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Monthly Archive for October, 2008

Fannie Is Getting Smart: Listen to Her

Published
by
Gina Pogol
on October 29, 2008
in New Home Loan
. 0 Comments

Fannie Mae will require homeownership counseling for first-time buyers without solid credit histories or strong loan applications. This is expected to lower the risk of borrowers getting into trouble and ending up in foreclosure. Now, while sub-prime borrowers don’t have to comply with Fannie Mae’s requirements, why wouldn’t you want to do something that could reduce your own risk of mortgage problems? Continue reading ‘Fannie Is Getting Smart: Listen to Her’

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2.5 Million Served - Foreclosure Prevention Is Working

Published
by
Gina Pogol
on October 28, 2008
in Foreclosure
. 0 Comments

HOPE NOW, the private sector coalition of ownership counselors, mortgage lenders and servicers, and investors has focused its efforts on preventing foreclosures and keeping homeowners in their residences. As of today, the organization reported that nearly 2.5 million homeowners have avoided foreclosure and been able to stay in their homes since July 2007. In addition, cooperative mortgage lenders helped 212,000 homeowners sidestep default or foreclosure in September.

In September, mortgage servicers helped homeowners avoid foreclosure by creating 212,000 loan workouts, which involve modification to the terms, lowering the balance, refinancing arrearages, a combination of all three. Barring an unforeseen life event such as a job loss, death, or illness, all workouts are designed to enable a homeowner to remain in his or her home as long as he or she wishes to do so.

Here’s an example of how a loan modification might make it possible to avoid foreclosure. Miss Jones bought her home for $250,000 with a zero down ARM loan starting at 4%. Her payment was $1,195. Next year, her rate increased to 6% and the payment to $1,491. By year three, she was paying 7.75% and the payment had increased to an unaffordable $1,767. While she paid her balance down about $11,000 in three years, home values dropped too. So Miss Jones had’t enough equity to refinance–yet she could’t afford her payments either. She missed two payments, added about $3,000 to her principal–now she owed more than her home was worth!

Miss Jones was capable of making her mortgage payment when it was $1,491. By getting the lender to cut her balance to $200,000, she could get her payment to 1,475 at her current rate. But very few banks or investors are willing to take a $45,000 hit to avert foreclosure. What else can a lender do to help?

  1. Finance arrearages. The loan can be officially brought to current status with a small second mortgage. At five years and 6% the payment is only $58. And the credit damage stops piling up.
  2. Change the interest rate and term. By granting a new loan with a 40 year term and fixing the ARM at 6% for the next 5 years, Miss Jones gets a more manageable payment of $1,348, whoch added to the $58 second lien means that Miss Jones has a guaranteed manageable payment of $1,406 for the next 5 years. In that time it is likely she will have equity and enjoy more solid financial footing.

Suggesting that your lender write off huge loan balances doesn’t go down well with investors, and it’s harder to get that kind of concession. However, there are many things you can tweak to get a manageable payment and keep your home.

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Foreclosures Create Problems for Tenants

Published
by
Gina Pogol
on October 22, 2008
in Foreclosure
. 2 Comments

The San Jose Mercury-News throws light on a problem in many housing markets. The surge in foreclosures not only hurts those trying to sell homes, it affects renters looking for homes too. Tenants may find themselves in a double bind–the landlords continue to collect their rents but do not make the mortgage payments on the properties. The landlords have the tenant’s security deposits as well. And while legally the deposits belong to the tenants, in foreclosure or bankruptcy proceedings the money may not be returned for a long time, if at all.

So the poor tenants find themselves evicted by the new owners, with no security deposits to give a new landlord. In addition, the explosion of foreclosed properties being rehabbed for sale has left a dearth of homes available for rent. So rents are higher and harder to get, adding insult to injury. In other words, it’s a great time to be a landlord and a lousy time to be a tenant.

How can you prevent this? First, check a property’s status before signing a rental agreement. The landlord checks your background, you should check his. Notices of Default are public filings and the county should make records pertaining to the property and the owner available to you. For example, in Washoe County in Nevada you could go to the County Assessor’s Web site, type in an address, and find out who owns the property. Then, you check the County Clerk’s Web site, type in the name of the owner, and any filings involving the company or individual will show up. Even if the property in question isn’t in default, a slew of filings on other properties should alert you that maybe this person isn’t a good risk. Finally, many court systems allow you to check for legal filings too. In Washoe County you can check District Court cases–enter the person’s name and up come any lawsuits in the system.

 Remember: Your landlords will check you out–you owe it to yourself to return the favor.

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HOPE for Homeowners: Finally, Real Foreclosure Help from HUD

Published
by
Gina Pogol
on October 17, 2008
in Foreclosure
. 4 Comments

List of Lenders Who Are Participating in the HOPE for Homeowners (H4H) Program

HUD officials estimate this program could help about 400,000 homeowners to keep their houses. Today the agency released a still-growing list of lenders voluntarily participating. HUD strongly urges homeowners in trouble to contact the servicing or loss mitigation departments of their lenders as soon as possible.

 If they are unable to reach someone who can help or are uncomfortable dealing with their lenders directly, there is help avaible through approved housing counseling services.

The list will be updated on Fridays. If your lender isn’t on it yet keep checking. And stay in contact with its workout department. If you truly want to keep your home and can afford it (with reasonable modifications) then don’t give up.

 And check out the recent NINJA post for ideas on retrenching and keeping that roof over your head.

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Are You Up for a Fixer-Upper?

Published
by
Gina Pogol
on October 15, 2008
in New Home Loan
. 5 Comments

One result of the increase in foreclosure sales is a surge in “distressed” properties on the market. So maybe this creates an opportunity for those shut out of the market before. There are discounts out there, but what’s involved with getting a fixer-upper? You’re willing to do some work–is anyone willing to lend you the money? 

The FHA Streamline K program may be just the ticket. You get a single loan to purchase and rehabilitate your property. Here’s what you need to do:

* Find a property. Your purchase offer must state that you will need a 203(k) loan to complete the purchase.

* Find a contractor to write an estimate of work needed and materials required. You aren’t allowed to do the work yourself unless that’s your line of work. Even then, you won’t be allowed to pay yourself. But you may be allowed to save money by doing cleanup and hauling.

* Find a lender approved to do 203(k) loans. Get your mortgage application approved. Get your project appraised (there will be two–before and after–and your loan will be based on the cost of buying and fixing, not the home’s eventual value.

* Complete repairs. When the loan closes, the seller will be paid and the remaining funds will be held in escrow for the contractor.

* Move in! Once the repairs are complete and approved, the builder receives final payment. You owned a “fixed up” house that may already be worth more than you paid. Those willing to make a little extra effort can benefit. It’s true that hard circumstances can create opportunities for those willing to look.

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Help for NINJAs: No Income, No Job, or Assets

Published
by
Gina Pogol
on October 13, 2008
in Uncategorized
. 5 Comments

It’s about to hit the fan, your job is history, and you know it. And your “emergency fund” just funded an emergency jaunt to Vegas. This is exactly the point at which some sort of financial suicide instinct kicks in. For many people, anxiety about money creates a compulsion to spend whatever’s left. Wrong! Even if bankruptcy is in your immediate future, eleventh hour stupidity can get your filing kicked right out on its impulse-buying little butt.

So get serious and into survival mode (yes, there is Ramen in your future–deal with it).

* First, anything not related DIRECTLY to survival goes. That means you can have food (in its cheapest guise–your local organo-heaven offers classes for turning $1.09 worth of dried beans into um, fuel).

* Reevaluate your shelter–if you own your home, well, you’ve probably heard about the hoops you need to jump through to get a short sale approved. If you have a line of credit, max it out while you can, then ration it out as needed for survival. If you can’t borrow against your house or sell it quickly, consider renting out your place and finding a cheaper lease. Or get a roomate or three to help with expenses. The cable bill? Not even gonna ask that one–turn it off voluntarily and avoid the extra meanie charges.

* If you manage to score a new job fairly quickly, talk to your mortgage lender about bringing your account current, adding the arrearages to your balance and going on as before (except this time you’re not going to get silly with the emergency fund, are you!). Do your best to keep up health insurance, but sell your car if you need to. The last thing you need are insurance and car payments when you have no job. And public transportation builds character…

* Ebay, Craigslist, whatever….Sell it. Be ruthless. Simplify your life and concentrate on rebuilding.

* Divest All non-retirement investments. Borrow against or sell life insurance policies. But….

* Leave retirement accounts alone. If you end up in bankruptcy they’re untouchable. Unless you make the mistake of giving them away before you get there…

* Take care of business. Yes, get down to the unemployment office and file for your benefits–but don’t stop there. Chances are you acquired some marketable skills at your previous job, and if your current industry is going through a slump you can sidestep into another. Many employment divisions offer career counseling. Or try the counseling at your local community college–you may find a new career altogether. And financial aid for training isn’t out of the question either. Maybe check out entrepreneurship. Are you good with recalcitrant laptops? Tap your network and get the word out. Detail cars, babysit pets? Run errands? Yes, there are people with more money than time –find them!

Don’t worry about taking stopgap measures–none of them have to become permanent careers, unless you end up liking them. Who knows? You may be the future ultra-famous author of “100 Things You Can Make with Ramen that Don’t Suck.”

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Living in the Boonies? 100% Home Loans Still Available Through USDA

Published
by
Gina Pogol
on October 3, 2008
in New Home Loan
. 15 Comments

100% mortgages have not gone completely by the wayside. While layering risk by lending to borrowers with low credit scores + no down payment + no income documentation will no longer fly (good!), there are programs out there for those who don’t face all of those challenges. The USDA Rural Development home loan is one such option. What is rural? The USDA has defined rural as anything not ”places of 50,000 or more people and their adjacent and contiguous urbanized areas.”

USDA Rural Development administers a couple of  programs: Guarantee and Direct. Their Direct program is funded directly (hence the name “direct,” duh) through the rural development office. To be eligible, your income can be only 80% of the median income for the area.

The Guarantee program is funded thorugh USDA-approved lenders and brokers. It is a guarantee program (duh, again!)with no subsidies, and the income guidelines allow up to 115% of the median income after certain adjustments. A good loan officer who specializes in these products should be able to help you determine how your income would be considered.

The 100% LTV mortgage amount is determined by the appraised value instead of the purchase price. Credit underwriting is flexible and the guidelines have no minimum buyer out-of-pocket expense and no maximum for seller concessions. Note: some lender policies may be more restrictive, so if it’s the lender guidelines shooting down your application and not the USDA’s,  another lender may be able to approve you.

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Rate Shopping: Bait and Switch?

Published
by
Gina Pogol
on October 1, 2008
in New Home Loan
. 3 Comments

Increasingly common scenario: you call a couple of mortgage lenders, tell them what you need, and get two interest rate quotes. The next day you might contact another one, and the guys you emailed for quotes on day three get back to you later that day or the next morning. On day four, you consider the terms of all the loans, just like you’re supposed to. You look at APRs, rates, and fees. You comb through the Good Faith Estimate (GFE) and your Truth-in-Lending (TIL) disclosures like the smart shopper you are. Then you call the lender with the best deal.

Except that deal went away three days ago. The new quote is half a point more! Is your agent a scum-sucking scammer? Maybe….but probably not. See, rate quotes are based on pricing in bond markets, which are driven by the same things that cause changes in the stock markets. And you know how quickly prices change there. While lenders used to be able to offer the same rates for several days, increasingly they rarely go a full day without having to reprice to accommodate market movements. Today’s lenders also operate on slimmer profit margins and a market-based price increase can’t be absorbed as easily. The upside is that pricing improvements are also quickly passed on in the interest of remaining competitive. But a quote obtained one day probably can’t be compared realistically to one picked up a couple of days later. And until you actually lock in your loan you still can’t be guaranteed a rate.

So how do you become a savvy shopper? 

First, get your information quickly. Try to get all your quotes within a short time period so that comparing them has some relevence. 

Then don’t let the pricing be your only guide. Interview lenders until you find one you are comfortable discussing your finances with, asking questions of, and (yes) negotiating interest rates with. A trustworthy and reputable loan officer will want your business again and again and will be less likely to jerk you around. When you work with someone you trust, you can stop frantically checking bond market movements sixteen times a day and relax, knowing that you will be treated fairly regardless of where rates have moved when you are ready to lock your loan.

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