Monthly Archive for April, 2009

It wasn't long ago that my mortgage friends and I were crying in our coffee (or whatever we felt was most therapeutic to cry in!) about the lack of money for deals that made perfect sense.Sure, you could get an FHA loan with $3,000 to your name and a couple of unresolved collections, but just try and get a $700,000 deal on a $2,000,000 home. For a borrower with perfect credit--talk about backlash!

Well, sanity is returning to the mortgage market. As FHA is discovering, their losses will likely have to be made up by taxpayers. And big bad banks are learning that common sense is good business. Mortgage News Daily's survey of best mortgage rates has showed jumbo home loan rates declining steadily, almost to the same level of conforming loan interest rates. But even better news...One of the country's largest lenders announced today that they are making jumbo loans available up to 80% loan to value, to a loan amount of $1,500,000! So get on the phone, get online, get moving! Your day may have come if you're looking for premium financing.

What does it mean when a lender claims he or she is “paying your mortgage costs?" Well, it looks like that's what they are doing because of the way many structure your Good Faith Estimates (GFEs). You'll see a boat load of charges, and then (phew!) it shows the lender reversing or paying the fees. But there's no free lunch!

If you really think the loan officer is absorbing your fees out of the goodness of his or her heart (and maybe you also believe in the Easter Bunny), then there's this terrific short sale condo in a condemned building in Miami that I'd like to sell you! Just understand how this works--you will pay a higher than the average market par rate (the rate with one origination point and no discount points). Because you aren't being charged for the expenses of originating a mortgage (which cost the lender money). The higher rate is just business and is not evil unless you think everyone should work for free.

These loans have their place, but are not always in your best interest. Typically, "no-cost" mortgages, with their higher rates, will cost the borrower more in the long run--because savings are immediate, but interest can be forever. So if you plan to keep that home and mortgage more than a few years you might want to pay the fees (and maybe even a discount point or two) to spend less over the life of the loan.

The easiest way to compare loans is to ask a few lenders for two pricing quotes on the same product. Get one with no lender fees at all (including the "garbage fees" like document drawing or courier fees or processing charges). Then another one with an origination fee--one percent of the loan amoun. Do that with several lenders and it makes it pretty easy to see who has the best deal. Get these charges in writing (GFEs) and go through them. The next step is running those quotes (include the points and any "garbage fees" like courier charges, processing or documentation fees) through a mortgage calculator and seeing which has the better APR.

Finally, the lowest APR isn't always the winning deal. You can have two very different offers with identical APRs. One may have high costs but a very low rate. The other has a higher rate but almost no costs. Unless you KNOW you'll be in the home for the duration of that mortgage, take the loan with the lower costs. Then you won't be paying for a low rate on a mortgage you don't even have anymore.

Drop the word "foreclosure" into almost any conversation and you'll hear something like: "loose lending...irresponsible borrowers...dead real estate market...what do you expect?"

But what you probably won't hear is that one of the biggest causes of losing a home--even today--is medical.
Even now with economy seemingly on its way to hell in a handbasket, a study by Physicians for a National Health program (PNHP) found that big medical problems contribute to half of all home foreclosure filings. Nationwide, medical problems could cause up to 1.5 million Americans to end up in foreclosure each year.

Half of all study subjects (49%) claimed that their foreclosure was caused at least in part by a medical problem, including illness or injuries (32%), unmanageable medical bills (23%), lost work due to a medical problem (27%), or caring for sick family members (14%). In addition, 37% paid more than $2,000 of medical bills out of pocket in one year, 30% lost two or more weeks of work because of injury or illness, and 8% became disabled and unable to work. In addition, 13% used their home equity to pay medical bills. Altogether, about 70% of those studied had medical cause of foreclosure or loss of work due to medical disruptions prior to foreclosure.

The study's findings indicate that there is a lot more going on in most mortgage foreclosures than most people think. It's not just bad loans, bad properties, or bad borrowers. Many mortgage foreclosures are the result of unpredictable medical problems that kill incomes and crush families with expenses.

However, while a specific medical problem probably can't be predicted, it's pretty obvious that most people will experience a serious illness or injury at some point during their earning years. So if you don't have medical insurance now, get some. It's almost more important than a secure job. And if you can't afford it, investigate public programs. Or get catestrophic coverage just for the biggest emergencies. Also look into medical savings accounts (MSAs). Consider your medical coverage when building an emergency fund. While healthcare in this country leaves a lot to be desired, we do need to take care of ourselves as best we can. It's good for our health. And our finances.

n normal term life insurance policies

It's pretty slick. You want to buy or refinance your home, you're worried about the economy, and of course there's always someone looking to prey on those fears. Don't let them.

But you want to be a good guy, right? A smart guy! So what's wrong with "protecting" your loved ones from being brutally tossed from the family home in the event of your disability or death? It would be short-sighted or hard-hearted to do otherwise, right?

Wrong.

Mortgage life or disability insurance isn't the mortgage insurance you pay if you finance more than 80% of your home's value. That's required by lenders for their protection, not yours. But what if you want protection for yourself? Shouldn't you buy mortgage life insurance?

Interviews with state insurance commissioners, home lenders, private actuaries and insurance company executives reveal mortgage life insurance to be a high-dollar, high-profit business for financial institutions that sell it.

Unlike most forms of insurance, its pricing to the homeowner is set through what regulators call a “reverse competition” process. That means that the most expensive insurance policies are most likely to be offered to you because they pay the most generous commissions. The comparison-shopping is done by the lending institutions who search for the best deal for themselves--not by the homeowners who pay the monthly premiums.

Commonly the best deal means a lump-sum commission of 30 percent to 40 percent of your first year premium directly into your lender’s pocket. On top of that there may be bonuses or other compensation, plus 15 percent to 20 percent commissions on your annual premiums for the length of your mortgage.

Mortgage life insurance policies guarantee that in the event of your death, the full principal balance of your loan will be paid to your lender. The attraction is that your family or heirs will be relieved of the heavy financial burden of paying off the mortgage or being forced to sell the house. Premiums can be included in your monthly mortgage payment, making it very convenient for you to give your money away. It’s a popular product: As of 2008, according to the American Council on Life Insurance, $57 billion of coverage was in force nationwide.

The president of the National Association of Insurance Commissioners claims that mortgage life insurance is often “overpriced” and even “abusive” to homeowners. His group recently finished a two-year, national study and discovered that an average 38.8 percent of annual premiums paid on such policies benefited consumers in the form of claims payments. That's very low. And it's worse in some states, such as Louisiana. There, seventy-five cents of every premium dollar went to the insurance companies and only twenty-five cents was paid in claims.

On normal term life insurance policies, this payout is typically 50% to 70%.

So the bottom line is that, however persuasive the sales pitch is, you are far better off insuring your life or income through conventional insurance channels. If your family will need money to pay off a mortgage if you die, get regular life insurance. You'll pay a lot less for it.