mortgages refinanced using the streamline refinance process.

Many lenders also require a minimum credit score for the streamline program.

Streamline Refinance With an Appraisal

If an appraisal is performed for the refinance, the new mortgage balance is limited to 96.65% of the appraised value. However, the borrower may not receive cash out on a streamline refinance. The new mortgage may include the unpaid principal balance of the mortgage, closing costs and prepaid items (e.g interest, initial escrow account deposit, etc.).

Streamline Refinance Without an Appraisal

A streamline refinance can also be done without an appraisal. In this case the new mortgage is limited to the original mortgage amount. Closing costs and prepaids may be included in the mortgage but only up to the original loan amount. Borrowers using this option may incur out of pocket expenses to refinance their mortgage.

This has been a great option lately for those homeowners who are currently upside down (owe more on the home than the home is worth) on their homes. Since no appraisal is done, no one knows if this is an issue or not. Also, a property that was originally purchased with an FHA mortgage and has since been converted to an investment property can only be refinanced with an FHA streamline refinance without an appraisal.

No-Cost/Low-Cost Refinances

Although not unique to FHA refinances, many borrowers refinancing using the streamline refinance opt for a no-cost refinance. In exchange for a slightly higher interest rate, the lender will pay a portion (low-cost) or all of the closing costs of the mortgage. This is especially popular with the streamline refinance without an appraisal because the borrower will usually be able to roll less of the costs into the mortgage. With interest rates at historic lows lately, this option is very attractive since you can still get a phenomenal interest rate and use less of your equity to pay closing costs.

If you are thinking of refinancing your FHA loan, please give me a call so we can see if this might be right for you! You can call me at 708-473-7688 or email BarkerLoans@gmail.com

Is the FHA Streamlined 203(k) Loan right for you?

2010-09-08T17:45:00.015-05:00

With the increase in the amount of foreclosures, short-sales, and fixer-uppers on the market, many people are looking for ways to purchase a home that needs some work without paying for all of the costs out-of-pocket. FHA offers a streamlined version of the traditional 203(k) rehab loan that can help you do just that.

The Streamlined 203(k) loan offers that homebuyer the ability to finance up to $35,000 of improvements to the property directly into the mortgage.

A few things to consider are that the Streamlined 203(k)is designed for non-structural repairs to the property, so you can't move load-bearing walls or add an addition to the property. But there are a lot of repairs that can be covered:

Repair/ replace/upgrade roofs, gutters/downspouts, HVAC systems, plumbing systems, electrical systems, flooring.
Remodel kitchens, baths, etc.
Painting – interior and exterior
Weatherization of property – doors, windows, insulation, etc.
Finish/re-finish basements or attics
Handicap-accessible improvements
New appliances
New siding
Basement/crawlspace waterproofing
Lead-based paint stabilization or abatement
Repair/replace/add exterior decks, porches and patios

Following are the limits to the extent of work that can be performed with a Streamlined 203(k) loan:

Major rehab/remodeling that may require the addition or relocation of a load-bearing wall.
Any new construction including adding an addition to the property
Repairing any structural damage to the property
Any work that cannot be started within 30 days of closing or completed within 6 months of closing
Any work that requires detailed plans, drawings or architectural exhibits
Any work that would require the homeowner to vacate the property for more than 30 days.

Projects that involve any of these items may still be eligible to be done with the traditional FHA 203(k) loan

In addition to the above, the Streamlined 203(k) loan also doesn't require the use of a consultant, nor the use of a general contractor to complete the work. And, if the amount of work to be performed on the property is less than $15,000, the mortgagee (lender) may not require an inspection of the completed work.

The Streamlined 203(k) can also be used on a refinance to remodel/rehab a property you are currently living in. However, it can only be used on owner-occupied properties.

If you are thinking of purchasing a property that will need some work after closing, please give me a call so we can go over the details of this loan and see if it might be right for you! You can call me at 708-473-7688 or email BarkerLoans@gmail.com

House Passes Extension to Home Buyer Tax Credit

2010-06-29T23:18:00.002-05:00

The last day to close on your home purchase in order to qualify for the Home Buyer Tax Credit (Congress Extends/Expands Home Buyer Tax Credit) is tomorrow, June 30, 2010. Many people who had a signed contract on or before April 30, 2010 may not be able to meet that deadline. The National Association of Realtors (NAR) estimates as many as 180,000 people will lose that tax credit due to delays in their closings.

In recent years, with lenders tightening their lending standards and increased regulations, many real estate purchase transaction are taking longer than they had in the past. Many people in the industry were worried whether two months from the contract deadline (April 30) to the closing deadline (June 30 was long enough. In addition to the tighter standards and regulation, the increase in volume has made closing on a home an even longer process.

The House of Representatives passed a two-month extension to the closing deadline today with a 409-5 vote. The extension only applies to those home buyers that met the contract deadline of April 30. The Senate must now pass a similar bill which is already in the works.

The home buyer tax credits are credited with helping to stabilize the slumping housing market across the country. According to the NAR, over 1 million home purchases would not have occurred if it were not for the home buyer tax credits. The IRS states that over 2.6 million home buyers had claimed the credit by April 2010 for a total of $18.7 Billion in tax credits

FHA Mortgages Just Became Slightly More Expensive

2010-04-20T09:46:00.001-05:00

On April 5, 2010 the first of several planned changes to the FHA Mortgage Program went into affect. HUD increased the Up-Front Mortgage Insurance Premium (UFMIP) to 2.25% from 1.75%. The UFMIP is part of the mortgage insurance charged by HUD to insure FHA mortgages. It is based upon the mortgage amount and it is rolled into the mortgage rather than being paid for by the borrower at closing. This will make the impact of the increase much more affordable to borrowers.

On a $200,000 FHA mortgage, the UFMIP increased from $3,500 to $4,500. Since the additional $1,000 of UFMIP will be rolled into the mortgage it will increase the monthly payment slightly - $5.68 per month.

The reason for the increase is that delinquencies and foreclosures on mortgages have increased significantly over the past several years. And, a greater percentage of mortgages are now FHA insured mortgaged. This has caused greater losses to the FHA program and the increase is intended to increase the reserves set aside to handle these situations.

FHA is still a great deal. Conventional mortgage carry higher monthly mortgage insurance rates and, with the Loan-Level Pricing Adjustments, only those borrowers with the highest credit scores and largest down payments can qualify for the best conventional mortgage rates.

FHA will be making more changes in the future. Go to “FHA to Tighten Lending Standards, Increase Fees” for more information.

Local Market Reports, 4th Quarter - National Association of Realtors

2010-03-24T10:04:00.016-05:00

The National Association of Realtors has just released their Local Market Reports for the 4th Quarter of 2009 for the largest metropolitan housing markets across the US. This report details information such as median home prices, home sale growth, construction, affordability and more and compares it to historical data and national averages.

There is a lot of interesting information in the reports - below is the report for Chicago:

Click here to download the PDF.

Click here to go to NAR's website to see the Local Market Reports for all markets.

Homebuyer Tax Credit Deadline is April 30, 2010

2010-03-16T11:22:00.007-05:00

Time is Running Out - Only 45 days left!

If you are looking to take advantage of the homebuyer tax credits, you only have 45 days to go. In order to qualify, you must have an accepted contract dated on or before April 30, 2010 and you must close on the sale on or before June 30, 2010.

For the latest information on the tax credits, see my previous post: Congress Extends/Expands Home Buyer Tax Credit

Mortgage rates fall below 5%

2010-02-18T14:53:00.005-06:00

According to Freddie Mac, mortgage rates fell again this week with a 30-year fixed rate mortgage now at an average 4.95%.

30-year fixed rate mortgages averaged 4.97% a week ago, and 5.04% a year ago.

"Mortgage rates eased for the second week, while economic data releases suggest that the housing market may be in a slow state of recovery," said Frank Nothaft, Freddie Mac vice president and chief economist, in a news release.

"The National Association of Realtors reported that existing home sales rose in 48 states and the District of Columbia between the third and fourth quarters of 2009; 32 states experienced double-digit growth. In addition, 67 metropolitan areas saw positive annual house price growth in the fourth quarter, more than double than in the third quarter, according to the NAR," he said.

Nothaft says that there are also signs that new home construction is improving.

"One-family housing starts rose to an annual pace of 484,000 homes in January, which is up almost 36% from January 2009, based on the U.S. Census figures. Moreover, homebuilder assessments of market conditions over the first half of 2010 improved in February, according to National Association of Home Builders/Wells Fargo Housing Market Index," he said.

For those looking to buy a home, this is a great time to lock in these low rates. With housing inventories still high, prices are still down. Combine that with these incredible rates and you can make one smart financial move! Call or email today to start the process, or ask any questions!

FHA to Tighten Lending Standards, Increase Fees

2010-01-20T12:49:00.006-06:00

In order to increase its reserves to cover loan losses, and to avoid asking Congress for money for the first time in its history, FHA has announced tightening lending standards and higher mortgage insurance fees.

Over the past couple years, FHA has seen its market share of mortgages increase from less than 10% to 30 – 40% of all new mortgage originated. This increase in the number of loans insured, coupled with the increase in defaults and foreclosures over the past couple years, has decreased FHA’s loan loss reserves to below the congressionally mandated minimum of 2%.

In order to increase these loan loss reserves and keep FHA headed in the right direction, FHA will be implementing the following changes:

FHA will increase the Upfront Mortgage Insurance Premium (UFMIP) from 1.75% to 2.25% of the mortgage amount. This premium, which can be rolled into the total amount financed, will increase the UFMIP on a $200,000 mortgage from $3,500 to $4,500. Since this premium is financed, it will not have a huge impact on borrower’s ability to afford a mortgage or their monthly mortgage payments.
FHA will now require all borrowers to have a minimum FICO score of 580 to qualify for FHA’s minimum 3.5% down payment. Borrower’s with FICO scores below 580 would be required to have a down payment of at least 10%.
FHA will reduce the allowable seller’s concessions from 6% to 3%. Sellers often pay for the borrowers closing costs and/or points on their mortgage. The reduction in these concessions is to prevent sellers from increasing the sales price of the home drastically to cover the cost of the concessions.
FHA will increase enforcement on FHA lenders. FHA will increase monitoring of FHA lenders to make sure they are operating in a responsible manner.

According to FHA Commissioner David Stevens, “Striking the right balance between managing FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important. When combined with the risk management measures announced last year, these changes are the most significant steps to address risk in the agency’s history. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing markets recovery.”

There are mixed views as to the impact these changes may have on the housing market. According to Ivy Zelman, CEO of Zelman & Associates, a housing-research firm, “The FHA tightening arguably has no bite and is clearly a non-event.” Howard Glaser, and industry consultant, had a different view saying, “Mortgage lenders will find the new rule as painful but necessary. He continued to say the rules were necessary due to the fact that there is an “anything goes” environment in recent years due to many subprime lenders moving into FHA lending.

FHA’s Stevens said that he expected FHA’s performance will see “bumps and bruises in the months ahead” but was “headed in a positive direction.”

For more information read HUD's Press Release.

Fannie Mae Announces Updated Adjustments

2010-01-10T11:44:00.000-06:00

Fannie Mae has announced updated Loan Level Pricing Adjustments (LLPAs). These LLPAs are assessed on conventional loans based on certain criteria such as credit score, loan to value ratio, loan purpose, occupancy, number of units, product type loan term, etc.

Click here for the most up to date loan level pricing adjustments: https://www.efanniemae.com/sf/refmaterials/llpa/pdf/llpamatrix.pdf

HAPPY NEW YEAR!

2009-12-15T20:05:00.003-06:00

Thanks to all of my great customers, friends, real estate partners, and blog readers - I wish everyone a wonderful holiday season, and a very happy, healthy and prosperous new year!

HAPPY NEW YEAR!

If you haven’t refinanced yet, don’t wait much longer

2009-11-17T16:58:00.004-06:00

Changes to Fannie Mae guidelines may make it more difficult.

On December 12, 2009, Fannie Mae will roll out its latest version of Desktop underwriter – and with it new guidelines that may make it more difficult to get a mortgage. Many people have been waiting to refinance but now is the time to act,

Some of the upcoming changes are:

Maximum debt to income ratios will now be 45.00%

There will now be minimum credit scores, regardless of compensating factors

Increased requirements for borrowers with previous bankruptcies, foreclosures, and deeds-in-lieu of Foreclosure.

Value of certain assets (e.g. stocks, bonds, mutual funds, retirement accounts, etc.) will be capped at 50% - 70% of actual value

Greater Loan to Value (LTV) restrictions for 2-unit properties along with greater reserve requirements.

Many more

While the housing market has shown signs of improvement, foreclosure and delinquencies are still at all-time highs. Fannie Mae is implementing these changes to make sure loans that are made going forward are a higher credit quality than they were in the past. This can significantly impact your ability to refinance and save money.

If you are thinking of refinancing your mortgage, please call me today to see if it is a smart move for you. Time is running out!

Congress Extends/Expands Home Buyer Tax Credit

2009-11-10T12:27:00.000-06:00

Congress has approved a bill that will not only extend the First Time Home Buyer Tax Credit but will also expand the credit to allow current home owners to receive a tax credit if they purchase a home. The housing market has shown signs of improving over the past several months in large part as a result of the tax credit for first time buyers. Over the past several months, first time home buyers have accounted for up to half of all sales.

First Time Home Buyers
There is no change for first time home buyers. They will receive a credit of 10% of the contract sales price up to a maximum of $8,000. The sales contract must be executed on or before April 30, 2010 and the sale must close on or before June 30, 2010. Both of these dates must be met – so, a sale that closes by June 30, 2010 with a contract date of May 15, 2010 is not eligible for this credit. Also, for the tax credit, a first time home buyers is someone who has not had ownership interest in a primary residence for the past 3 years. Click here for more specific information on the tax credit.

Existing Homeowners
The tax credit for existing homeowners works the same as for first time home buyers but it is limited to $6,500. An existing homeowner must have lived in their property for at least 5 consecutive years out of the past 8 years prior to the purchase of the new home. Also, only sales after November 6, 2009 are eligible for the tax credit for existing homeowners.

Income Limits
Income limits are the same for both first time home buyers and move up buyers. Buyers with a modified adjusted gross income (MAGI) of $125,000 ($225,000 for married couples) or less will get the full tax credit. The credit is phased out for MAGI between $125,000 and $145,000 ($225,000 and $245,000 for married couples) and is eliminated above $145,000 ($245,000 for married couples). To determine your MAGI, check IRS Form 5405.

Military/Service Rules
For qualified service members who serve a period of official extended duty (more than 50 miles from home for a period of 90 days or more) will have a 1 year extension – contract sale of April 30, 2011 and closing date of June 30, 2011. Also, qualified service members who sell or move from a tax credit home within three years of the initial purchase due to official extended duty are exempt from the recapture rule. Qualified service members include a member of the uniformed services of the US Military, an employee of the intelligence community, or a member of the Foreign Service of the US.

Home Seller Incentives – Buydowns Make New Home More Affordable

2009-11-02T09:29:00.001-06:00

Sellers are looking at all sorts of incentives to make their properties stand out from the competition. In this buyers’ market sellers are desperate to sell and will try a lot of incentives – many of which may make getting financing for buyers more difficult (e.g. decorating allowances, cash-back offers, etc.)

Buydowns, sometimes known as temporary buydowns, offer a great incentive to the buyers and can make their purchase of your home more affordable than other homes. A buydown offers the home buyer a lower interest rate and mortgage payment at the beginning of their mortgage – this can help buyers who are moving from an apartment to their first home or even move up buyers.

There are several types of buydowns but the most common is the 2-1-0 Buydown. For the first year of the mortgage the interest rate is “bought down” by 2% and in the second year the interest rate is “bought down” 1%. For the remainder of the mortgage the buyers will be paying the regular interest rate, or note rate.

For example, if the interest rate for a 30 year fixed mortgage is 5.0%, the buyers will pay 3.0% interest for the first year, 4.0% interest for the second year, and 5.0% for the remainder of the mortgage. The cost for a 2-1-0 buydown is typically about 2.5% - 2.75% of the mortgage amount (2.5 – 2.75 points) which the seller would pay as an incentive to the buyers to purchase their home.

If you are selling your home, speak with your lender and Realtor about offering this as an incentive to prospective buyers. If you are buying a home, keep this in mind as you make an offer and negotiate your purchase. A buydown can be a win-win situation for the buyers and sellers.

For more specifics on how buydowns work, please see “What is a Buydown?”

Fourth Consecutive Monthly Increase for Home Prices

2009-10-27T13:15:00.001-05:00

Home prices in August rose for the 4th consecutive month. According to The Standard & Poor's/Case-Shiller report home prices in 20 metropolitan areas across the country increased an average of 1.25% – well above the 0.7% increase that many economists had predicted.

Many people think that this report, along with other recent housing sales reports, indicates that the housing market may have finally found a footing after a three year slump. The housing market has been one of the main causes of the worst recession since the Great Depression. Annually, home prices are still falling, but at a slower rate. According to this report, home prices in the 20 metropolitan areas declined an average of 11.3%. "Broadly speaking, the rate of annual decline in home price values continues to improve," David Blitzer, chairman of the index committee at S&P, said in a statement.

Many people are still worried about the housing market in spite of the positive reports over the past several months. While the housing market has shown strength, it is still vulnerable to increasing unemployment and the expiration of the First Time Home Buyer Tax Credit which expires at the end of November. Some people feel that once the tax credit is no longer available, we may see a sharp reversal of these positive reports. There are several proposals in Congress to extend the tax credit in some form into 2010.

I can be reached at 708.473.7688 or BarkerLoans@gmail.com and, as always, my advice is free!

Cook County Down Payment Assistance Program

2009-10-17T13:22:00.006-05:00

The Cook County American Dream Downpayment Initiative Program (ADDI) is an interest-free 5 year forgivable loan, secured by a silent second lien. The home buyer will receive 6% of the sale price (or $10,000, whichever is greater), not to exceed $14,999, toward the down payment and closing costs of for the purchase of a home.

To qualify a homebuyer must be a first time home buyer (FTHB), meaning they have not owned a home in the past 36 months. The homebuyer must also attend a HUD-approved housing counseling course and meet the following income limits based upon the size of their family:

Property must be a single family (no multi unit), owner occupied residence. The property must remain the primary residence of the homebuyer for the entire 5 years for the ADDI loan to be forgiven. The loan is due on sale or if owner moves out before the five year period expires. The maximum sales price for ADDI is $275,200.

Home buyers do not apply directly for the program. They would apply with me for a mortgage and I would provide the documentation on behalf of the homebuyer to secure the secondary financing. The ADDI Program needs at least 40 – 45 days to process the loan request so make sure there is ample time on the sales contract to accommodate this. I highly recommend the homebuyer getting a pre-approval before signing a contract to purchase a home – it will make things move more quickly.

I can be reached at 708.473.7688 or BarkerLoans@gmail.com and, as always, my advice is free!

What is a short sale?

2009-10-15T19:33:00.005-05:00

Since I first published this article on short sales, they have become even more widespread and many of my clients have been seeking loans to purchase a "short sale." Many people are still not sure how they work, so I thought it a good idea to reprise the article this week.

With the increase in foreclosures lately you may have heard the term “short sale” and wondered what it was. A short sale is when the lender will accept less than the full amount due on a mortgage when a property is sold. Usually, the lender will accept the short sale to avoid the time and expense of a foreclosure.

When a borrower is in default on a mortgage they not only owe the back payments but also may owe late fees, property inspection fees, attorney fees, etc. This can add up quickly to eat up all the equity the borrower had in the property. If the borrower is unable to bring the account current the lender will then foreclose on the property. With a foreclosure, the lender can lose up to 40% of the mortgage amount because of the extra costs involved with foreclosing on a property: attorney fees, court costs, lost interest, eviction costs, property maintenance costs, and selling costs. Foreclosing on a property can also take up to two years in some states. Therefore, it is sometimes in the best interest of the lender to accept the short sale.

It also can be in the best interest of the borrower. They will not have to endure the time and stress of a foreclosure and their credit may not be as adversely affected as it would with a foreclosure. It is quicker and easier and does not subject the borrower to the embarrassment of a foreclosure.

How does it work?

The first thing the borrower should do when they can no longer afford a property is to contact the lender immediately. The last thing a lender wants to do is foreclose on the property. Lenders typically have departments that work with people who are behind on their payments to resolve the situation. If you cannot resolve the default with the lender, and you want to see if they will accept a short sale, they will direct you to the department that handles short sales.

The lender will usually require the borrower to submit a lot of information to the lender in order to consider the short sale. The information required may include:

Income documentation such as W-2s and pay check stubs to verify the borrowers’ income.

Bank statements to verify the borrowers’ assets

Hardship letter – this letter will describe for the lender the reasons the borrowers are in the financial position they are in and will ask the lender to accept the short sale. Borrowers should make this letter sound as sad as possible and back up the story with any documentation you may have such as medical bills, etc.

Fair market value for the property – depending on the lender they may require an appraisal or may accept an opinion from a local Realtor know as a Comparative Market Analysis (CMA).

Preliminary proceeds sheet from the sale of the property. This will show the proceeds of the sale of the property after the mortgage is paid off and all other closing costs and fees are paid. This will be negative in the case of the short sale and this negative amount is the amount of the shortage.

Listing agreement and purchase agreement when they are available.

Should Congress Extend the First Time Home Buyer Tax Credit?

2009-09-14T14:34:00.005-05:00

First-time Home Buyers (FTHB) who purchase a home before December 1, 2009 will receive a First Time Home Buyers Tax Credit (credit) of up to $8,000 when they complete their tax returns next spring. Many people are calling on Congress to extend, and even increase, this tax credit.

Over the past 6 months, most housing reports across the country have shown increasing gains in the housing market. Most reports point to this tax credit as at least one reason that the housing market seems to have bottomed and begun to rebound. These people argue that this resurgence in the housing market will end abruptly on December 1.

They point to the fact that 30% of all home sales in July were to FTHBs. Some reports show sales of FTHBs account for up to 50% of sales in some markets. What will happen to the housing market without this important incentive to lure would-be renters to purchase a home?

Richard A. Smith, CEO of Realogy, parent company to Century 21, ERA, Coldwell Banker, and Sotheby’s International Realty, says, ”The giddiness we see out there is without merit.” He believes that the housing gains are mostly attributable to these credits. Others disagree. Michelle Meyer, an economist with Barclays feels that while the credit contributed to an increase in sales, much of the increase points to a strengthening of the economy. “Even if you say some of the gain is artificial, it's still true that we're seeing an increase in housing demand, and that shows fundamental strength," she says.

Others still think the credit should be extended and expanded in size and scope. Mark M. Zandi, chief economist at Economy.com, analyzed the housing market and says that increasing the tax credit to $15,000 for all home owners (not just FTHB) through the end of next year would result in 675,000 additional home sales. Johnny Isakson, US Senator from Georgia, is behind a plan to just that.

Regardless of whether or not you think it should be extended, if you're counting on using the First Time Home Buyer Tax Credit, time is running out. The purchase must close on or before November 30, 2009 (Not December 1, 2009 as many articles I have read suggest).

Want to know more? I can be reached at 708.473.7688 or BarkerLoans@gmail.com and, as always, my advice is free!

Falling Consumer Credit May Mean Lower Mortgage Interest Rates

2009-09-11T08:38:00.009-05:00

The Federal Reserve announced that consumer credit fell by a record $21.6 billion in July – more than 5 times the projected decline of $4.0 billion. Consumer credit figures for June were revised to a decrease of $15.5 billion from the originally-reported decline of $10.3 billion.

Total consumer credit fell at a 10.4% annual rate to $2.47 Trillion. This data suggests those US households are staying away from the use of debt as unemployment and other economic factors worsen. This is the sixth consecutive monthly decrease – the first time that has happened since the last half of 1991 – and represents the largest decline since the Fed began tracking consumer credit in 1943.

So, how does this affect interest rates?

While several things can affect interest rates, most of the day-to-day fluctuations in interest rates are caused by simple supply and demand. As we have seen in the recent past, as investors demand more and more Mortgage Backed Securities (MBS) the price has increased which has an opposite affect on the interest rates. Now, with consumer credit shrinking so quickly, there is going to be a supply issue. As consumers borrower less and less, the supply of MBS and other investments go down. Lessening supply has the same affect as increasing demand – it raises the price which reduces the interest rates.

Like the Boy Scouts – Be Prepared!

As I always say about interest rates – you have to be prepared. As rates continue to fall, more and more people will be looking to take advantage of them. If you are not prepared you will miss out on this opportunity. Give me a call and we can get your mortgage application started. If rates do come down, we can lock them in as soon as possible. If rates don’t come down, we can lock them in at the near-record low rates we have seen this year. Either way, you need to prepare yourself now if you want to save money on your mortgage.

As always you can call me anytime - from any state in the U.S. - at 708.473.7688 or at email me BarkerLoans@gmail.com And remember, my advice is always free - so call!

Are Mortgage Rates Going to Go Down in September?

2009-09-01T12:02:00.005-05:00

This is the biggest question I get, and the hardest to answer. Nobody knows for certain the direction of interest rates, but here is some thing to consider when deciding whether or not to refinance your mortgage or lock in your interest rates.

Now – Mortgage Rates Are in a Tight Range

Mortgage interest rates have been in a range between 5.0% and 5.5% for most of this year. Historically, these interest rates are incredibly low. The US government has done everything they can to keep these rates as low as possible. The Fed has been aggressively purchasing Treasuries and Mortgage-Backed Securities (MBS) – as the Fed purchases these securities the demand for them increases, as does the price, which causes the yields to decrease. It seems that every time mortgage rates approach 5.5%., the government has some announcement about purchasing treasuries and MBS in order to increase demand and push the rates back down.

Anybody who is at or above 5.5% should at least take a look at refinancing to see how much money they can save. And, if you have equity in your home and carry balances on your credit cards you would be crazy not to consider paying that off to save lots of money. Now is ALSO the time to consider shortening the term of your mortgage.

Many Projecting Lower Rates over the Short Term

There are countless experts, journalists and bloggers who are predicting lower rates over the next 30 days. They point to the recent decrease of mortgage rates and increase of demand for treasuries and MBS. They also look at the rapid increase in the stock markets (The Dow closed at 9,582 on 8/28/09 up from 6,595 on 3/6/2009) and many predict a market correction (A market correction is when the stock market, while on an upward trend, goes down by 10 – 20%. Many people see this as a normal part of the stock market and feel that a correction is likely soon). If there is a market correction, the money that comes out of stocks will be put into safer investment vehicles such as treasuries and MBS – again, increasing demand and prices and decreasing rates.

If this is the case, you need to be prepared to take advantage of these rates as these interest rate drops are historically short-lived. There are a lot of people who missed out on locking their mortgage rates below 5.0% earlier this year because it lasted for such a short period of time and they were not prepared.

If you think rates are likely to decrease, give me a call and we can get the application process started. If rates do drop, we will have all of the information we need to jump on these rates as soon as they fall. If the rates drop and go up as quickly as before, the only people who will be able to take advantage of them are those with applications in process.

Later – Rates Have Only One Way to Go

Eventually, though, rates will have to increase. There is not a lot of room on the “down side” on rates. And, with the positive housing and economic news we have had lately, the government will likely reduce the amount of treasuries and MBS they purchase. With the government reducing their purchases, the demand goes down, causing prices to go down and rates to rise. Many experts are predicting the government to make an announcement at the end of September to this effect. Once that happens, rates will rise.

What should I do?

First, call me and get your application done so you ARE ready the minute rates come down and you can benefit. Then, we can talk about your situation and see what the best plan is for you. If rates come down, we will be ready to take advantage of them. If rates don’t come down, we will be ready to lock at the current low rates before rates begin to rise. Either way, the best protection you have is to have an application in process so you are ready to take advantage of the market – no matter what the market does.

For more info, any questions, or to help you get your application started today, I can be reached on my cell phone at 708.473.7688 or via e-mail at BarkerLoans@gmail.com.

New Credit Scoring Model May Help Some Borrowers’ Credit Scores

2009-08-28T10:48:00.007-05:00

FICO, formerly Fair, Isaac, & Co. and creators of the ubiquitous credit scoring system, has just released a new credit scoring model, FICO 08. Under the new system, borrowers are less likely to be penalized for one-time delinquencies than in the past. Minor collections (original balances less than $100) and one-time late payments two or more years old will no longer lower your credit scores.

Many borrowers see their credit scores hammered for a collection from a forgotten parking ticket or an uncharacteristic late payment on a credit card. The newest version of the FICO credit scoring model, which is available at all three credit bureaus (Experian, Equifax, and TransUnion), should help those who pose a low credit risk.

“There’s more flexibility with missing a payment,” said Careen Foster, director of global scoring management for FICO. “If you have a more habitual pattern of paying accounts late… you are more likely to get penalized for that.”

However, those consumers whose credit usage is high could see their credit scores drop. Many people who are near or at their credit limits, even though they may pay their bills on time, may see decreases in the credit score. Approaching your credit limit has negatively impacted your credit score with all FICO models, but with FICO 08 the impact may be greater.

FICO 08 will also deal with a practice called piggybacking, which was an attempt to misrepresent your credit history and increase your credit scores. With piggybacking, a person would pay someone who has good credit to allow them to become an authorized user on their credit accounts. By doing this, the other person's good credit would be taken into consideration in determining the credit score, thus falsely increasing their credit score. FICO 08 will determine which people are authorized users by deceptive means, but allow legitimate authorized users to be treated as they always have.

Even though FICO 08 has bee available since July, not all lenders are using the new model. Many lenders are already validating the scoring model within their own systems and some banks, credit unions, and credit card companies have begun using the new model. However, since Fannie Mae & Freddie Mac have not yet authorized use of the new model, many mortgage lenders are not yet using it. Fannie Mae & Freddie Mac are expected to approve the new model by the end of 2009.

Taking Care of Your Credit

Regardless of the scoring model used by the lenders, it is up to you to proactively take care of your credit. See my article from August 2006 about “Understanding Credit Scoring & Credit Repair” which gives tips to help maximize your credit scores and minimize the cost of your credit.

Existing Home Sales up for 4th Straight Month

2009-08-21T14:20:00.002-05:00

According to the National Association of Realtors (NAR), existing home sales increased 7.2% in July from the previous month – the first time home sales have been up for 4 consecutive months in over five years. This also marks the largest monthly increase since they began keeping track in 1999.

There have been several reports over the past 4 four months that suggest that the housing market is beginning to stabilize. Still, the amount of the increase was much higher than anticipated. And, it is the first time since November 2005 that existing home sales are higher than the previous year’s level.

The increase of home sales can be attributed to three main factors: 1) Housing prices are at their most affordable levels since 2003; 2) First-time homebuyers can receive an $8,000 tax credit for purchasing a home by November 30; and 3) mortgage rates remain at historically low levels. Lawrence Yun, NAR’s chief economist said, “The housing market has decisively turned for the better. A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales.”

Even with the good news of the last several months, we are not out of the woods. First-time homebuyers accounted for almost one out of every three home sales in July leaving many people worried about what will happen when the tax credit expires December 1st. Also, nearly one third of home sale were distressed property – short sales, foreclosures, etc. which can continue to drive home prices lower. And, unemployment is still at all time highs which can keep a lid on home sales going forward.

Home Sales in Illinois up a Whopping 61.8%!

2009-08-12T11:17:00.005-05:00

According to the Illinois Association of Realtors, home sales in Illinois grew by 61.8% in the 2nd Quarter (Q2) of 2009 from the 1st Quarter (Q1). With the combination of low interest rates, affordable home prices, first-time homebuyer tax credits and a pent-up demand, home sales increased from 17,017 homes in Q1 to 27,531 homes in Q2. These sales figure include single-family homes as wella s condominiums.

While year-over-year sales are still down (-16.4% from Q2 2008), these strong quarterly sales gains suggest that we may finally be working through the huge inventory of unsold homes on the market. The median price for homes was also up from Q1 – Q2. The median home sales price increased 9.6% from $146,000 in Q1 to $160,000 in Q2. Median sales prices are down 16.2% from $190,978 since Q2 2008.

Not only are we seeing monthly and quarterly gains in home sales and median home prices, but we are also seeing a decline in the year-over-year losses.

In the Chicago metropolitan area, which includes Cook; Will; DuPage; DeKalb; Grundy; Kane; Kendall; Lake and McHenry counties, total home sales increases 67.7% to 17,622 homes sold in Q2 from 10,507 homes in Q1. The median sales price increased 7.2% to $210,050 from $187,500. Year-over-year home sales and median home prices were down 15.4% and 19.6%, respectively.

This is another piece of great news for the housing market and the overall economy. But, there is still a long way to go. The First Time Home Buyer Tax Credit, which is responsible for some of the strength in home sales, is only good for first time homebuyers who close on their purchase on or before November 30, 2009. Many in the industry are calling on Congress to extend the FTHB Tax Credit program beyond December 1, 2009 to make sure these gains continue.

For information on home sales by county, click here.

To take advantage of the improving housing market please call me at 708.473.7688 or e-mail me at BarkerLoans@gmail.com!

Recession to End This Quarter?

2009-08-10T15:04:00.010-05:00

Most economists and economic forecasters believe the economy will exit the recession this quarter (July – September, 2009). However, many caution that this may be a lackluster recovery.

A survey of 51 economists by Blue Chip Economic Indicators indicates that two-thirds of economists predict a U-Shaped recovery, meaning that while the economy will no longer be shrinking, economic growth will be marginal, if at all. One-sixth of the economists predict a V-shaped recovery (typical after a long, deep recession) with robust growth, and the other one-sixth of economist predict a W-shaped recovery meaning another period of retraction after some growth for the last six months of 2009.

The majority of economists predict that consumer spending will remain low with very low inflation with the Consumer Price Index expected to be up 1.9% for 2010. Unemployment will continue to be a problem through 2010, with many predicting an average unemployment rate of 9.9% for 2010.

Illinois Home Buyers Can Get a Loan Against the First Time Home Buyer Tax Credit

2009-08-03T12:40:00.009-05:00

The Illinois Housing Development Authority (IHDA) has just announced a new program called Home Start. The Home Start program will offer first-time homebuyers (FTHB) a 30-Year FHA Fixed Mortgage and the option to receive a second mortgage to pay for the down payment on the home. This second mortgage would then be repaid when the buyers receive the tax credit when they file their 2009 tax returns next year. Click here for more information on the FTHB Tax Credit.

While the FTHB Tax Credit, which was created by the American Recovery and Reinvestment Act of 2009, is a great program for first time homebuyers, many people were still unable to purchase a home because they lacked the required down payment and were unable to access the tax credit until after they filed their 2009 tax returns.

On May 29, 2009 The Department of Housing and Urban Development (HUD) gave guidance to state housing boards, like IHDA, as to how they could assist these borrowers, who are eligible for the FTHB tax credit, obtain funds for the down payment, closing costs and prepaid expenses. (See my blog post on the tax credit from this past February for more info.)

The Illinois Home Start Advance Loan is a zero-interest loan for up to 3.5% (Maximum $6,000) of the purchase price of the home to be used toward the down payment of the home. In addition to this loan, the buyer must contribute a minimum of 1.0% of the sales price toward the purchase of the home. And receive homebuyer education through a HUD-Certified counselor. Other terms of the loan are:

Home purchase a mortgage loan must close prior to November 30, 2009.

A $300 application fee must be paid at closing. Tax advance loan may be used.

Tax advance loan must be repaid, in full, by June 30, 2010. If it is not repaid by then, the loan becomes a 10-year, fixed-rate, fully-amortizing loan at 0.5% about the rate on the 30-year fixed first mortgage.

Veterans and active duty service personnel do not need to be first-time home buyers to qualify.

Homebuyers interested in applying for the Illinois Home Start Loan Program should contact me today at (708) 473-7688 or BarkerLoans@gmail.com

Hurry to Take Advantage of the First Time Home Buyer Tax Credit

2009-07-31T09:41:00.005-05:00

If you are a first time homebuyer, you are entitled to a First Time Home Buyer Tax Credit as a result of the “The American Recovery and Reinvestment Act” signed into law on February 17, 2009.

In order to take advantage of this program, you must CLOSE on your purchase by November 30, 2009. That only gives you 4 months to find a home, negotiate the contract, get your mortgage approved and close on the loan.

For more information on the specifics of the program go to http://www.barkerblog.com/2009/02/first-time-homebuyer-tax-credit.html

Call (708) 473-7688 or email me today if you have questions, or need info on getting a mortgage or a refinance. Advice and answers are always free! :)

New Home Sales Surge 11% in June

2009-07-28T09:57:00.004-05:00

Sales of new homes rose more than expected in June, up 11% - the largest increase since November 2008. This is the third straight month of gains and another indication that the housing market may be rebounding.

New home sales grew to a seasonally adjusted annual rate of 384,000 homes, above expectations of 355,000 homes. These reports are subject to revisions and errors and, according to the government, it can take up to 5 months to establish a new sales trend. But, many analysts are calling this a good sign.

On economist, Richard Moody of Forward Capital warned that home sales are still at “exceptionally low levels.” And, others caution that the housing market has a long way to go, especially in the face of rising unemployment.

Inventories of new homes fell 4.1% to 281,000 which represents a supply of 8.8 months. Sales rose in the Northeast (+29.2%), Midwest (+43.1%), and West (+22.6%) while falling in the South (-5.3%).

Existing Home Sales Up in June

2009-07-27T09:12:00.003-05:00

Sale of existing homes rose 3.6% from May to June. This marks the third consecutive monthly gain and is an indication that a housing recovery may have begun across much of the country. “The housing market appears to be healing,” said Lawrence Yun, Chief Economist at the National Association of Realtor (NAR).

The NAR said that existing home sales rose to a seasonally-adjusted rate of 4.89 million homes in June, up from 4.27 million homes in May. Inventories of homes fell to 9.4 month from 9.8 months. According to Yun, inventories must be at or below 7 months to achieve price stability.

This is the highest level of sales since October 2008 and beat economist expectations. According to Thomson Reuters, sales were expected to only rise to 4.84 million homes.

Median home sale price also rose in June. Median prices were $181,800 compared to $174,700 in May. However, home prices were still down significantly from the same period last year – losing 15.4%.

These are very positive signs for the housing market and overall economy!

Illinois Property Tax Deferral Progam a Huge Plus for Senior Citizens

2009-07-07T14:38:00.002-05:00

The State of Illinois offers a program for senior citizens that allows them to defer the payment of their real estate taxes on their primary residence. The Senior Citizen Real Property Deferral program is a tax-relief program that works like a loan on the property. This program allows qualified seniors to defer all or a portion of their real estate taxes on their home and is repaid when the property is sold, transferred or refinanced.

In order to qualify, an applicant must:

Be 65 years or older by June 1 of the year that the taxes would be paid

Have an annual household income of $50,000 or less

Have owned and occupied the property (or other qualifying property) as their primary residence for the past 3 years

Not have a lien on the property for past-due taxes or special assessments.

Have adequate homeowners insurance coverage

Be 55 years old within 6 months after the death of the qualifying taxpayer’s death.

A qualified senior can defer up to 100% of their real estate taxes as long as they maintain at least 20% of the equity in the property. To calculate the equity subtract any mortgages or other liens on the property, including previously deferred real estate taxes, from the value of the property. If the remaining equity is at least 20% of the value, then they are qualified for the tax deferral.

The tax deferral program works like a mortgage because there is a lien placed on the property and interest accrues on the loan at a 6% annual rate. So, the balance of this tax deferral will increase as time goes by. This is a good program for those seniors who are house-rich and cash-poor.

I have a mortgage on my property, do I still qualify?

If you have a mortgage on your property you will still qualify (subject to the minimum equity requirements) and you will not need prior approval from your mortgage lender. It is similar to taking out a second mortgage on the property. The only exception to this is in the case of a reverse mortgage – contact your mortgage lender prior to applying for this tax deferment.

When are the deferments repaid?

You may pay these deferments off at any time. However, within 1 year of the death of the qualifying senior (unless the surviving spouse turns 55 within 6 months of death) or within 6 months of the sale, transfer, or refinance of the subject property, the deferments must be repaid.

Applications are accepted January 1 through March 1 of the year the taxes are to be paid. Applications can be obtained from the County Treasurer office beginning January 1.

Click here for a brochure with more details on this program.

May Existing-Home Sales Up Again

2009-06-25T09:14:00.000-05:00

May Existing-Home Sales Up Again

Sale of existing homes had a second straight increase in May, benefitting from low interest rates and a First Time Home Buyer Tax Credit. Sales increased by 2.4% to a seasonally-adjusted 4.77 million homes, up from 4.66 million in April.

Lawrence Yun, NAR chief economist, expected an improvement. “Historically low mortgage interest rates clearly drew buyers into the market, and housing remains very affordable even with a recent uptick in rates,” he said. “First-time buyers also are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory. However, the increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.”

Housing inventory also fell in May. Inventories were down 3.5% to 3.80 millions homes which is a 9.6 month supply, down from a 10.1 month supply in April.

This is the first time that existing home sales has had a back to back gain since September 2005. It may be too early to say that the housing market it starting to recover but this is a very positive sign.

How can I get a loan against the First-Time Homebuyer Tax Credit to use toward my Down Payment and Closing Costs?

2009-06-01T12:40:00.007-05:00

Thanks to the American Recovery and Reinvestment Act signed into law on February 17, 2009, all first time homebuyers are entitled to a tax credit of 10% of the purchase price of their new home up to $8,000. (See: FIRST-TIME HOMEBUYER TAX CREDIT)

This tax credit makes purchasing a first home more affordable to many people. However, there are still many more people that could qualify for a mortgage except for the fact that they lack the down payment. With the elimination of Down Payment Assistance Programs (See: Save Down Payment Assistance Programs!) there are a large number of would-be buyers who are still unable to buy.

On May 29, 2009, the Department of Housing and Urban Development (HUD) has provided guidance to FHA-Approved Lenders and FHA-Approved Non-Profit Organizations (as well as state, county and local governmental agencies) as to ways they can assist these home buyers who are eligible for the tax credit obtain funds for the down payment and/or closing costs and prepaid items.

Secondary Financing

FHA allows eligible governmental agencies and instrumentalities of government (Typically state housing agencies) to advance the tax credit to the home buyer in exchange for a second lien (2nd Mortgage) on the house being purchased based upon the following guidelines:

The amount of the tax credit that is advanced cannot result in the home buyer getting cash back.

The second lien may not exceed the amount of the down payment, closing costs and any prepaid expenses directly incurred by the home buyer.

The second lien must be a soft second or require monthly payments. If monthly payments are required, they must be included in the home buyers housing expense ratio.

In order for the payment on the second lien not to be added into the home buyers housing expense ratio, they must be deferred for at least 36 months.

There may not be a balloon payment due before at least 10 years.

If the second lien is for a short period of time and the home buyer defaults and does not satisfy the lien by the required due date, principal and interest payments will automatically begin or the lien will convert to a silent second.

Purchase of Tax Credit

FHA-approved lenders and non-profit organizations may purchase the tax credit anticipated by the home buyer. The home buyer may then use the proceeds of the sale of the anticipated tax credit for down payment, closing costs and pre-paid expenses only after the initial 3.5% down payment is met by the home buyers own funds. The purchase of the tax credit is subject to the following conditions:

The proceeds of the sale of the tax credit may not exceed the amount of the anticipated tax credit. Home buyers can calculate the amount of their tax credit by completing IRS Form 5405.

The borrowers must certify that the amount of the tax credit will not be offset by due to other indebtedness such as unpaid federally-insured student loans or back taxes owed to the IRS. The lender must perform their due diligence to ensure that there is no indebtedness that will affect the tax credit.

FHA-approved Lenders and Non-Profits can charge a maximum of 2.5% of the anticipated tax credit to cover the costs and expenses of the purchase of the tax credits.

The proceeds from the sale of the tax credits cannot be used to satisfy the minimum required down payment for an FHA loan. It can, however, be used toward the down payment in excess of the first 3.5%.

It is not yet clear how many FHA-Approved Lenders will participate with the purchase of the tax credits. There are already several state housing agencies that are providing the secondary financing to help the borrowers with the down payment.

133rd Edition - Carnival of Real Estate

2009-03-16T15:39:00.014-05:00

There were a lot of entries this week, and many about the Stimulus package, which was pretty well-covered in the previous two carnivals. But we also got some great entries that show a silver lining in our current times. Since good news is something we could use more of, we opted to title this week's Carnival of Real Estate: On a Positive Note

Herewith we feature some positive and hopeful advice on how to save money, find money, and feel better despite the chaos all around us.

We begin with "Are You Water-Wise?" from Ro Troia at Blog the Rockies.

Ro says "Generally, I receive tons of junk mail and end up tossing or shredding most of it. This month with my water bill was an informative pamphlet about being water-wise. I thought this would be good information to share." Let's face it, every dollar we save is one less dollar we have to earn. Which is a good way to think these days since those dollars are harder and harder to come by.

Next we have "How Can I Improve the Value of My Already New Home?" from Matthew Bossert over at House Seller's Guide. Matt gives some great tips on how to make your home worth more money, even if it's brand spanking new.

Jacqulyn Richey from Prudential Americana Group offers an informative piece on the new "First Time Homebuyer Tax Credit," which is something we all need to be well versed in for potential new customers. Now is a great time for a lot of people to buy that new home, and this knowledge is invaluable.

Barry Wolfert offers this piece about some Georgia legislation that offers tax credits beyond simply first time homebuyers here at his blog, North Atlanta Real Estate Voice. Good news for Georgians!

Ben Roberts offers a very thoughtftul piece called "Precision Without Accuracy: Why Housing Statistics can be Just Plain Wrong" at Exit Real Estate 540. Ben discusses how foreclosure numbers affect overall statistics and suggests how that can impact perception of a local market, ergo things aren't always as bad as they might look.

Finally, an interesting article from The Happy Rock called "A Simple Way to Delay Bank Foreclosure" based on a segment that appeared on Good Morning America. Basically, ask for the original note if you face foreclosure and you might buy yourself the time you need to get back on your feet, or at least ready to move forward. Not sure if this works, but it might be a single ray of sunshine for someone who needs it in these troubled times.

Get your posts in by Sunday, March 22nd for next week's issue of the "Carnival of Real Estate!"

FIRST-TIME HOMEBUYER TAX CREDIT

2009-02-25T11:06:00.000-06:00

FIRST-TIME HOMEBUYER TAX CREDIT
What you need to know!

On Tuesday, February 17 President Obama signed into law “The American Recovery and Reinvestment Act” which, among other things, gives first-time homebuyers a tax-credit for up to $8,000 if they purchase a home between January 1, 2009 and November 30, 2009. Here are several things to know about the tax credit:

1. The tax credit included in the economic stimulus package applies only to first-time homebuyers and only to their principal residences. The amount of the tax credit will be 10% of the purchase price of the home up to a maximum credit of $8,000. Unlike the 2008 first-time homebuyer tax credit, this one will not have to be repaid.

2. First-time homebuyers for the purpose of this legislation refer to someone who has not owned a principal residence for the past 3 years. This restriction does not apply to second-homes or investment property

3. This new tax credit is only available for homes purchased between January 1, 2009 and November 30, 2009 – homes purchased last year are not eligible.

4. The tax credit is subject to income limitations. Single buyers who make up to $75,000 Adjusted Gross Income (AGI) and married buyers who make up to $150,000 AGI will receive the full tax refund. For incomes above that, the tax credit will be phased out.

5. This tax credit is a refundable tax credit. That means that even those with little or no tax liability will receive the entire amount of the tax credit.

6. The tax credit includes a recapture feature. This means that the buyer has to own the property for at least 36 months in order to capitalize the tax credit. If the home is sold in less than 36 months the buyers would have to repay part or all of the tax credit. There may be exceptions in some cases included death and divorce.

$75 billion to aid distressed homeowners

2009-02-18T14:43:00.007-06:00

The White House announced today that it will use $75 billion that has already been authorized by Congress to help 'subsidize' mortgage payments for millions of people who find themselves unable to make mortgage payments.

Most of this money will go to reward banks for restructuring the loans of individuals having trouble, but some of the money will also go to homeowners who are staying current on their mortgage bills. Fannie Mae and Freddie mac will also get additional funding to acquire more loans.

“This is not a silver bullet, although I don’t think one exists,” says Mark Zandi, chief economist at Moody’s Economy.com. “This should be helpful to stem but not stop the continuing rise in foreclosures.”

Zandi estimates that $500 billion in mortgages are 'underwater' That means that the amount owed on the property is higher than the property is actually worth. Properties like that are easier to walk away from, because the homeowner realizes they are already way behind.

“Say someone bought a house for $400,000, and it’s now worth $200,000. They are just walking away from the mortgage,” says Jack McCabe of McCabe Research & Consulting in Deerfield Beach, Fla. “There is no incentive to keep making payments on houses that are continuing to decline.”

The new Homeowner Affordability and Stability Plan from the White House is designed to help responsible homeowners who are making payments on time, but cannot get refinancing because of lost home value.

In one part of the new plan, the White House wants banks to take the first step, reducing homeowners' payments to no more than 38% of their income. The government would then subsidize the monthly payment down to 31%. A fact sheet released today indicated that a family with a $200,000 income on a 30 year fixed mortgage at 6.5 percent would save about $191 a month.

We'll have to wait and see if -- and how quickly -- these new programs actually help alleviate the increasing mortgage crisis for the average homeowner. Stay tuned!

Looking for a deal? Make an offer.

2009-02-10T05:27:00.004-06:00

A recent article on Forbes.com included commentary from some of the top minds in investing and real estate, including the kind of real estate, Donald Trump.

Certainly we don't need to read an article to know the sobering truth about the current market - it's abysmal. But the offer some great advice for people looking to buy right now - MAKE AN OFFER.

Investors have long known that the best way to make money is to buy when things are on sale. The same goes for real estate. Some of my clients are looking to invest in foreclosures and short sales right now, making their investment dollar go a whole lot further than it did just a couple of years ago.

Real estate, like all things, is cyclical. When property values do rise again, and they will eventually, these savvy investors may find themselves more profitable on the properties they are buying now than on any other property.

Sellers are becoming more realistic, and some of them are simply upside-down on their property and will shed the responsibility for little to no profit - and sometimes at a loss. Which makes the advice of MAKE AN OFFER that much more important. You have no idea what someone will accept until you ask. As Donald Trump points out in the article, don't worry about hurting anyone's feelings. He advises, "Far too many people fear rejection, and they don't want to be insulting, but you would not believe what you can get by not being afraid to hear no. If you get a no you establish a low base to continue negotiations from, and it took you two seconds of time to ask, we all have that to spare."

HAPPY NEW YEAR!

2009-01-01T14:05:00.004-06:00

Wishing you and all of your loved ones a happy, healthy and prosperous New Year! If you'd like info on refinancing your current loan, or want a new mortgage to buy a new property, please give me a call at (708) 473-7688 or email me at BarkerLoans@gmail.com. I'm happy to help and, as always, I appreciate your business!

- John

Are mortgage rates going to go down to 4.5%?

2008-12-06T23:46:00.003-06:00

According to reports, the Treasury is considering a plan to reduce mortgage interest rates to 4.5%. No reports have come from the treasury directly so there are a few different scenarios that have been reported.

One of these says that the Treasury will purchase mortgage-backed securities (MBS) directly from Fannie Mae and Freddie Mac as well as mortgage backed by the FHA. By purchasing these MBS the Treasury will add liquidity to the mortgage market which will lower interest rates. The Federal Reserve (The Fed) announced a similar program last week which almost immediately lowered mortgage rates from over 6% to about 5.5%. The hope would be that this plan would increase liquidity in the market and increase demand across the economy for MBS, this lower the raising the price and lower the yield (Rate) on these MBS. The other scenario says that the Treasury will purchase mortgages directly from lenders as long as they have a rate of 4.5% on them.

Since there is no official statement from the Treasury there are no guarantees as to what, if anything, will be done. But, the markets have reacted positively to the fact that the Treasury, along with the Fed, are trying to improve environment for the mortgage and housing sectors.

I hear it would cost billions of dollars. And, I have heard that the government will make a profit. Which is true?

Since there is no actual policy these are all just guesses. If the Treasury offered mortgages at 4.5%, many people feel they will realize a profit since the Treasury can borrow funds at about 2.7%. This would give them a profit of 1.8% on this historically low rate. Other see this as a huge cost to the government to entice the lenders to offer mortgages at 4.5% when the market is currently 1% higher. Nobody can know for sure until there is an actual policy.

When can we expect these rates?

Many people feel that these rumors or “leaks” from the Treasury are an attempt to get a feel of how well or poorly a program like this would be received by the markets, Congress, the public, and the incoming Obama administration. While a lot of people think a program is in the works, the final look of that program is anyone’s guess right now.

I was going to refinance at 5.5%. Should I wait for these lower rates?

You know what they say about "a bird in the hand" . . . If a refinance at 5.5% make sense to you – do it. This program may never materialize. And, while you wait, you are not only spending more money with every payment you make, but rates would also rise to a point where refinancing is no longer a good option. There have been at least three opportunities in 2008 to refinance at rates below 6% and I have many customers that waited too long to make the decision. They have spent thousands more this year than they would have if they had refinanced. Many of them have already applied and locked their rate and are taking the sure bet. But, I still have a few customers that intend to wait for the 4.5% rate to materialize. All I can say to these customers is, “Good luck!”

The Federal Reserve will purchase $600 Billion in Mortgage-Related Assets

2008-11-28T11:44:00.002-06:00

In another attempt to help the financial crisis, the Federal Reserve (The Fed) announced that it will purchase $100 Billion in direct obligations from Fannie Mae and Freddie Mac and also purchase $500 Billion in mortgage-backed securities (MBS) from the mortgage giants.

By purchasing these mortgage assets the Fed is attempting to lower interest rates and increase the availability of mortgage lending throughout the country. By purchasing these assets, the Fed will increase liquidity in the markets. By increasing the liquidity it will drive the price of these assets higher and lower their yield (rate).

After the Fed’s announcement, interest rates immediately decreased. And, mortgage applications have skyrocketed in the couple days since the announcement. So far, most of the increase in mortgage applications is due to refinancing but the hope is that mortgages for home purchases will increase as well which should stabilize and increase home values.

The Fed also announced similar plans aimed at unfreezing consumer credit markets such as those for credit cards, auto loans, and student loans.

New FHA Loan Limits for 2009

2008-11-12T23:07:00.004-06:00

The Housing and Economic Recovery Act of 2008, approved in July 2008, based the new FHA loan limits on the Fannie Mae and Freddie Mac loan limits that were set by the FHFA last week (See: Fannie Mae & Freddie Mac Loan Limits to remain at $417,000 for 2009). The FHA loan limits are 115% of the applicable Fannie Mae and Freddie Mac loan limits except for low-cost and high-cost areas which will be limited to the floor and ceiling limits as described below.

FHA Floor Loan Limits
The “floor” FHA loan limits are the lowest limits throughout the country. The floor FHA loan limits are set at 65% of the Fannie Mae & Freddie Mac loan limits and apply to areas where the 115% of the median home price is at or below this level. These floor limits are:

1 Unit $271,050

2 Unit $347,000

3 Unit $419,400

4 Unit $521,250

FHA Ceiling Limits
In high-cost areas, the FHA “ceiling” loan limits are set at 150% of the Fannie Mae & Freddie Mac loan limits and apply to areas where the 115% of the median home price is at or above this level. The ceiling limits are:

1 Unit $625,500

2 Unit $800,775

3 Unit $967,950

4 Unit $1,202,925

There are further special exceptions that apply to Alaska, Hawaii, Guam and the US Virgin Islands due to the high cost of construction in those areas. Limits in these are are 150% of the ceiling limits above. You can a list of the high-cost areas and areas with special exceptions at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-36mla1.xls.

FHA Loan Limits for the Chicago Metropolitan Area
Effective with all loans approved after December 31, 2008, there will be new, and in most cases lower, loan limits for FHA Loans. For the Chicago MSA, the new limits are as follows:

1 Unit $365,700

2 Unit $468,150

3 Unit $565,900

4 Unit $703,250

These limits for the Chicago MSA include the counties of Cook, De Kalb, Du Page, Grundy, Kane, Kendall, Lake, Mc Henry & Will.

Adjacent counties in Indiana and Wisconsin will all have the same FHA loan limits as well. These include the county of Kenosha in Wisconsin and the counties of Jasper, Lake, Newton and Porter in Indiana. Need more info? Send me an email or give me a call!

Fannie Mae & Freddie Mac Loan Limits to remain at $417,000 for 2009.

2008-11-08T10:42:00.005-06:00

The Federal Housing Finance Agency (FHFA), has stated that the maximum loan limits for Fannie Mae and Freddie Mac will remain at $417,000 for 2009 for most of the United States. However, some higher-cost counties and areas may have higher limits.

Under the Housing and Economic recovery Act of 2008, the national conforming loan limits for the country are determined by changes to the average home sales prices over the previous year – however, they may not go down because of falling home prices. So, even though home prices have fallen in 2008, the loan limits will remain the same.

Loan limits across the country will be as follows:

1 Unit $417,000

2 Unit $533,850

3 Unit $645,300

4 Unit 801,950

To see the Fannie Mae and Freddie Mac loan limits, by county, go to: 2009 Loan Limits for All Counties (XLS format).

For a list of the high-cost areas got to: 2009 High-Cost Area Loan Limits (PDF)

Protecting Your Credit

2008-11-03T09:57:00.007-06:00

Many customers are asking me how they can protect their credit ratings to ensure they will be able to get good rates when and if they decide to refinance in the future, or need to take out an equity loan in the future.

One of the best things you can do is to live within your means. This means not running up credit cards debts, and putting off unnecessary purchases until you have the funds to make the purchase. Yes, this is an old-fashioned way of thinking, but one that makes a lot of sense. It can also help you better manage your money, and keep your credit rating intact.

My mother used to save money in envelopes in her drawer - one envelope for Christmas gifts, one for this, one for that. Everytime she got paid, she put a few dollars into each envelope until she had enough money to make the purchases.

With the holidays approaching, many people are getting ready for all of the gift purchasing they want to do. So how you do you get through the holidays without running up debt? Well, some stores, like Kmart, offer Layaway so you can pick out all of your holiday gifts while they're in stock and available, and then pay for them every two weeks until Christmas. Layaway is certainly an old idea whose time has come back. No credit card debt, and no interest paid out.

Make your payments on time. This is so important. Don't let yourself fall into bad habits of making late payments.

If you're having trouble making payments, call the creditor immediately. Don't wait or them to call you because you're late. Most banks, credit cards and mortgage companies want to work with you to make sure they get their money, so talk to them the minute you think you can't make a payment. And don't be afraid to call again and again if things don't get better. Let them know and ask them to help you. You'll be surprised how willing they are to help.

Don't cancel unused credit cards. Your credit rating is a complicated equation, but one aspect of it is the amount of open credit you have available.

These few tips can help you protect your credit rating, and keep you financially safer. And remember, you can get a free copy of your credit report every year, so make sure to get yours and check it for accuracy!

Treasury Makes Changes to TARP

2008-10-20T22:18:00.002-05:00

On October 14, 2008, Treasury Secretary Paulson announced that the Treasury will purchase equity stakes in nine top American banks using the first $250 Billion that has been allocated to the TARP Program (See What is the TARP? And, why does it cost $700 Billion?) The nine banks agreeing to these investments by the Treasury are: Goldman Sachs, Morgan Stanley, JP Morgan Chase, Bank of America (including Merill Lynch), Citigroup, Wells Fargo, Bank of New York Mellon, and State Street Corp. These banks represent the most financially stable banks in the country as determined by the Treasury.

Why are they buying equity stakes in the banks instead of purchasing the troubled assets of the banks?

The econmic crisis has affected thebanking industry so adversely that many people have lost faith in the banks. In order to protect the banks, and restore confidence in the banking system, the government felt it had to make an equity investment in these banks.

The Bush adminstration is greatly conflicted by this decision. President Bush said that this sort of intervention (not seen in this country since the great depression) was “not intended to take over the free market but to preserve it.” Treasury Secretary Henry Paulson added, “We regret having to take these actions. Today’s actions are not what we ever wanted to do — but today’s actions are what we must do to restore confidence to our financial system.”

At a news conference President Bush said, “I’m sure there are some of my friends out there saying, I thought this guy was a market guy; what happened to him? Well, my first instinct wasn’t to lay out a huge government plan. My first instinct was to let the market work until I realized, upon being briefed by the experts, of how significant this problem became.” Paulson added, “Government owning a stake in any private U.S. company is objectionable to most Americans — me included. Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”

The Treasury will also invest on other banks besides the original nine banks mentioned above. These banks will apply to the Treasury and will be picked based on a ratings system that will determine the strength and viability of these banks. The strongest and most viable banks will be the most likely recipients of these investments and weaker banks will be least likely. This may lead to these stronger banks purchasing the weaker banks which will also help the banking system by reducing the number of potential bank failures.

The Treasury has invested $125 Billion in the first nine banks listed above and will use the remaining $125 Billion to invest in the other banks.

Treasury Secretary Paulson believes the government will profit

On October 20, 2008, Paulson said, “This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything, This program is designed to attract broad participation by healthy institutions and to do so in a way that attracts private capital to them as well.”

Paulson added that this program was designed to increase the investors’ confidence in these banks and will also increase the confidence of the banks to start lending their money instead of hoarding it for reserves. This boost in investor confidence and increase in lending will increase the value of the banks and the equity stake help by the government.

What is the TARP? And, why does it cost $700 Billion?

2008-10-04T09:37:00.003-05:00

The TARP is the Troubled Asset Relief Program which is part of the Emergency Economic Stabilization Act of 2008 which was signed into law last week. These are genereally what people are talking about when they refer to “the bailout plan.”

I have spoken to so many people that are confused by the purpose of the program, what it means to the overall economy, and how the heck we can afford this. I am going to try to give a plain-English explanation to the plan the best I can. Here are the main pats of the plan:

1) $700 Billion Bailout – not really, though

The first thing that confuses most people is that most people are referring to it as a bailout. The term bailout conjures up visions of the Treasury opening up its piggy bank and giving $700 Billion to banks and Wall Street firms to make up for their poor business plans. This is not what is happening

The government is going to purchase assets that are already existing and currently being held by the banks. These assets, mostly mortgage-backed securities (MBS), will be purchased at greatly depressed prices. By owning these MBS, the government will be entitled to the payments being made on these mortgages. So, almost immediately, the government will realize cash inflows as the borrowers make their mortgage payments.

Also, since these assets are illiquid (there is no market to buy and sell these assets so there values have fallen) the government will be buying these assets at greatly depressed values. As the market corrects itself, these assets should increase in value. The government then can sell these assets at a profit.

The purpose of this part of the program is to get these illiquid assets off the balance sheets of the banks in order to free up capital (money) for the banks to use to increse their lending. Also, by purchasing these assets the government will be creating a market for these assets to be bought and sold. As the market is created, and there is more demand for these assets, the value of these assets will increase.

Warren Buffet, the world’s second wealthiest man and one of the most respected investors in the world made a comment that he wished he had the money to do this kind of program himself. He sees a huge potential profit for the government.

2) The government will get equity stakes in the companies that take part in this plan.

In order to further protect the taxpayer, the banks that participate in the program will be required to give the government warrants. These warrants will give the government the right to purchase shares of the company at a certain price at some time in the future. So, as these banks free up capital and are able to operate normally again their values should increase giving the government a potential to make a profit on these warrants.

3) Foreclosure avoidance and homeowner assitance

For the mortgages that are involved in the assets that are aquired by the government, the Treasury department will be required to implement as plan to increase the assistance to the homeowners and to encourage the servicers of these mortgages (the companies that actually collect the monthly payments) to take advantage of the HOPE for Homeowners Program or other programs to minimize foreclosures. Also, the Treasury can offer guarantees or other inducements for the mortgage servicers to modify the terms of the mortgages.

4) Limits on executive compensation

If the Treasury purchases any assets directly from a company, or if they take an equity stake or debt position in the company, the company is restricted from offering compensation incentives that wil encourage their executives from taking risks. The companies are also restricted from making “Golden Parachute” payments to a senior executive and, the companies are given “clawback” premission whereby they can take back any bonuses or incentive pay that has been paid to an executive if it is later found out that the reason for these payments is not true. (e.g. the income or profit of the company turns out to be less than originally thought).

5) FDIC insurance increase

The Federal Deposit Insurance Corporation will increase the amount of deposit insurance from $100,000 to $250,000 through the end of 2009.

Hopefully, this programs helps the credit crunch and mortgage crisis and gets the banks lending again. This is a very important step to helping the housing crisis and the overall health of the economy.

Will mortgage rates rise or fall?

2008-09-28T17:36:00.005-05:00

It depends.

Since the proposed bailout of Wall Street was announced over a week ago, I've been inundated by calls with people wanting to refinance because they heard mortgage rates would be falling. Every news cast reported that this move would free the mortgage markets and rates would fall. And, they did – but for a short period of time.

After the government took over Fannie Mae & Freddie Mac, mortgage rates did come down. In fact, across the country mortgage interest rates for a 30 year fixed rate mortgage fell (on average) between .25% and .50%. And, on the Monday after the Secretary of the Treasury, Henry Paulson, announced his plan to purchase about $700 Billion in mortgages, rates fell even further.

So, I guess they were right – rates are better and everyone can refinance, right?

Well, back in March 2008, I wrote the article, “Is now a good time to buy?” which gave three reasons why it was a good time to purchase a home. The third reason I gave really applies here. Nobody can predict the future, and underwriting guidlines have become much tighter, and loan-level price adjustments (LLPAs) have increased. All of these mean that when you find a rate that works for you, lock it. Only a few of the people who called me last week actually locked their rates. Many of them were hoping rates would fall even more. Many of them did not qualify for the best available rates due to the stricter underwriting guidelines and LLPAs (See ”Credit Score Affects Interest Rates Even More”) for more information).

Since then, the markets have been on a roller coaster, and interest rates have gone back up, but are still at historically low levels. So, rates did fall but, as happens all too often, many people got greedy and waited too long to get the lowest possible rates. And, others were not eligible for these rock-bottom rates due to their credit scores and loan to value.

So John, how can we keep up with the changing rates and get the best-possible deal?

Here is my advice: Give me a call ay (708) 473-7688 so we can discuss your specific situation. We can determine what's the best possible plan for you and your family. We can determine if now is the right time to refinance for you... or not. If not, we can develop a plan and set a target interest rate that would make sense at which to refinance. In the meantime, we can work to make sure you are in the best possible position to take advantage of the best available rates when they ARE available. Give me a call – there's no obligation – EVER!

Beware of Foreclosure Scams

2008-09-23T10:29:00.006-05:00

With so many people out there unable to make their mortgage payments and fearing foreclosure, scam artists abound. They prey on your fears and use public information to find people who are vulnerable.

While many competent companies exist to help those facing foreclosure, many scam companies exist as well. This video from FreddieMac gives a quick overview of what to watch for.

If you're worried about making your mortgage payments, call your lender immediately and try to work out an arrangement. Most lenders will offer you special payment options, or even forbearance options that allow you to move missed payments to the end of your loan.

You can also speak to your mortgage broker about refinancing your existing loan. Rates are pretty low right now and many of my customers are looking to take advantage of these low rates to prevent any future problems by lowering their payments today.

Whatever you do, don't let yourself become a victim. Get information from trusted professionals and be wary of people using public information and scare tactics to coax you into signing any agreement. And as always, consult your attorney with any questions about any contract you sign.

ACT NOW to Help the Housing Market

2008-09-18T10:15:00.003-05:00

When most people talk about first time home buyer programs or home buyer assistance programs they are almost always talking about Down Payment Assistance Programs (DPAs). DPAs have been around for over a decade and have helped hundreds of thousands of families purchase a home who would have otherwise not been able to. For more specifics on how these programs work please see my blog article “Down Payment Assistance Programs.”

On July 30, 2008 the Housing and Economic Recovery Act of 2008 has banned these programs effective October 1, 2008. At a time when the government should be doing everything they can to help qualified homebuyers purchase a home, they are taking away a valuable tool in helping these people aford a home. The down payment is the last obstacle for many families who are otherwise qualfied to purchase a home and responsibly make their mortgage payments. Instead of reforming the use of the programs and creating rules to make them less risky, Cogress decided to ban them all together.

This is going to have a huge adverse effect on the housing market. By some estimates, as many as 40% of all FHA home buyers use DPAs for their down payment. By taking this huge group of homebuyers out of the market, Congress may make the housing crisis even worse or, at least, make it last even longer.

Whether or not you are in the market to buy or sell a home or not, this issue should concern you. If you watch the news or read a newspaper, you hear about the huge financial institutions that seem to be failing every week – Fannie Mae, Freddie Mac, Bear Stearns, Lehman Brothers – the list seems to go on and on. In almost all of the news reports, these companies failures can be at least indirectly attributed to the housing crisis. In order to get the economy back on track, the housing market has to come back.

YOU CAN HELP!

We all need to make our voices heard to our Congressmen and Senators that we believe that the housing market is way too important to the overall health of the economy to elimate this huge group of homebuyers from the market. We need to let them know that we are all in favor of the responsible use of these programs and the implementation of rules to make these programs safer for FHA and the US economy. But we must let them know that we definitely support the continuation of these programs.

Please go to http://rallyforhomeownership.org/ for more information and an easy way to contact your Congressman and Senator. Time is almost up and we cannot afford to wait until the pool of potential home buyers shrinks before we act.

U.S. Government takes over Fannie Mae & Freddie Mac

2008-09-07T23:12:00.004-05:00

Today, the US Treasury took control of home mortgage giants Fannie Mae & Freddie Mac. This is the latest fallout from the ongoing housing and mortgage crisis facing the nation and slowing the economy. According to Henry Paulson, US Secretary of the Treasury, it was a necessary step to keep these companies from failing and stabilizing the beleaguered secondary mortgage market.

Under this government takeover, the companies will be run by the government and their CEOs will be replaced Monday. They will be placed under conservatorship – which means they will run as independent companies under the supervision of the Federal Home Finance Agency (FHFA).

James Lockhart, the head of the FHFA, said, “As house prices, earnings and capital have continued to deteriorate, Fannie and Freddie's ability to fulfill their mission has deteriorated. In particular, the capacity of their capital to absorb further losses while supporting new business activity is in doubt.”

In addition, an audit of Fannie Mae & Freddie Mac conducted by Morgan Stanley was ordered by Paulson. Apparently, this audit has revealed very troubling information that led Paulson to believe that this was the only option to save these companies and prevent and even larger crisis in the national and global credit markets. Paulson characterized this action as a “time out” that should help these companies to stabilize.

Parts of the plan call for Fannie Mae & Freddie Mac to actually increase their mortgage holdings in the short term to help further stabilize the mortgage and housing markets. In the long term, though, they will have to reduce their holdings in order to minimize future risk for the companies. Congress will ultimately have to decide the future of these companies.

Federal Reserve Chairman Ben Bernanke said that he fully supported the government takeover. "These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets," Bernanke said.

Although this all seems like horrible news for the mortgage and housing markets (as well as the broader economy) there are some positives to this move. First, this prevents the failure of the mortgage giants and possible the entire mortgage system as we know it. Second, with the government guaranteeing the debt of Fannie and Freddie, many people believe we could actually see rates go down and mortgage become easier to get. Bother of these could help to end the housing crisis and downward spiraling home values across the nation.

We will learn more as the markets open Monday and I will provide updates as I learn more.

Save Down Payment Assistance Programs!

2008-09-05T23:15:00.002-05:00

One of the negative provisions of the Housing and Economic Recovery Act of 2008 is the elimination of seller-funded down payment assistance programs (DPAs) effective October 1, 2008. DPAs have helped hundreds of thousands of families purchase a home by providing for a gift for the down payment. Studies suggest that tens of thousands of families who are otherwise qualified for a mortgage are unable to purchase a home due to being unable to save for a downpayment. For more information on DPAs, please see my post, Down Payment Assistance Programs posted on February 16, 2007.

Help Support HR 6694

Al Green (D-TX) – along with Gary Miller (R-CA), Maxine Waters (D-CA), and Christopher Shays (R-CT) – have presented a law that will save DPAs and at the same time reforming them to make them less risky. The reason for the elimination of DPAs is that FHA mortgages that utitlize DPAs for downpayments have a higher default rate than FHA mortgages withouts DPAs. However, by eliminating DPAs altogether, the government will prevent thousands of people from purchaing a home that are qualified for a mortgage except for the downpayment.

HR 6694 not only saves DPAs, it also reforms them to lessen the riskiness of these loans. It establishes minimum credit scores to make sure the borrowers are credit-worthy, and eliminates the moratorium on risk-based premiums for FHA loans to enable increased premiums for FHA mortgages with DPAs.

These changes to the Housing and Economic Recovery Act of 2008 will help reduce the number of defaults and foreclosures without further hurting housing sales which are affecting all areas of the US economy.

What can we do?

For the next 5 weeks, Congress is out of session. This means they are much more acceissble at their local offices to the people who they serve. Please pick up the phone, write a letter, or send an e-mail to your Congressmen and Senators to support HR 6694. Senators have been more negative on DPAs in the past so we really need to work on contacting them.

Here are links to two websites that make contacting your Congressman easy:
http://rallyforhomeownership.org/ and http://capwiz.com/nehemia/issues/alert/?alertid=11709431. These sites provide information on the act as well as talking points to use when contacting your Senators and Representatives. They will also help you find and contact your Congressmen.

Act today before we see housing sales decrease further.

Are you insured? Are you sure?

2008-08-20T10:46:00.007-05:00

Insurance isn’t only a requirement for your mortgage, it’s also a necessity for life. We never know when a mishap or accident will occur in our lives or our homes, and it only takes one event to devastate a family both financially and emotionally.

For many people, homeowners insurance is handled through an escrow account on their mortgage, and their health and life insurance is handled through their employer. But if you are one of the millions of Americans who have to find insurance on your own – the process can be daunting.

Certainly many people turn to the internet for more information and even quotes on insurance, but even then – where do you begin?

The folks over at InsuranceSpecialists.com have a website that helps give you quotes on a number of different types of insurance all with one easy-to-use form. They also have a great library of articles on insurance that can help you learn more about a lot of topics, including new choices in health care, how rates differ for auto purchase versus auto leasing, and how your credit score can affect your insurance premium.

If you’re looking for an online homeowners insurance quote – a few clicks can help you get a number of quotes from different insurance companies. With no obligation, of course.

Life insurance, health insurance, auto insurance, and home insurance are available as single products or combined quotes - you can even see the difference between buying each component separately, or bundling them under one policy.

If you don’t need insurance right now – you should still take a peek at the library of articles to learn more and make sure you understand everything you need to understand to make informed insurance decisions.

A few quick words from the folks over at InsuranceSpecialists.com:

“InsuranceSpecialists.com is not an actual insurance company. Instead, it is a repository of news and information about insurance practices and requirements that also has an online quote generation system. You can fill out a form, submit it securely, and receive a quote from one insurance company or multiple quotes so you can compare options. You can even specify the number of free quotes you receive. Your information is protected, and never sold, and there is no commitment to buy if you don't like the information you receive.”

Bottom line – insurance is a necessity. Don’t wait until you need it to get it. Spend some time to do the research to make sure you have a plan you can afford, and that most of all, you’re properly covered.

Is there any help for the mortgage crisis?

2008-08-01T14:34:00.003-05:00

Housing and Economic Recovery Act of 2008

On July 30, 2008 President Bush signed the Housing and Economic Recovery Act of 2008 into law. This law is intended to modernize and strengthen the regulation of Fannie Mae and Freddie Mac and the Federal Home Loan Banks, the housing Government Sponsored Entities (GSE). It also expands the mission of Fannie Mae and Freddie Mac and creates a new FHA programs designed to help at least 400,000 families save their homes from foreclosure.

Here are some of the highlights of this new legislation:

GSE Reform
This legislation establishes a new “world class” regulator for the housing GSEs. The new regulator will have broad authority making it equivalent to other federal financial regulators to ensure the safe and sound operations of the GSEs.

It also creates permanent conforming loan limits up to $417,000 or 115% of the local median home price, capped at $625,500. These loan limits will not go into affect until after the expiration of the temporary limits established by the Economic Stimulus limits (See FHA Announces New Temporary Loan Limits) on December 31, 2008.
FHA Reform
The law creates a permanent FHA loan limit of $271,050 or 115% of the local median home price, capped at $625,500. These loan limits will not go into affect until after the expiration of the temporary limits established by the Economic Stimulus limits (See Fannie Mae & Freddie Mac Announce New, Temporary Loan Limits) on December 31, 2008.

Also, the down payment requirement for FHA purchase transactions will increase from 3% to 3.5%. And, there is now a moratorium on risk-based pricing of FHA loans beginning October 1, 2008 for a period of 12 months.

Lastly, seller funded down payment assistance programs such as the Nehemiah Program will be terminated October 1, 2008.
First-Time Homebuyer Tax Credit
The law establishes an incentive for first-time homebuyers (FTHB) to purchase a home. FTHBs can receive a tax credit up to 10% of the purchase price of a home up to $7,500 subject to certain income limitations ($75K AGI for single and $150,000 AGI for joint). This tax credit must be repaid over a 15 year term at a rate of 6.67% of the tax credit amount. If a home is sold before 15 years the remainder of the tax credit will be recaptured at closing. It is essentially an interest-free loan for 15 years.
Hope for Homeowners Mortgage
This is a refinance program that will help up to 400,000 families prevent losing their homes to foreclosure. Up to $300 Billion will be allowed for this program. This program is effective October 1, 2008 and ends September 20, 2011 or when the $300 Billion has been reached – whichever occurs first.

To qualify for this program the mortgage must have been originated prior to January 1, 2008 and the borrower’s housing expense ratio (Monthly mortgage payment divided by monthly gross income) must be greater than 31% as of March 1, 2008.

The current lenders would need to be willing to write down any existing mortgages on the property to 85% of the new fair market value (FMV) and the borrowers will get a new 30 year fixed rate mortgage up to 90% of the new FMV of the property. Also, there are limitations on the ability for borrowers to add a second mortgage to the property for the first five years of the new mortgage.

The borrower must also agree to share any equity and appreciation in the property if they sell the or refinance the mortgage within the first 5 years or if they sell the property after 5 years based upon this sliding scale:

At first glance, many people would think this is a horrible deal for the borrower. Remember, though, that this program is helping prevent people from losing their homes to foreclosure. If their property is foreclosed, they lose all equity and may still owe money after they lose their home. And, by insuring these loans through the FHA program, the government is taking on risk by guaranteeing mortgage to borrowers who are already behind on their mortgages.

The best strategy, in my opinion, would be to keep the loan for as short a time as possible. As soon as the borrower is in a financially stable position, they should refinance the mortgage to keep any future appreciation for themselves.

For more information about your current loan or financial situation, send me an email or call me at (708) 473-7688.

FHA Mortgages to Implement Risk-Based Mortgage Insurance Premiums

2008-07-13T13:49:00.002-05:00

FHA Mortgages to Implement Risk-Based Mortgage Insurance Premiums

Effective July 14, 2008, FHA will implement risk-based mortgage insurance premiums for all one- to four-unit properties. These new premiums will be based upon the borrower’s credit scores and the Loan to Value (LTV) ratio. The chart below illustrates the new premiums:

All of the premiums are expressed in basis points (bps), or 1/100th of a percent (0.01%). So, for a borrower with a credit score of 620 and an LTV of 97%, the Up-front Mortgage Insurance Premium (UFMIP) will be 1.75% (175 bps) and the annual Mortgage Insurance Premium (MIP) will be 0.55% (55 bps). To see how this differs from the previous system, let’s look at a property with a sales price of $100,000.

HUD’s move to risk-based premiums is a result of the housing and mortgage market troubles that we are experiencing. The risk-based premiums are designed to allow more people to be able to purchase a home and refinance their mortgages and help the FHA program deal with the potential for higher defaults. According to HUD Release Notes (HUD No. 07-123):
The risk-based insurance premium structure will further expand FHA's reach to additional underserved borrowers, particularly minorities and first-time homebuyers who have been disproportionately lured into exotic mortgages, and enhance the FHA's overall risk management. The move to risk-based premiums ensures that FHA remains on solid financial footing as a self-financed agency for the long-term.

This is a great idea to expand the FHA to help those who are able to afford their homes but are in mortgages that are not suitable for their financial situation. It should help more people avoid foreclosure and help to solve the current crisis in the housing and mortgage markets.

Doesn’t this just add more risk for the taxpayer? Won’t this cost the taxpayers more money to bail these people out their mortgage they cannot afford?

No! First, this is not a bailout of borrowers. The borrowers will still have to meet the income, asset, and credit requirements of the FHA program and the value of their property will still have to be sufficient to support the mortgage amount.

There is virtually no sub-prime mortgage market left these days. FHA has always provided mortgage financing to those borrowers who have had small down payments; little to no credit histories; and less than perfect credit purchase and refinance their homes. In fact, FHA loans are sometimes called the original sub-prime loans (See FHA Mortgages to Become More Popular). But, as the sub-prime market has grown, and FHA has become less popular, many people who would have otherwise qualified for an FHA loan have been steered toward less affordable and more risky sub-prime mortgages. This program just gives more people the option of FHA mortgages. And, with the risk-based premiums, people with worse credit and/or higher LTVs will pay more since their loans are riskier – the same way people with worse driving records pay more for auto insurance.

And, most people do not realize that the FHA program costs the taxpayer nothing. It is one of the only (And possible the only) federal program that does not use one single dollar of taxpayer money. It is completely self-sufficient and is funded completely by the UFMIP and MIP payments made by the borrowers with FHA loans. These premiums have been sufficient to cover the entire cost of the program.

Someone told me that the FHA program can help reduce the United States debt – is this true?

Yes! In fact, there have been many years where the FHA program has had a surplus of funds. By law, any “profit” made by the FHA program must go directly to pay down the national debt. So, not only does the FHA program not cost the taxpayer money, it actually helps the taxpayer by helping to reduce the amount of the national debt.

What is Illinois SB 1167?

2008-07-01T20:53:00.000-05:00

After the failure of IL HB 4050 (See: How will Illinois HB 4050 affect you?) the Illinois General Assembly went to work to revamp the law and revise some of its rules. The result of this was IL SB1167 also known as the Anti Predatory Lending Database Program.

For all applications dated July 1, 2008 or later lenders will have to enter all borrower(s) pertinent information along with information on the mortgage applied for into a database with the State of Illinois. Depending on the information entered, the borrower(s) may have to attend counseling paid for by the mortgage company and provided by housing counselors approved by the State of Illinois.

How do we know if we need to go to counseling?

Counseling will be required on a purchase transaction only if the borrowers are first-time home buyers and the mortgage applied for contains one or more of the following:

1) The loan permits interest-only payments
2) The loan may result in negative-amortization
3) The total points and fees payable by the borrower at or before closing will exceed 5%
4) The loan includes a prepayment penalty
5) The loan is an adjustable rate mortgage which allows adjustments of the interest rate in the first three years.

Counseling will be required for all refinance transactions that contain one or more of the above-mentioned features.

Investment properties are exempt from this law as are reverse mortgage transactions.

This sounds like a good idea, why are so many people against it?

Most of us in the mortgage industry agree that the intentions of the law are good – make sure people understand the mortgages they are getting and are able to afford them. However, as often happens when the government gets involved, they are going about it the wrong way.

The first try at this law was a disaster. In fact, the University of Illinois studies this law and the impact it had on the affected neighborhoods. In December 2006 a report from the University of Illinois reported that the law was not achieving its goals. It showed that the neighborhoods in which the law was active were negatively impacted. The home sales in the affected zip codes declined by over 50% while other similar zip codes not affected by the law only saw a decline in home sales of 20% in the same time period. It also went on to say, in addition to other things, that the law does not offer borrower’s additional consumer protection. You can read the report in its entirety at http://www.sal.uiuc.edu/sparc/research/workingpapers/pdf/bates_vanzandt_revised_0131.pdf.

If I meet the criteria listed above, will I be subject to counseling regardless of the lender I choose?

No. The only lenders that are covered by this law are those mortgage lenders and brokers who are subject to the licensing requirements of the State of Illinois. This excludes Federally-chartered banks and their respective subsidiaries. As a subsidiary of a federally-chartered bank, WestAmerica Mortgage is exempt from this law.

"Marketopoly" gives needed information and advice to real estate investors

2008-06-16T09:52:00.010-05:00

Hidden across the United States, scattered among hundreds of cities, are real estate markets that are still quietly appreciating and investment properties that are still consistently producing thousands of dollars of annual income for their owners.

Contrary to the headlines and the "experts," there is no "national" real estate market. From the condo high-rises in Miami to the McMansions in the sleepy suburbs of Minneapolis, all real estate is local. There are hundreds of real estate markets, and each of these markets has opportunities concealed within them.

Marketopoly reveals not only how to quickly and accurately identify these unseen investment opportunities and have them unfold before you, but also how to capitalize on them.

Marketopoly has the information that real estate investors need in times of change. Investment real estate will never look the same.

In a nut shell, the book details how to quantify local market conditions and trends as well as investment properties for buying and holding real estate. It is a common sense yet all too uncommon approach to predictable and profitable real estate investing.

Fannie Mae Withdraws Declining Market Policy

2008-05-16T13:03:00.000-05:00

Fannie Mae withdrew its declining market policy today and went back to their uniform down payment requirements. This should go a long way to making mortgages more affordable and accessible to more people and help to stabilize the mortgage credit markets.

Fannie Mae had initiated the declining markets policy in January 2008 due to the falling property values across the country. To try and stem the tide of foreclosures and short sales Fannie Mae required larger down payments for properties deemed to be in a “declining market.” (See Declining Market Areas)

This was the kiss of death for many transactions and made mortgages less affordable – thereby worsening an already bad mortgage market. By reverting to their previous policy, Fannie Mae will allow people to make the minimum allowable down payment per the programs guidelines regardless of the market the property is in.

However, many lenders are not as quick to change their policies. Many lenders are not automatically changing their declining market policies in line with Fannie Mae. Over time, most or all of the lenders will fall in line with Fannie Mae’s requirements but, for the time being, down payments requirements may vary from lender to lender.

Declining Market Areas

2008-04-26T13:42:00.000-05:00

What is a declining market area?

If you are in the market for a new home, or refinancing your current mortgage, you may have run into this term with your lender.

Fannie Mae has issued new guidelines for properties that are in declining market areas – that is, areas where the value of homes is dropping. With the current credit crisis and the slowdown in the real estate market, many areas across the nation are seeing property values fall for the first time in a long time.

If your property is in a declining market, the maximum loan to value ratio (mortgage amount divided by the value) is decreased by 5%. So, if you are purchasing a home and the maximum LTV for the program is 95%, you must now have a down payment of 10% instead of only 5%.

There are two ways that your property can be listed in a declining market area. First, Fannie Mae is maintaining a database of areas that it designates as declining market areas. If this is the case, your lender will receive a message when they run your loan through automated underwriting that your property may be in a declining market area. Second, since all real estate markets are local, your appraiser may report on the appraisal that the property is in a declining market area. Either way, the 5% reduction in maximum LTV is required.

As far as an accurate value goes for properties in these areas, many lenders are adding appraisal requirements to make sure the property is worth the value listed on the appraisal. The lender may require additional comparable closed sale to be added to the appraisal or the lender pay require the appraiser to get information on properties actively listed in your properties markets.

This is another in a long line of added obstacles to obtaining a mortgage that you should be aware of in this difficult market. Unfortunately, the time to get a mortgage can be greatly increased if the appraiser has to add this information to his appraisal report. For the time being, my branch at WestAmerica Mortgage is requiring additional information on all appraisal reports from our appraisers just in case the property is in a declining market area or in case it will be added prior to closing. So far, this has helped us meet our scheduled closing dates.

Please take a look at other articles on my blog so you are informed about the changes in the mortgage market over the past 6 – 9 months.

Short Sales Now Widespread

2008-04-08T12:05:00.008-05:00

Since I wrote the article, “What is a Short Sale,” in June 2007, short sales have become much more common. In fact, Inside Mortgage Finance reported that approximately 20% of all home sales closed in March 2008 were short sales. They also said that the number of short sales would have been dramatically higher except for the fact that they estimate about 1 out of every 3 short sales never close.

Why is there such a huge increase in short sales?

The main reason for the increase in short sales is the downturn in the housing market. Falling home values make it more likely that people will not be able to sell their home at a high enough sales price to cover the amount they still owe on the property. When a borrower owes more on the property than the property is worth, and they do not have the assets to pay the difference, they must turn to their lenders and hope the lender will accept less than the amount they owe.

Another issue that has made the increase in short sales so dramatic is the recent trend of purchasing a home with little to no money down. These risky loans have no cushion against property depreciation, since there was no down payment to being with. As soon as values stop rising and start falling, these properties are instantly worth less than the mortgage amount.

Also at issue here are questionable appraisals. There has been a lot of attention recently being placed on appraisal standards and acceptable practices. With the increase in foreclosures, the extra scrutiny placed on the appraisals of these properties has shown that many of the original appraisals were inflated. This was not a problem as long as property values continued to increase, but is a huge problem when they decrease.

Lastly, many lenders are desperately trying to work with homeowners to stem the increase in foreclosures we have seen over the past year. They are taking extraordinary steps to avoid foreclosing on a property, and one of these steps is to accept short sales more readily. The lenders would rather take a lesser amount when the homeowners have a willing buyer, than to go through the time and expense of a foreclosure, and risking losing even more.

Short sales take time.

If you are looking for a great deal by purchasing with a short sale be prepared to wait. Normally, you negotiate with the seller directly, and it may take several days. When it is a short sale, the lender or lenders have to approve the sale. This can take weeks. Expect to wait up to a month or more just to see if the deal is accepted. If you have the ability to wait - and are willing to walk away from a property if the deal is not acceptable to the lender(s) - then you can find a great deal with short sales. Make sure you have a loan officer, Realtor, and attorney who are well-versed in short sales. There will always be more headaches with a short sale but having an experienced team will help.

Sellers should be proactive

Instead of waiting for an offer and then hoping and praying that the lender(s) will accept the offer, many sellers are contacting their lender(s) before they market their properties. By negotiating with the lender beforehand, you can lessen the time it takes, and the headaches involved in these transactions, for everyone involved. Again, make sure you already have an experienced attorney and Realtor who are well-versed in short sales, as well as the local real estate market, before you contact your lender(s).

For more information on how short sales work, see my article, “What is a Short Sale?”

Fannie Mae Further Tightens Lending Rules

2008-04-02T11:21:00.005-05:00

Fannie Mae announced that they will now require a minimum FICO score for loans it buys on an individual basis. The new minimum FICO score will be 580. Up until now, Fannie Mae never set a minimum credit score.

They also announced that they will increase the time required after a foreclosure before a borrower is eligible to obtain a Fannie Mae mortgage from the current 4 year period to 5 years. But, Fannie Mae said that they will allow shorter periods for borrowers who can document extenuating circumstances that have forced the foreclosure.

These changes are just the latest in a long line of changes from Fannie Mae and Freddie Mac in response to the housing downturn and mortgage crisis. These changes come on the heals of two rounds of increasing loan-level pricing adjustments announced by Fannie Mae and Freddie Mac over the past several month (See see "How much will my credit score cost me on my next mortgage?" and "Credit Score Affects Interest Rates Even More").

This again shows how much more important credit scores are becoming and how vigilant all people must be about what is on their credit reports (See “Check your credit report every year – FREE!”).

Check your credit report every year – FREE!

2008-04-01T12:28:00.003-05:00

In my December 2006 blog article, “FREE Credit Reports,” I talked about obtaining your free credit report directly from the main credit repositories. Now, with the changes Fannie Mae and Freddie Mac have made recently (see "How much will my credit score cost me on my next mortgage?" and "Credit Score Affects Interest Rates Even More") your credit scores are more important than ever.

The Fair and Accurate Credit Transaction Act of 2003 (FACTA) was passed by Congress to, among other things, allow consumers to monitor their own credit reports from the three main credit repositories – Equifax, Experian, and Trans Union. These free credit reports may be obtained on the internet, over the phone, and through the mail through a centralized source that was established specifically for this purpose (you cannot obtain a free credit report by contacting the credit repositories directly.)On the internet, go to http://www.annualcreditreport.com/ to get copies of all three credit reports. You can also call 877-322-8228 to obtain the credit reports by phone or you can download a form to mail in at http://www.annualcreditreport.com/cra/requestformfinal.pdf

I get offers in my e-mail all the time for free credit reports – are these the same thing?

No. Many of these offers are from companies that offer other services such as credit monitoring or credit repair. They will give you a “free” copy of your credit report if you subscribe to and pay for their service. The credit report you receive will be from that company and not directly from the main credit repositories.

When you get it at http://www.annualccreditreport.com/, you will receive information about how to correct any problems you find directly with the repositories. By law, they have to remove any information that they cannot prove is accurate - and they will let you know the steps you need to take to make the corrections.

I haven’t taken out any new credit – why should I check it?

First, you want to make sure there are not any mistakes on the credit report. If you have ever had a collection you know that some collection agencies are not very good at updating the information when the collection has been paid off. This will continue to affect your credit score. And, if you wait until you are applying for new credit such as a mortgage, it is too late – your credit scores have already suffered.

Second, you want to know what accounts your credit report shows. If there are unfamiliar accounts, you will want to investigate to make sure you are not a victim of identity theft.

Is now a good time to buy?

2008-03-28T12:11:00.007-05:00

You cannot imagine how often I hear this question nowadays. The answer I always give is a resounding YES! There are three main reason why this is a great time to purchase a home.

First, it’s a buyer’s market! Every day in the news we hear about how hard it is to sell a home and how far home prices have fallen. The buyer has a great opportunity to find the perfect home and negotiate a great deal for it.

Unfortunately, many would-be buyers have been scared out of the market by the falling home prices. They are afraid that the value of their home may continue to fall after they purchase it. This may be the case, but if you are looking at a home as a long-term investment, prices will stabilize and eventually rise giving you a nice return on your investment (There is a lot more risk if you are purchasing property as a short-term investment.). If this were any other purchase, falling prices and a wide selection would motivate people into buying now.

Second, mortgage interest rates are low. In the past few months, interest rates hit their lowest levels in the past few years. Low interest rates coupled with lower housing prices makes this market the most affordable home-buying market in years. Again, we hear in the news the problems in the mortgage market but the fact is, for borrowers, this is a great time to get a mortgage.

Third, nobody can predict the future. This is probably the biggest reason why I think now is the time to buy. Housing prices are low now – but for how long? Nobody can predict when the housing market will rebound. By the time we know, it is already begun to rebound. Trying to purchase at the exact bottom of a market is impossible – ask anyone who invests in stocks. And, housing markets are all local. Housing prices will rebound at different times in different parts of the country. Even neighborhoods within the same city will see their values move at different times. If there is a place you want to live, and you can afford it now, don’t wait until that changes.
Also, due to the problems in the mortgage market, it is getting more difficult and more expensive for many people to get a mortgage. Last year, if you had a 620 FICO Score and a 5% down payment, you would get the same rates as somebody with a 740 FICO Score and a 30% down payment. However, in the past few months, Fannie Mae and Freddie Mac have made a lot of changes that will increase the cost of people getting mortgage if they do not have a significant down payment and/or a great FICO Score. Please read "How much will my credit score cost me on my next mortgage?" and "Credit Score Affects Interest Rates Even More" for more information on this. If there continues to be problems in the mortgage market, these changes may continue. And, if you have credit issues and need a sub-prime loan, they are getting harder to find and more expensive all the time.

If you are ready, willing and able to purchase new home, now is the time to act. It has been a long time since housing has been so affordable and nobody knows how long it will last or how long it will be before it is this affordable again.

If you have been thinking about buying, I have a great tool that you can use to see the properties available in the areas you are interested in. It is free and there is no-obligation to use this service. Click on the link below for more information and to sign up.

FHA Announces New Temporary Loan Limits

2008-03-24T11:29:00.004-05:00

Earlier this month, HUD announced the new temporary loan limits for FHA Mortgages as a result of the economic stimulus package passed earlier this year. Like conventional mortgages, The maximum FHA loan amount is $729,750 but will be adjusted per housing market based upon the median home prices for that market.

In the Chicago MSA, the maximum loan limit for a single family home is now $410,000 up from $271,050 before the temporary increase. The new limits for 2- 3-, and 4-unit properties are $524,850, $634,450, and $788,450, respectively.

These increased loan amounts will make traditionally “jumbo” loans more affordable for more people and will hopefully allow many people who are currently in mortgages they cannot afford refinance to more affordable conventional and FHA loans (See FHA Offers Relief to Homeowners with FHA Secure).

These new loan limits will follow the same FHA guidelines as before. However, some lenders have already added some guidelines for these larger loan amounts. For example, one lender requires a second appraisal for any FHA loan that exceeds $417,000 and another lender requires at least a 580 FICO score for any FHA loan that exceeds the maximum mortgage amount before the temporary increase.

As I wrote in January 2008 (FHA Mortgages to Become More Popular) FHA loans will once again be a larger segment on the overall mortgage market than it has been in the past several years. The FHA Program has undergone many changes over the past couple years (see This is Not Your Father’s FHA)to better serve the mortgage needs of today’s market and bring it more into line with the conventional mortgage programs.

To see the new, temporary mortgage limits in your area, please go to: https://entp.hud.gov/idapp/html/hicostlook.cfm.

Credit Score Affects Interest Rates Even More

2008-03-21T12:13:00.009-05:00

On March 6, 2008, Fannie Mae came out with Announcement 08-04 which spells out the increased Loan-Level Price Adjusments (LLPAs). These LLPAs replace those discussed in my blog article “How Much Will My Credit Score Cost Me.”

An LLPA is an additional fee on top of any points and closing costs paid for a mortgage based upon the Loan to Value Ratio (LTV) and the borrowers’ credit score. So, the higher the LTV and lower the credit score the more you will have to pay for a mortgage. This can take the form of additional points and/or higher rates.

The new LLPAs are as follows:

1 These LLPAs do not apply to loans with amortization terms of 15 years or less, Expanded Approval®, Expanded Approval with Timely Payment Rewards®, MyCommunityMortgage®, and most Government loans. See LLPA Matrix for details.

CASH-OUT REFINANCES - FICO Score/LTV

Two- to Four-Unit Property LLPAs2
The two-unit LLPA below replaces the existing two-unit LLPA. The three- and four-unit LLPAs are new LLPAs.

• Two-Units: 0.50% LLPA applicable to all LTVs
• Three- to- Four Units: 1.00% LLPA applicable to all LTVs
2 These LLPAs do not apply to MyCommunityMortgage loans.

All LLPAs are cumulative unless otherwise noted.

These new LLPAs are effective with all mortgage delivered to Fannie Mae beginning June 1, 2008. Most lenders have already incorporated these new LLPAs into their current rate sheets. Your credit score is more important than ever in getting a good rate on a conventional loan. For information on credit scores please visit my blog article "Understanding Credit Scoring & Credit Repair.”

Federal Reserve Cuts Federal Funds Rate by ¾%

2008-03-19T13:02:00.003-05:00

Yesterday, the Federal Reserve Open Market Committee (FOMC or Fed)) voted to cut the Federal Funds Rate by .75% to 2.25% - the sixth time they cut rates in the past six months. These rate cuts are meant to stimulate the economy by making it cheaper for banks to borrow and lend money and for business to borrow to grow their business. This time, there was a lot of differing opinions on how large the rate cut would be. Some looked for the FOMC to cut by a full 1% while others were looking for only a .5% cut. The vote by the Fed was not unanimous – two members felt the cuts were too aggressive given the threat of inflation.

Cutting interest rates can be seen as inflationary. It stimulates the economy and also devalues the US dollar in relation to other currencies. This causes prices we pay to increase in the future and, as a result, many long-term interest rates, such as mortgages, actually increase when the Fed cuts rates.

Some homeowners with mortgages that are tied to the Prime Rate will see a decrease in their interest rates on these loans since banks tie their Prime Rate to the Federal Funds Rate – when the Fed cuts by .75%, banks cut their Prime by .75%. Usually, Home Equity Lines of Credit are based on the prime rate. These homeowners should see the new rates reflected on their next statement.

These rate cuts don’t seem to be working, the economy is still heading for recession

When the Fed cuts rates, it can take 6 – 9 months before they have an impact on the economy. Therefore, the economy is just now experiencing the rate cuts that the Fed put into effect when they began cutting rates in September 2007. The Fed tries to get in front of problems so they can prevent or lessen upcoming problems. The economy continued to grow through the end of 2007 and now the cuts are helping to prevent the economy from slowing further.

And what about mortgage interest rates?

This is an even more complicated question. The mortgage market is affected by the economy and, to some degree, the actions by the Fed. But, as I mentioned before, these rate cuts can be inflationary which will tend to increase mortgage rates. In addition to the economy, the mortgage rates are affected by the sub-prime mortgage crisis, the slowing housing market, and the resistance of investors to purchase the mortgage-backed securities (MBS) that fuel the mortgage market.

Today (3/19/08) the Office of Federal Housing Enterprise Oversight(OFHEO), the regulators for Fannie Mae and Freddie Mac, took a huge step today to increase the liquidity (Availability and accessibility of mortgage funds) of the mortgage market. The steps they took today will allow Fannie Mae and Freddie Mac to provide up to $200 billion in mortgage-backed securities liquidity. By purchasing these MBS, Fannie Mae and Freddie Mac will make a significant dent in the logjam of mortgages that have been unable to be securitized and purchased over the past several months. This logjam has led to MBS being less attractive and a widening of the spread between the yield on mortgages and US Treasury bills, notes, and bonds. This should increase the demand for MBS thus raising their prices and lowering their yields – this will in turn lower mortgage rates.

Fannie Mae & Freddie Mac Announce New, Temporary Loan Limits

2008-03-06T16:15:00.010-06:00

As part of the economic stimulus plan signed into law last month (See Congress Agrees on Economic Stimulus Plan ... ) Congress authorized Fannie Mae and Freddie Mac to raise the maximum mortgage limit for conforming loans through the end of 2008. These temporary increases are to help the housing industry as well as make it easier for more people to refinance their mortgages. These increases will increase the liquidity of the mortgage market for many homeowners whose mortgages are above the current conforming limit of $417,000.

After much debate as to how many people these increases will help (See Will the Increase in Mortgage Limits Help?), the OFHEO has published the new limits. While critics had estimated that only 15 counties will be affected, it appears that over 100 counties and metropolitan areas across the country will experience an increase from the current maximum.

Unfortunately, my home market of Chicago, IL, as well as many other markets, will not see an increase in the limits for conforming loans.

To see a list of all the areas with increased limits click here!

Down Payment Assistance Programs to Continue

2008-03-04T17:09:00.005-06:00

On October 1, 2007, the Department of Housing and Urban Development (HUD) published a rule that would have eliminated the use of seller-funded down payment assistance programs for FHA loans effective October 31, 2007 (See FHA Bans “Gift” Down Payment Assistance Programs). On that date, Judge Friedman of the United States District Court for the District of Columbia issued a temporary injunction against HUD from implementing that rule (See HUD’s Ban on FHA Down Payment Assistance Programs on Hold). In the injunction, Judge Friedman agreed that there was a “substantial likelihood” that the regulation violated applicable law. Judge Friedman further stated that the regulation lacked a “reasoned analysis” and was based on “flimsy” support. Judge Friedman also questioned whether HUD acted appropriately in issuing the regulation in view of a published report that Secretary Jackson was committed to that course of action regardless of whatever public comments HUD would later receive.

On March 3, 2008 Judge Karlton of the United States District Court for the eastern District of California set aside the HUD rule, thus allowing down payment assistance programs to continue to help thousands of American families realize the dream of homeownership.

In addition to the various down payment assistance programs such as Ameridream, Inc and the Nehemiah Program, opposition to HUD’s rule included several members of Congress, the Mortgage Bankers Association, the U.S. Conference of Mayors, the National Association of Home Builders, the National Urban League, and over 15,000 individuals and families nationwide.

Down payment assistance programs have helped over 1 million families and individuals purchase a home. In addition to helping the home buyers, these programs also help to stabilize the neighborhoods in which they are utilized.

With all of the issues facing the housing industry over the past couple years, this is welcomed news. FHA will be an integral part of a housing turnaround. In addition to the recent changes to FHA guidelines (See FHA Mortgages to Become More Popular and This is Not Your Father’s FHA) as well as the temporary increase to FHA loan limits (See Mortgage Limits Increased), down payment assistance programs enable more people to afford a home.

Will the Increase in Mortgage Limits Help?

2008-02-29T23:06:00.003-06:00

As a part of the economic stimulus plan passed in February, Congress allowed for the temporary increase in mortgage limits for Fannie Mae, Freddie Mac, and FHA mortgages. However, many people have questioned how many people this will actually help. There are reports that only 15 counties across the country have median home prices high enough to qualify for the maximum mortgage limit of $729,725 – and, most of these counties are in Southern California.

While the National Association of Home Builders (NAHB) has estimated that mortgages on 3 million additional homes will be eligible for purchase by Fannie Mae and Freddie Mac others estimate that it will be half that amount. However, there will be several other counties across the country that do no necessarily qualify for the maximum limit but may still see an increase above the current $417,000 limit.

The changes to the FHA mortgage limits will have an even greater impact. All counties, regardless of median home price, will have a floor of at least $271,050 – up from $200,160. And, at least 85% of the 3,300 counties in the U.S. have median home prices high enough to result in an increase to the maximum FHA mortgage limit.

These changes may not help everyone, but they are not intended to. The reason for these increases is to increase the liquidity (availability and accessibility of money for mortgages) in the mortgage market to help repair the damage done by the sub prime mortgage mess and the slumping housing industry.

Keep checking back for the actual loan limits in your area – they should be available in the first half of March.

Mortgage Limits Increased

2008-02-25T17:00:00.002-06:00

As a part of the stimulus plan enacted by Congress and Signed by President Bush last month (see my blog entry on the economic stimulus program) the mortgage limits for Fannie Mae, Freddie Mac and FHA loan programs will increase for the rest of 2008.

As a result of the problems facing the housing industry and the sub prime mortgage crisis, jumbo mortgages (those greater than $417,000) have been harder to get and much more expensive. Traditionally, jumbo mortgages have used similar underwriting standards and were priced approximately .25% - .50% above conventional mortgages. Now, the underwriting standards are so tight that many people are unable to afford these types of loans. Additionally, jumbo loans have been as much as 1.5% higher than conventional mortgages making the much less affordable.

Loan limits for a single family home will increase from $417,000 to $729,750 or 125% of the median house price in the area. FHA limits will also increase. The current basic standard mortgage limits for FHA insured loans will increase from $200,160 to $271,050 (with limits up to $729,725 in the highest cost areas). Limits for 2 – 4 unit properties were also increased.

These mortgage limit increases are expected to help the beleaguered housing industry. It will make mortgages more attainable and affordable for more Americans. It will also allow more people to refinance their current mortgages to more favorable terms and rates and hopefully cut down on the mortgage defaults and foreclosures which hit record levels lately.

Check back for more information as to the actual mortgage limits you can expect for your area. As soon as I know them I will post them to this blog.

Do I have an orphaned mortgage? What is that and should I care?

2008-02-21T14:29:00.004-06:00

In the past a mortgage was “orphaned” when the loan officer who originated the mortgage left the company. Since the loan officer was the point of contact for the borrower for future mortgages, the loan was now orphaned. The branch manager of an orphaned mortgage would usually assign these mortgages to another loan officer who would send out a lender introducing themselves as the borrowers new point of contact.

However, truly professional loan officers have evolved these days and take a much more proactive approach to their customers’ financial situation. Professional loan officers take an advisory role to their customers and take into consideration current needs as well as future goals of their customers to make sure the mortgage product they take helps them achieve these goals.

A professional loan officer will usually offer to review their customers’ financial situation at least annually, free of charge, and make recommendations based upon their current and projected financial situation and changing financial goals and needs. These loan officers are not just trying to get another refinance when rates drop.

So, if you have a mortgage and never hear from your loan officer (except when rates drop and they want to refinance your mortgage) you have an orphaned mortgage.

If my loan officer keeps in touch with me it is only because they want more business for themselves - they really don’t care about my situation.

Unfortunately, this may be true of many loan officers. Many will mail you a postcard monthly so you have their contact information in case you need another mortgage. However, there are a lot of true professionals in the business who do really care about their customers. Yes, the loan officer will get more business by keeping in contact with you but you can benefit from his efforts as well.

Mortgages are just a commodity and I call around to get the lowest rate possible and go with that guy.

I know a lot of people who have said this and live to regret it. In fact, over the past several years there were a lot of people who made the decision to use another loan officer who I have heard from since. Many were convinced to take an exotic mortgage, such as a Pay Option ARM, that they neither fully understood or was the correct mortgage closed because the loan officer they ended up with was inexperienced. Some of them ended up with a higher rate because they did not lock in the rate when they should have. Some of them ended up paying exorbitant closing costs and fees that were never properly disclosed up front.

Remember, having the lowest rate on the wrong program is not a good deal. Getting a fair rate on the right program with a loan officer who understand and cares about your financial needs and goals is.

If I don’t hear from my loan officer, how does that cost me money?

Here are a couple ways:

Over the past 3 months there were several times when rates were at or below 5.500% for a fixed rate, 30 year mortgage depending on your credit score and LTV (See “How much will my credit score cost me on my next mortgage?” for more information on this). When this happened, all of my customers were notified and had to opportunity to lock in these rates. After rates had crept back up (these rock-bottom rates were available a very short time) the news started reporting rates at their lowest levels in years. I received several calls from people who read my blog about refinancing. Unfortunately, the rates were long gone by the time they had read about them, which is often the case.

Also, at the end of last year, Fannie Mae and Freddie Mac announced they were introducing delivery fees for mortgage with credit scores below 680 and LTVs over 70% (See “How much will my credit score cost me on my next mortgage?”). I contacted my customers that were in this situation and advised them to refinance before these changes took place. I was able to refinance several of them before the changes and saved them a lot of money – most of these customers would not have been able to save s much money on their refinances had they waited due to the increase in rates they would be subject to now.

Lastly, a customer of mine had contacted me in the fall. They had an ARM that adjusted up more than 2.5% in the spring and they had fallen behind on the payments due to the increase in payment. They had called a couple sub-prime lenders and were not going to be able to get a better rate and lower payment with them. They called me and I told them about the FHA Secure Program (See “FHA Offers Relief to Homeowners with FHA Secure” for more information on this program) and refinanced them to a lower rate and better payment. They haven’t been late on a payment since.

There are many other ways that having a loan officer you trust can save you money.

So, what do I do if I have an orphaned mortgage?

Find a professional loan officer, such as myself. I am happy to help people with their financial needs and determine what mortgage program is right for them. Even if you are not ready for a new mortgage right now, I will be happy to evaluate the loan you have in light of your needs and goals and make recommendations to you. I talk to many more people who do not need a new mortgage than I do to people that do need a new mortgage now. It is part of my job as a professional loan officer. If you have questions or about your mortgage please don’t hesitate to give me a call or send me an e-mail.

Congress Agrees on Economic Stimulus Plan – Sends to President Bush for signature.

2008-02-08T12:54:00.003-06:00

Last month the US House of representatives quickly came to an agreement on the size and scope of the economic stimulus package with the White House and approved the measure by an overwhelming vote of 385-35. The immediately called upon the US Senate, along with the white House, to adopt the House bill without changes.

However, the Senate Finance Committee, led by Democrat Max Baucus, D-MT, added over $40 Billion to the bill before sending it to the Senate for debate and vote. The new version of the bill, supported by both Barack Obama, D-IL, and Hillary Clinton, D-NY, would have added huge delays to the passage of the stimulus package as the House and Senate would need to agree on changes so that the bills matched. The republicans filibustered in the Senate that basically killed the bill by not letting it go to a vote.

The Senate then quickly acted to approve, by a vote of 81-16 (Obama and Clinton did not vote due to campaigning), a bill sponsored by Senator Mitch McConnell, R-KY, which was essentially the same as the House version except for the addition of some added benefits for Senior Citizens and Disabled Veterans. The house approved this bill hours later so it could be quickly sent to the President for his signature.

How much will I get?

Basically, if you make less than $75,000 ($150,000 for a married couple) you will get a check in May or June of this year. Single taxpayers will get $600 and a married couple will get $1,200. Plus, you will receive $300 per child (eligibility is the same as for a child that qualifies for the child tax credit on your tax returns) For those who make at least $3,000, but not enough to pay taxes, will receive a $300 rebate for individuals and $600 for married couples. This bill also covers up to 20 Million senior citizens living solely on Social Security and 250,000 disabled veterans.

What do I have to do to get this money?

The rebates will be based upon tax returns for 2007. So, as long as you file your tax return, you will automatically receive your rebate. You need to do nothing else. For those taxpayers who file for an extension on their tax returns, or file their tax returns late, their rebate checks will be delayed accordingly. Those who do not file a tax return will not receive their rebate checks.

Will this help the economy grow?

This is the big question. Many people feel that most of this money will go to savings or paying down debts. If this is the case, it will have a limited effect on economic growth. When we pay down debt with this money, we are paying for purchases that were made in the past. The purchases had an impact on the economy when they were made.

In my discussion with friend, family, and customers, I think most of them will spend at least some of the money they receive. Many people I have spoken with are looking to make home improvements or take a more expensive family vacation this summer with at least some of the money. A few of them are looking to use the money as a down payment on a new car. The more that is spent of this money the more it will help the economy.

Are mortgage rates going down? Or up?

2008-01-31T10:40:00.001-06:00

The Fed cut rates by ½% today, and ¾% last week. So, why are mortgage rates going up?

As I have said in numerous post before, the rates that the Fed controls directly (the Federal Funds Rate and the Discount Rate) have very little to do with the mortgage rates. One is a long-term rate (mortgages) and the others are short-term rates (Fed Funds and Discount).

Last week I could get 5.375% and now it is almost 6 %. That doesn’t seem logical.

Here is what happened. A week ago Monday was Martin Luther King, Jr. Day and the markets in the United States were closed, while the other markets of the world were open and trading. While we were closed and could not make any trades, the other major stock indices across Europe and Asia were taking a bath. All we could do in the US was watch and wait until we could dump our positions on Tuesday.

Then, before the opening bell on Tuesday, the Dow Futures were down almost 500 points and the Fed stepped in and made a surprise cut to the Fed Funds and Discount Rate by an unprecedented ¾%. When the market opened, the Dow was down over 400 points and the yield on the 10 year bond was down to about 3.3% (The mortgage rates are not tied to the 10 year bond but they tend to trend in the same direction).

So, mortgage rates tumbled to 5.375% for a conventional borrower with credit scores above 680 and/or LTV less than 70% (See my post "How much will my credit score cost me on my next mortgage?" for more information on this).

I called everyone I could about the rates, and many people happily locked in the lowest rate they could have gotten in about 3 - 4 years. Some people, however, already knew the Fed was going to meet this week and most likely lower rates again. They were going to hold out for even lower rates. Then, as often happens when the Fed cuts rates, investors got a good feeling about the future of the economy and, therefore, got a good feeling about the future of the stock market and began to purchase stocks. When this happens, money goes out of bonds lowering the cost of bonds and increasing the yield (rate) on bonds. By the end of the day, the 5.375% was but a distant memory.

The stock market continued to add points over the next week and the yield on the 10 year bond continued to rise as well as - you guessed it - mortgage rates.

But, with the fed lowering rates another ½% today, surely rates had to come down.

This week, in addition to the Fed meetings, there was a slew of economic data for the markets to consume. All of it pointed to the fact that maybe the economy isn’t as bad off as previously suspected. Durable goods orders are better than expected. ADP payroll figures are better than expected. GDP was horrible, but this is from December 2007, and the markets like to look to the future.

When the Fed cut rates again today, the stock market went up, as did bond yields and mortgage rates. The best thing that could have happened for mortgage rates would have been if the Fed didn’t cut rates at all, or if they had only cut by ¼ % (as some had suspected after the economic news from the week). The stock market would have sold off and money would have flowed back into bonds, increasing the price of the bonds and, thus, lowering the rates.

The bright spot for rates as I am writing this article is that the major stock indices all ended lower today, and that selling has continued into the Asia markets. If the selling continues back to the US, we may see rates ease with the falling stock market.

So, how can we ever know when to lock at the lowest possible rates?

If I had the answer to that question I would be retired on a South Pacific island, wearing a funny shirt, and listening to ukulele music instead of writing this blog article at 11:30 PM on a Wednesday night. :)

The answer I give to everyone is to make the decision when it is right for you. If 5.375% was good enough to refinance, take it and refinance. If rates continue to fall, you can refinance again, usually at reduced costs, and take advantage of the lower rates. That is what several of my customers did during the past refinance boom. Some of my customers actually refinanced 3 and 4 times in a year and saved money every time.

Unfortunately, the last refinance boom trained people to be greedy.

We have all read the articles about the greedy mortgage industry, greedy Wall Street banks, greedy investors, etc. but we don’t read about the greedy consumer. Before the past refinance boom, a customer would call and ask for the current rates. We would discuss the costs of the refinance and the new payment, and see if it was worthwhile to refinance. Then, we would lock the rate and close the loan. Now, everyone is looking to get the best possible rate and waiting themselves OUT of an opportunity to refinance.

There is one last thing I need to share with you, much to the chagrin of one of my best and oldest friends. At the end of the refinance boom he was finally ready to refinance. (Never mind that his rate was over 6% and he could have refinanced as low as about 5.0% during the refinance boom!) As rates began to rise, he was sure they would go back down. Even as the Fed began tightening (raising rates) he thought he would still have a chance to refinance. Well, he never got that chance. So, last week when the rates were at 5.375% do you think he locked his rate? You guessed it, he did not.

The moral of the story?
Next time you have the opportunity to refinance and save money, take it.

Fed cuts key interest rates by 0.75%

2008-01-22T16:59:00.000-06:00

In response to an economy that is heading for a recession, the Federal Reserve Board (Fed) chose to cut the Discount and Federal Funds Rate by 0.75% this morning before the market opened. It was a surprise move due to the fact that yesterday, while the U.S. markets were closed for Martin Luther King, Jr. Day, most other major stock markets across the world plunged at the prospect of a weaker US economy.

Does this mean that mortgage rates fell by 0.75%?

No. These rates are overnight rates that don't directly affect the mortgage interest rates. The Federal Funds Rate is the rate at which banks lend money to each other. The Discount Rate is the rate charged to banks that borrow money from the Central Bank. These rates are changed by the Fed in order to control the money supply and, thereby, influence the economy.

They are important, though, because they signal the direction of overall interest rates in the economy. Mortgage interest rates are determined by the rates offered on mortgage-backed securities (MBS) which are similar to bonds. The MBS’s generally move in the same direction as the ten-year bonds over the long run. So, when the Fed acts to lower rates, the overall trend for all interest rates is lower.

Before today’s action by the Fed, the markets were already anticipating a cut in rates of 0.5% and rates had already come down. Mortgage interest rates did head a little lower today and are approaching the all-time lows set during the refinance boom a few years ago.

Should I refinance now, or wait for rates to get even lower?

This is always the $64,000 question. If you can save money now, I always recommend doing it. If rates continue to fall, you can always refinance again.

When the Fed cuts rates, it is good for business. When business is good, people buy stocks hoping that the price will go up. When people buy stock, and the stock market goes up, money flows out of bonds and rates go up. In fact, many times when the Fed cuts rates, interest rates actually increase in the short term.

Today, the Dow Jones Industrial Average (Dow) opened almost 500 points lower. Because of the surprise rate cut by the Fed, the market rebounded and finished down about 128 points.

What should I do?

Contact me today to see how much you can save on your refinance, and to make sure a refinance makes sense for you. As I discussed in a previous article, “How much will my credit score cost me on my next mortgage?”, rates are determined by your credit score and LTV, as well as the market.

FHA Mortgages to Become More Popular

2008-01-12T14:42:00.001-06:00

FHA Mortgages are sometimes referred to as the “Original Sub-Prime Mortgage.” Before there was a sub-prime mortgage market, those with low down payments, shaky credit histories, etc. had to go with the FHA mortgage to purchase a home. In the 1980's and 1990’s, FHA loans accounted for about 25% - 40% of all mortgages originated in the United States. According to Wikipedia, that fell to less than 2% in 2006.

With the increase in the number of "No Money Down Loans" and loans for those with poor credit, FHA fell out of favor. It was much easier to get a sub-prime loan than it was to get an FHA loan. Unfortunately, it was usually a less-affordable option for the homeowner in the long-term.

Now, with the sub-prime mortgage market all but non-existent, and the credit standards much tighter for those programs that remain, FHA will once again become an important program for many homeowners.

AS I discussed in my blog article, “This is not Your Father’s FHA” from April 2007, FHA has already made a lot of changes to make them more user-friendly. FHA mortgages are much more like conventional mortgage than they have been in the past, and closing them can take about the same amount of time.

Recently, the US Senate passed some more changes that will make FHA mortgages a more viable option for more homeowners. Some of these changes are:

Down Payment/Minimum Cash Investment has been reduced from 3% to 1.5%

Mortgage limit (“floor”) will be raised from 48% to 65% of GSE (Fannie Mae/Freddie Mac) limit ($271,050)

Mortgage limit for “high cost” areas: $417,000, which equals the maximum mortgage amount for conventional mortgages

Condominium processing: It will facilitate FHA acceptance of GSE approved projects and possibly other projects depending on how FHA implements the provision

Reverse mortgages: Raise the maximum loan limit to $417,000 and allow reverse mortgages to be used for home purchases

The Senate also included a measure that puts a one year moratorium on HUDs effort to introduce risk based pricing to the FHA program

The US House of Representatives also passed similar legislation months ago with some differences:

No down payment required

Maximum mortgage amount of $725,000

When Congress returns late this month, they will have to hammer out the differences before the bill goes to President Bush for approval. There is a lot of pressure on Congress to get these changes enacted so look for new legislation quickly.

With the upcoming changes added to the changes already made, FHA Mortgages are better than ever and will become increasingly popular. But, beware of lenders and loan officers who are not experienced with FHA loans. There are still enough differences in the ways FHA loans are originated and processed that can cause delays if you work with someone not experienced with FHA loans.

President Bush Signs a 3 Year Extension to the Income Tax Deduction for Mortgage Insurance

2008-01-12T10:02:00.000-06:00

On December 20, 2007 President Bush signed into law legislation that will allow homeowners with mortgage insurance (those with less than 20% down payment) to deduct the cost of their mortgage insurance from their taxes. This deduction is for private mortgage insurance (PMI) on a conventional mortgage or Mortgage Insurance Premiums (MIP) on FHA loans.

In late 2006, Congress passed a law that allowed the income tax deduction on 2007 tax returns for loans originated in 2007 only. This new legislation extends that deduction for loans originated from 2007 – 2010 and is part of the Mortgage Forgiveness Debt Relief Act of 2007 approved last month by both the US House of Representatives and the US Senate.

The tax break is for families with an adjusted gross income (AGI) of $100,000 or less. Families with AGI greater than $100,000 up to $109,000 are eligible for a partial deduction.

With the collapse of the sub-prime mortgage market and the reduction of the amount of exotic mortgages that allowed for no money down and no income verification, more people will be using the more secure conventional and FHA mortgages with the protection of mortgage insurance. This deduction will save many low- and moderate-income families money and allow them to better afford their homes.

How much will my credit score cost me on my next mortgage?

2008-01-10T11:37:00.000-06:00

Due to the mortgage market mess we have been experiencing, Fannie Mae and Freddie Mac are drastically changing the way they do business. Many people think these changes will help protect the corporations and the future of the mortgage market.

Until now, a credit score of 620 was the theoretical limit for obtaining a conventional loan. If your scores were above 620 you would get a rate the same whether your score was 620 or 800, as long as you had at least a 5% down payment. I say the 620 is theoretical because a lot more is considered when applying for a mortgage (e.g. credit history, down payment, cash reserves in the bank, debt-to-income ratios, etc.). Many people with credit scores below 620 have been approved for conventional loans and some with credit scores above 620 were denied.

Starting with loans delivered March 1, 2008, Fannie Mae and Freddie Mac are adding fees for any loans with a loan-to-value (LTV) greater than 70% and a credit score less than 680.

Following are the Loan-Level Price Adjustments (LLPAs) for loans with LTVs of 70.01% and greater:

These LLPAs are for single-family, owner-occupied properties and are adjustments to the points required on a loan, and not to the interest rate. There are other adjustments for 2-unit properties as well as mortgages with subordinate financing (2nd mortgages) such as 80/10/10s.

Borrowers will have to decide to pay for the LLPAs as points or accept a higher interest rate in place of the additional points. For example, for a borrower with a credit score below 620 and LTV greater than 70% they can expect to pay about 1.00% higher in their interest rate.

If you are planning to purchase or refinance a home in the future, make sure you contact your loan officer well in advance so you can check your credit scores and make any improvements necessary to increase your credit score. Please view my blog posting Understanding Credit Scoring and Credit Repair from August 2006 to see how you can improve your credit score.

How to do a short sale

2008-01-04T13:39:00.001-06:00

With the increase in foreclosures lately you may have heard the term “short sale” and wondered what it was. A short sale is when the lender will accept less than the full amount due on a mortgage when a property is sold. Usually, the lender will accept the short sale to avoid the time and expense of a foreclosure.

When a borrower is in default on a mortgage they not only owe the back payments but also may owe late fees, property inspection fees, attorney fees, etc. This can add up quickly to eat up all the equity the borrower had in the property. If the borrower is unable to bring the account current the lender will then foreclose on the property. With a foreclosure, the lender can lose up to 40% of the mortgage amount because of the extra costs involved with foreclosing on a property: attorney fees, court costs, lost interest, eviction costs, property maintenance costs, and selling costs. Foreclosing on a property can also take up to two years in some states. Therefore, it is sometimes in the best interest of the lender to accept the short sale.

It also can be in the best interest of the borrower. They will not have to endure the time and stress of a foreclosure and their credit may not be as adversely affected as it would with a foreclosure. It is quicker and easier and does not subject the borrower to the embarrassment of a foreclosure.

How does it work?

The first thing the borrower should do when they can no longer afford a property is to contact the lender immediately. The last thing a lender wants to do is foreclose on the property. Lenders typically have departments that work with people who are behind on their payments to resolve the situation. If you cannot resolve the default with the lender, and you want to see if they will accept a short sale, they will direct you to the department that handles short sales.

The lender will usually require the borrower to submit a lot of information to the lender in order to consider the short sale. The information required may include:
• Income documentation such as W-2s and pay check stubs to verify the borrowers’ income.
• Bank statements to verify the borrowers’ assets
• Hardship letter – this letter will describe for the lender the reasons the borrowers are in the financial position they are in and will ask the lender to accept the short sale. Borrowers should make this letter sound as sad as possible and back up the story with any documentation you may have such as medical bills, etc.
• Fair market value for the property – depending on the lender they may require an appraisal or may accept an opinion from a local Realtor know as a Comparative Market Analysis (CMA).
• Preliminary proceeds sheet from the sale of the property. This will show the proceeds of the sale of the property after the mortgage is paid off and all other closing costs and fees are paid. This will be negative in the case of the short sale and this negative amount is the amount of the shortage.
• Listing agreement and purchase agreement when they are available.

When the lender reviews all of this they may or may not approve the short sale. If they do not approve the short sale they will proceed with the foreclosure. If they do agree to the short sale you will close on the sale of your property and the lender will take the loss.

So, is the borrower off the hook?

Not necessarily. The lender still has options to try to collect this shortage. As a condition of the short sale the lender may require the borrower to sign a note to repay the shortage. They may also file a collection or a judgment for the amount of the shortage. This is something that an attorney with expertise in this area of real estate needs to be consulted.

Also, the IRS may come after the borrowers for income taxes on the amount of the shortage. If the shortage was forgiven, the lender will report the shortage as income to the IRS and the IRS will collect taxes on this amount. Again, for the specifics on this please consult a tax professional.

Sellers Concessions Help Sell Houses in Slow Market

2007-12-05T12:42:00.000-06:00

With the real estate market so slow these days, many Realtors are suggesting that the sellers offer incentives to the buyers who purchase their home. This can be a great way to separate your home from the many other homes on the market. These concessions are so popular now that I am going to revisit the issue I discussed in my June 11, 2007 article, “How can a “carpeting allowance” be a bad thing?"

There are right and wrong ways to give seller concessions. The way it is structured can make all the difference in the world.

Limits to seller concessions

Most mortgage programs set limits to the amount of concessions a seller can make to the buyer before it begins to affect the sales price of the home. For instance, with a conventional 30 year fixed rate mortgage, if you have a down payment of 10%, the seller can give you up to 6% of the sales price as a concession. If the concessions are greater than 10%, the sales price will be reduced by that amount when the lender calculates the down payment and loan-to-value ratios (LTV).

Types of acceptable seller concessions

Typically, sellers can pay for non-recurring closing costs up to the maximum allowed by the lender for the specific mortgage program. Also, sellers can pay points to help the buyer lower their interest rate or pay for a temporary buydown. Also, if the buyer and seller agree to a payment abatement program (see my posts on PITI Payment Abatement Programs and Interest-Only Payment Abatement Programs for more information on payment abatement programs) the seller can pay for the payments that the buyer will skip.

Types of unacceptable seller concessions

Sellers can never give the down payment for the purchase to the buyer nor can they give them allowances for decorating, carpeting, repairs, etc. Many real estate professionals do not understand this and write them into the sales contract. If you are going to do repairs or replace carpeting for the buyers, it will have to be done before closing, put into escrow for the buyers to do later, or paid directly to the contractor who is going to do the work. If not, it will affect the sales price used by the lender to calculate down payment and LTV.

Concessions are a great way to entice buyers to take a closer look at your property and make an offer. But, it must be done correctly for the buyer to get the full benefit of the conecssion.

Carnival of Real Estate

2007-12-03T23:44:00.000-06:00

Welcome to the December 3, 2007
edition of the Carnival of Real Estate

Let's face it - it's a weird time to be in real estate. Foreclosures loom, property sits unsold, and nobody really knows what's getting better and what's getting worse.

You can't open a paper or click on a website without hearing about it, and consumers are downright scared and confused. This week's carnival focuses on things that can help us all in these uncertain times.

We have to begin this week with Joshua Dorkin's "Fish Story" posted at Real Estate Investing For Real. When it comes to foreclosure, we know the homeowners get angry. They yell at their real estate agents, they yell at their attorneys, and they certainly yell at their mortgage brokers. This family took their anger out on the entire world. Worth a read just for the chuckle. I'm glad it was you and not me in there, Joshua!

One thing is sure, there are still people making money in real estate. As Trevor Mauch explains in his post, Recent Survey on Self-Directed IRA's is great news for real estate wholesalers posted at The Real Estate Investing Brain, "for the savvy investor... even right now, real estate is the most sought after and solid investment… with all of the doom and gloom out there… this survey debunks the myth that the good ol’ days of real estate investing are done." I've been hearing from a lot of my investor clients who want to 'go shopping while property is on sale' and the idea of using a self-directed IRA is a smart one!

If there is a bright side to the subprime mortgage meltdown, it may be the re-emergence of FHA as a popular option for homeowners. BrandonL talks about the various options available through the FHA program in his blog, Different types of FHA Loans posted at FHA Mortgage Center Blog, saying, "Learn how to use an FHA mortgage to make your home loan safer and easier."

Remember, even though it seems - by listening to the media and reading the newspapers - that the entire country is spiraling out of control, real estate markets are local and not national. Doug Boggs talks about this in his blog and explains how people can find good deals if they don't buy into the fear and hype. Fear based or reality based... is posted at Boggs Development Group, LLC. Doug says "I have always stated that there is no such thing as a national real estate economy. I still believe this despite what seems to be happening throughout the United States, as reported in numerous newspapers, as well as, their television affiliate corporations. The perpetuation of fear through our news agencies gives me pause. It is too bad as there are some great deals out there for people who can see through the maze of media mayhem."

That concludes this edition. Submit your blog article to the next edition of
carnival of real estate using the carnival submission form.

Past posts and future hosts can be found on the blog carnival index page.

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carnival of real estate, blog carnival.

Mortgage rates are low. Take advantage of them while you can!

2007-11-27T12:39:00.001-06:00

Mortgage rates have dipped to the lowest point in the past 2 years. Fueled by the fear of an upcoming recession (a result of the soft housing market, mortgage meltdown, etc.) mortgage rates have continued to fall lower than many people had anticipated.

Now is the best time to refinance your current mortgage to save money. Many of you have an adjustable rate mortgage that will be adjusting in the next year – refinance to a fixed rate mortgage before your rate, and payment, increase.

You may have a first and a second mortgage – roll them into one mortgage for savings and convenience.

You may have higher interest debt such as credit cards – pay them off and save a ton of money.

Or, maybe you have a large expense coming up (college tuition, automobile purchase, vacation, Christmas) – cash out some of the equity in your home to pay for these expenses at the lowest possible rates.

Whatever your situation now is the time to take action.

But, John, what if rates go lower?

I get this question from customers all the time. The problem is, we never know for sure what is going to happen with interest rates. If we knew for sure, we would all be retired by now by investing perfectly and making a fortune.

The truth is, you can save money NOW - but you may NOT be able to save money next month, or even next year. During the refinance boom a couple years ago, I had customers that did not want to lock into a 30 year fixed rate mortgage at 5.00% because they thought rates would continue to fall. Well, they lost the opportunity to refinance and have paid all that extra money for the past couple of years.

And remember, if rates go lower, you can always refinance again.

Won’t that cost me more money?

Yes, and no. If you refinance, there will be some closing costs. If you refinance a second time, you will have to pay closing costs again, but they will be much lower. And, if you continue lowering your rates and payments, it can make perfect sense financially.

The real fear should be NOT refinancing now and rates NOT getting any lower. If rates remain the same as they are now, and you wait a couple of months to refinance, you have LOST the cost savings for those couple of months by paying at your current payment. If rates go up, you have lost even MORE money because now you will have to refinance to a higher rate or, worse, not be able to refinance at all.

Also, if you refinance before the end of the year, you may increase your deductions on your income taxes for the year, thereby reducing the amount of tax you owe the government, or increasing the amount of your tax refund (check with your tax professional to see what you can or cannot deduct from your taxes).

What if the value of my home has fallen?

There will be situations where the value of the home has fallen to a point where you cannot refinance your home. There is nothing you can do about that now. But, by contacting your loan officer, he or she can at least let you know what is possible. Your loan officer can ask the appraiser for an opinion on the value of your home to see if it is worthwhile to have the appraisal done. And, at least you know for sure what is happening, rather than just wondering.

Give your loan officer a call so he can do a mortgage checkup to see if refinancing is right for you. Or, give me a call at 708-473-3788 or send me an email – I would be happy to help you.

HUD’s Ban on FHA Down Payment Assistance Programs on Hold

2007-11-15T11:18:00.000-06:00

I recently wrote about HUD’s new rule that would eliminate the use of third-party down payment assistance programs to help people purchase a home.

On October 31, in AmeriDream, Inc. v HUD, the US District Court for the District of Columbia said that HUD acted against the wishes of the House of Representatives who had just passed a law in support of the program in July. The judge also ruled that HUD acted without supplying a reasoned analysis from its departure from its long-standing policy and failed to consider proposed alternatives. The court ordered a temporary injunction against the new rule.

Both sides will be presenting their arguments and the judge approved an agreement by both sides that they will try to end the case by February 29, 2008.

I will update this blog as the case progresses. This has been a great program that has allowed thousands of families to purchase a home. Please contact your US Representatives and Senators in support of this program.

Financial Relief for Military Servicemembers

2007-10-30T14:55:00.000-05:00

What is the Servicemembers’ Civil Relief Act of 2003?

The Servicemembers’ Civil Relief Act of 2003 (SCRA), which replaced and updated the Soldier’s and Sailors’ Civil Relief Act of 1940, is a federal law that gives members of all branches of the armed forces important rights and protections as they enter active duty. It covers mortgage interest rates, foreclosures, rental agreements, evictions, civil judicial proceedings and income tax payments.

These protections are for active duty military members, reservists and members of the National Guard called to active duty, and, in some situations, their spouses and dependents. To receive protection under some parts of the SCRA the member must be prepared to show that the active military service has had an adverse affect on the legal or financial matter involved.

The Six Percent Rule

The most well-known part of the SCRA is the Six Percent Rule. This provision allows the member to reduce the interest rates on consumer and mortgage debt to 6% under certain circumstances.

This does not happen automatically. The member would have to notify their creditors and lenders in writing and provide a copy of their mobilization orders. Then, the creditor or lender is required to reduce the interest rate on their debts to 6% for the period of time the member is on active duty. The SCRA does not apply to debts that are incurred after the start of the active duty.

The creditors or lenders can take the member to court to fight this. In court, the creditor or lender, not the member, must prove that the member’s ability to repay the loan at the agreed terms has not been “materially affected” by his military service.

Will the forgiven interest have to be repaid later?

No, any interest above and beyond the 6% is forgiven and the member will never have to repay that amount. However, as soon as the member’s active military service has ended, the interest rates will be reset per the original agreement and the payment adjusted accordingly. Also, the member will have to make the regular payments during the active duty to avoid having the account considered delinquent.

There are numerous other protections that a member can receive under the SCRA. To see the entire act please go to www.navy.mil/navydata/policy/hr100-scra.pdf.

PITI Payment Abatement Program

2007-10-12T16:48:00.000-05:00

In my July 2007 article,"Payment Abatement: What the Heck is That?", I wrote about a payment abatement program where the sellers can pay for the interest portion of the buyers mortgage payment for up to the first 6 months of the loan. The buyers were still responsible for the principal payments (if it was not an interest-only loan) and the escrows payments.

Now, on certain Fannie Mae loans, we offer a PITI Payment Abatement Program. For up to 6 months, the seller can pay the buyers entire payment which includes principal, interest, taxes and insurance (homeowners insurance, mortgage insurance, and flood insurance, if required).

Many sellers, and especially builders, are finding that they are having a hard time getting buyers to look at their properties, let alone purchase them. Sellers often offer incentives such as free home warranties, paying points for the buyer, etc. Builders are making even bigger offers to buyers such as free upgrades, free basements, finished basements, etc. I even heard of a builder offering the chance for a buyer to win a BMW SUV!

When these incentives fail to attract the right buyer to the property, the sellers or builders will typically reduce the sales price low enough to attract buyers ahead of other properties. The problem with this is everyone loses. The sellers make less money on the sale of the home. The buyer purchases a home at a low price, thinking he is getting a great deal. However, when this happens, the value of all homes in the community falls, thus, impacting all homeowners in the area, not just the buyer and seller.

Payment Abatement Can Help You Sell Faster

With the PITI payment abatement program, you can advertise your property like this: “Purchase this property and make no payments for up to 6 months!” Do you think that would attract more buyers to your home? Do you think that would give your home the edge over a home that is offering a free TV or home warranty? I think so. A buyer can live in a new home, payment free, for up to a half year. They can use the money they would be sending to the mortgage company toward the expense of decorating the new home instead of putting it on their credit cards. Or, they could make large payment to pay off their other debts. Or, they could invest the money for the kids college? Or... well, you get the point.

The PITI Payment Abatement Program is subject to the following rules:

The seller must provide the payment abatement funds.
Payment abatement funds are subject to seller concession limits
Property must be a 1-2 unit Primary Residence or Second Home
Maximum term is 30 Years.
Buyers must qualify at the total amount of monthly payment

Example:

Suppose you sell your home for $250,000 and the borrower has a 10% down payment – their mortgage amount would be $250,000. Let’s assume the mortgage is a 30 year fixed rate mortgage with an interest rate of 6.5%; the taxes on the property are $5,000 per year; the homeowner’s insurance is $600 per year; and the mortgage insurance is $97.50 per month. The total PITI Payment for this property will be:

Principal and Interest $1,519.22
Taxes $416.66
Homeowners Insurance $50.00
Mortgage Insurance $97.50
Total Monthly Payment (PITI) $2,083.38

If you agree to pay for the buyers PITI payment for 6 months, the total would be $12,500.28, or just over 5% of the sales price of the home.

Most people, in a regular real estate market, sell their homes between 90 – 98% of the asking price. In a slow market, homes typically will sell for less than that. But, if market your home with creative financing such as the PITI Payment Abatement Program, you could walk away with more money, and a quicker sale.

FHA Bans “Gift” Down Payment Assistance Programs

2007-10-03T13:00:00.000-05:00

The Federal Housing Administration (FHA) has written a new rule that will no longer allow down payment assistance from popular programs such as the Nehemiah Program and AmeriDream. As I stated in my blog “Down Payment Assistance Programs” in February of this year, these programs “gift” money to the buyers for the down payment of the home provided the seller agrees to make a donation to the charity in the amount of the down payment plus a service fee. These changes will take effect 30 days after the FHA publishes them in the Federal Register.

Brian Montgomery with the FHA said, “These contributions often function as an incentive to purchase the home. But, these gifts are ultimately paid for by the borrower through a higher mortgage amount. The home buyers are often unaware that the ‘gift’ is something they end up paying for and is not a gift at all.”

Although these programs provide much-needed funds for down payments to otherwise-qualified buyers, the default and foreclosure rate on mortgage with the down payment assistance programs are much higher than for normal FHA mortgages. In 2005, the Government Accountability Office (GAO), the investigative arm of the US Congress, reported that borrowers who receive gifts from these seller-financed down payment assistance programs are more than twice as likely to default and become delinquent than other FHA borrowers and in 2006 the Internal Revenue Service called the charities “scams” and blamed them for increasing the cost of housing for these buyers.

The Mortgage Bankers Association of America (MBA) blasted the new rules. Steve O’Connor, Senior Vice President of Public Policy for the MBA, stated that the programs offer “important assistance to cash-strapped borrowers. O’Connor also said, “While there is a need for stronger quality control measures, we shouldn’t throw the baby out with the bathwater and end the program.”

Both Nehemiah and AmeriDream have filed lawsuits against HUD in federal court seeking an injunction against HUD from implementing these rules. Nehemiah, as a result of a 1998 settlement with HUD, will have 6 months before the rule becomes effective for them. For all other down payment assistance programs, the rule becomes effective October 1, 2007.

I will update my blog as more information becomes available on the down payment assistance programs. Please contact your Senators and Representatives in support of the programs and ask them to block the new HUD rule.

FHA Offers Relief to Homeowners with FHA Secure

2007-09-18T11:06:00.000-05:00

President Bush recently announced that HUD’s FHA will be able to help an estimated 250,000 homeowners avoid foreclosure by enhancing some of its refinancing guidelines effective immediately.

The FHA secure initiative is a temporary program designed to provide refinancing options to borrowers of conventional adjustable rate mortgages (ARM) who are delinquent under their current mortgage as a result of an interest rate adjustment.

Eligible borrowers must be able to demonstrate that they were current in their mortgage payments prior to the interest rate adjustment of their ARM and are now delinquent due to the subsequent increase in monthly payments. Borrowers may be able to include the past due payments in their new FHA loan subject to FHA loan limits and loan-to-value limits.

Eligibility Criteria for FHA Secure Refinance Option:

The current mortgage must be a non-FHA ARM
The new FHA mortgage may be fixed or adjustable
The borrowers’ payment history must show that they were current on their payments prior to their interest rate adjustment
The borrowers must qualify for a new FHA mortgage using standard FHA guidelines
If there is sufficient equity in the property, the new FHA loan may include past due mortgage payments up to the FHA loan limits
Borrowers may obtain secondary financing if the new FHA mortgage is not sufficient to pay off the existing first lien plus closing costs

If you have an adjustable rate mortgage, and are delinquent due to increases in your interest rate, contact me or your current mortgage lender to see if this option can help you.

What do I do if my mortgage lender shuts down?

2007-09-12T14:38:00.000-05:00

If you are already making payments on a mortgage, you will continue to make the payments as you have in the past. You may receive a notice that the mortgage has been transferred to another lender but the terms of your mortgage will remain in effect until the mortgage is paid off. If you're concerned, call your current mortgage company at the customer service number located on your mortgage statement.

What if my mortgage lender shuts down before my loan closes?

Until recently, I worked for American Home Mortgage (AHM), the nation’s 10th largest lender. And, like many other lenders, AHM went bankrupt and shut down their mortgage operations with little to no warning. While this is hard for the employees of AHM and the other lenders that have had the same fate, what about the people who are in the process of purchasing or refinancing their homes? What do they do?

Unfortunately, in the case of AHM, borrowers with over $800 Million worth of mortgages went to the closing table on July 30 & 31 expecting to close on their loans. Since AHM had no money to fund these loans, these borrowers had to cancel their closings and re-apply for a mortgage with another lender. In many cases these loans that did not fund affected even more closings that were dependent on these closings.

What should I do if I am in this situation?

In this crazy market it pays to be prepared for the worst. The first thing to do is to make sure you are working with a true mortgage professional. I understand that rates and costs are important considerations, but it is more important to make sure the loan will get closed on time. That means working with someone experienced, competent and professional.

Second, make sure that you always keep copies of all of the documentation you provide to your lender. If the lender happens to run into trouble and you need to find another lender, you will be prepared. On the same note, make sure you get a copy of the appraisal from your lender as soon as you can. If you have to find another lender you can forward this appraisal to them to help speed up the process.

Third, don’t panic and just run to the first lender you see. If you are working with a professional loan officer, contact him or her and ask for advice. Chances are they are already working on taking care of their customers’ loans before you even know there is a problem.

I had several mortgages that were set to close in August. As soon as I knew there was a problem, I contacted my borrowers and assured them that I would find a lender to close their loans on time. Luckily, several national lenders, including GMAC Mortgage, put plans in place to help these customers who found themselves suddenly without a lender. All of the customers who chose to stay with me closed on time and at terms as good as, or better than, they had at AHM.

Some of my customers chose to contact another lender for their mortgage. I heard from a few of them and, unfortunately, they received rates and fees higher than they should have gotten. When you panic and you're desperate, the chance of having someone take advantage of the situation is greater.

Pre-Screened Offers of Credit (Part 2)

2007-07-23T13:25:00.000-05:00

On February 9, 2007, I wrote about receiving unsolicited credit offers from lenders as soon as you apply for a mortgage with another lender (Is My Mortgage Company Selling My Name?) Since then, I have spoken to a few customers who have been annoyed by the amount of offers they receive, and they want them to stop.

Mark Strassmann of CBS News did a report on this topic for The Early Show in May. Take a look at the amount of harassment this one couple had to endure: "Lenders Target Home Buyers"

Remember, you can stop this from happening by opting out of this process. By opting out, you will remove your name from lists sold to other mortgage companies. Simply visit http://www.optoutprescreen.com or call 888-567-8688 to opt out. You will have to give them some personal information necessary to process your request, and you can opt out for 5 years or permanently.

Payment abatement? What the heck is that?

2007-07-10T11:06:00.000-05:00

You've probably seen advertisements for new construction homes that say, “Purchase a new home and don’t make payments for up to 6 months!” This is a payment abatement program. The seller, in this case the builder, will make your first six mortgage payments (interest-only payments).

With the slower housing market, there are more properties on the market and it is taking them longer to sell. This increase in inventory of homes will affect the housing market until they are all sold and/or taken off the market.

How can someone sell their home in a slow market?

Many Realtors have asked me about the payment abatement program over the past several weeks as a way to drive more traffic to their listings. They are beginning to advertise their listings by saying, “Move into this beautiful home and don’t make a payment for up to 6 months!” Now, that will surely attract more buyers and could possibly be the deciding factor when the buyer is looking at several similar properties in the area.
How does it work?

When the contract is written, the seller offers the payment abatement for 1 to 6 months the same way as they would any other seller’s concession (e.g. closing costs, points, etc.). They agree to pay an amount equal to the number of interest-only mortgage payments they are willing to make for the buyers. The amount of the payment abatement is still subject to the limitations of the mortgage programs. Generally, if the borrower has a 5- 10% down payment, the seller can give up to 3% of the sales price as a seller’s concession. For a 10% - 25% down payment the seller can give up to 6%. And, for a 25% or more down payment, the seller can give up to 9%.

The payment abatement program is an interest-only mortgage program and is offered as a 30 year fixed rate mortgage or a 3/1, 5/1, 7/1, or 10/1 ARM. The interest-only period for the fixed rate mortgage is 10 years (there is also a 15 year option) and the interest-only period for the ARMs is equal to the initial fixed rate period. After the interest-only period, the payment is calculated by amortizing the balance of the mortgage over the remainder of the 30 year period.
Can the buyers pay off their principal during the interest-only period?

Yes. The amount of interest due on the following payment will then be reduced to reflect the reduction in principal. May people may be uncomfortable with an interest-only loan (especially with all of the bad press they’ve received lately) so this makes them more like a traditional fully-amortizing loan. But, the buyer is the one that has to add the principal each month. This is also a good idea to avoid payment shock when the interest-only period ends and the new payments are now fully-amortizing.

Want to know more about how a payment abatement program might work for you? Just drop me an email or give me a call.

Does a Bi-Weekly payment plan save me enough money to make it worthwhile?

2007-06-29T08:12:00.000-05:00

Yes! With a bi-weekly payment program, the homeowners pay one-half of their normal mortgage payment every two weeks instead of once a month. Because you are making a payment every other week, you make a total of 26 payments a year (there are 52 weeks in a year.)

These 26 payments are the equivalent of 13 full payments for the year, versus the 12 payments you would make with the regular monthly payments. So you are essentially making one extra payment a year. Even though it doesn’t sound like a huge savings, it can really add up over time.

Let’s take a look at a $200,000 mortgage at 6.5% interest rate. Your monthly Principal and Interest (P&I) payment would be $1,264.14. By splitting that payment in half ($632.07) and making this payment every other week, you would pay off your mortgage in 23 years instead of 30 years. The savings in interest over the course of your mortgage would be in excess of $60,000.00.

Below is an amortization tables that shows a standard 30 year mortgage versus one using the bi-weekly payment plan:

So you see that the mortgage is paid off in 24 years. With the traditional mortgage, you would still have 6 years of payments left. Over the 24 years that you made bi-weekly payments, you made extra payments (that 13th payment each year) of $30,339.84, which gives you a savings of $60,751.68.

Even if you don’t plan on living in your home for 30 years, the bi-weekly program can still save you thousands of dollars in interest. After 5 years, your principal balance would be $7,730.13 lower. In those 5 years, you made extra payments of $6,320.80 for an interest savings of $1,409.33. After ten years, the cost savings would be $5,759.82 and the principal balance on your mortgage would be $18,401.42 less than with the regular payment program.

So, is the bi-weekly payment program good for everyone?

No. The bi-weekly payment program works really well for those homeowners who are sure they have the funds available when the payments are due. Bi-weekly programs almost always require an automatic withdrawal from a checking or savings account. If you typically use the 15-day grace period that is standard with a mortgage, you would NOT be a good candidate for this program. This program works very well for those homeowners who have bi-weekly pay periods, because you can make your payments fit your pay schedule to make sure the money is always there.

Can I save this kind of money without signing up for the bi-weekly payment program?

Yes. You can achieve the same results without the bi-weekly payments if you add an additional principal payment to your regular payment each month. In the above example, if you add an additional $105.35 to your payment each month (the equivalent of 1/12 of your regular payment) you will achieve the same results that the bi-weekly payments will. You will pay off your mortgage in about 24 years by adding one additional payment each year.

I actually advise my clients to do this for several reasons. First, there is usually a fee to enroll in the bi-weekly payment program. Second, if you use the grace period on your mortgage (or, if your income fluctuates and is not consistent) it can be easier to make the payments yourself and add the additional principal.

On the other hand, some of my clients see the bi-weekly payment plan as a forced savings plan. They say they don’t even notice that there are two extra half-payments made each year, and it pays down their mortgage more quickly without them even thinking about it.

Bottom line, you can save a lot of money by paying extra on your mortgage – whether you use a bi-weekly payment program or do it on your own.

How can a “carpeting allowance” be a bad thing?

2007-06-11T16:41:00.000-05:00

On many real estate sales contracts we see credits from the seller to the buyer in the form of “carpeting allowances” or “repair credit.” Basically, a buyer wants to purchase a home but wants the seller to replace the carpet or make some other repairs to the property. The sellers are unwilling to make the repairs before the close of the property, either because they don’t want to pay for the repairs out of their own pockets or they don’t want to wait to close on the property. So the sellers agree to give the buyers a credit at closing out of the proceeds from the sale.

So, what’s the problem? Sounds like everyone is getting what they want.

The problem with this is that the lender will not usually allow a credit directly from the seller to the buyer at closing. They will allow the seller to pay for closing costs, and other prepaid items for the buyer, but the money does not go directly TO the buyer. One of the reasons for this is that sellers are not allowed to provide the down payment for a home purchase to the buyers. So lenders do not allow these types of 'repair credits' because it would be an easy way for sellers to get around the no-down-payment rule.

When there is a repair credit on the contract, the lender will reduce the sales price by the amount of the repair credit and calculate the loan to value (LTV) off of that reduced sales price. For many transactions this will not have much of an affect. If the buyer has a large down payment, and if the repair credit is relatively small, the buyer will not really notice any difference.

The problems arise when the buyer has a smaller down payment, and/or the repair credit is large relative to the sales price of the property. Let’s look at the following transaction:

Sales Price: $150,000
Down payment (5%): $7,500
Mortgage $142,500

Let’s now assume that the seller is giving the buyer a $3,500 carpeting allowance at closing. The lender will reduce the sales price by the allowance and calculate the LTV off of that sales price.

Sales Price: $150,000
Allowance: $3,500
Effective Sales Price: $146,500
Mortgage $142,500
LTV: 97.2%

Now, the buyer thought they were going to be able to do a 95% LTV Conforming Fixed Rate loan. Because of the credit at closing, they either have to increase their down payment to $10,825 which would give them a loan amount of $139,175 and an LTV of 95% or, they would have to get a different mortgage program that allowed for a higher LTV. Most likely, since the buyer was only putting 5% down on the property in the first place, the second option is the most likely one. And, the mortgage programs available to the buyer now, would usually result in a higher interest rate and/or higher mortgage insurance payments on the program.

So, what can we do so everyone comes out a winner?

There are a few ways to deal with repair credits that will accomplish the goals of the credits without breaking the rules or harming the buyer. Here are three:

1) The seller agrees to lower the sales price by the amount of the credit. The sellers will still walk away with the same amount of proceeds from the sale of the home and the buyer will still be able to make a smaller down payment and get the mortgage they initially wanted. The buyers are also getting a better sales price. Unfortunately, the repairs have still not been completed and the buyers will now have to make these repairs with their own money. Chances are, they do not have the money to make the repairs or they would not have asked for the credit in the first place.

2) You can write in the contract that the seller agrees to pay a certain amount of money to a contractor of the buyer’s choice from the seller’s proceeds at closing instead of making the repairs. The money is not going directly from the seller to the buyer – it is going to the contractor for repairs agreed upon in the contract. This would have to be approved by the lender.

3) The seller can get bids for the work that needs to be completed and agree to set up an escrow account for the work to be performed after closing. The work will have to be completed, and an inspection will need to be performed, before the money will be released from the escrow account. Any money left in the escrow account after the repairs have been made will go back to the seller unless other arrangements were made. This is generally more acceptable to the lender since the money is held in escrow until the work in performed and the lender will verify that the work has been completed.

Although seller credits have not been allowed by mortgage lenders for quite awhile, I do still see them written into contracts. Many Realtors and attorneys are not aware of this, so if they are written into your contract, make sure it's done properly.