Tag Archive for 'home loan'

It's nearly impossible to refinance your house these days without the lender requiring an appraisal (unless you're a lucky FHA borrower getting a streamlined refinance--and we'll talk about that tomorrow). And normally the biggest part of determining what your home is worth is the sales prices of nearby homes. But should the prices of foreclosure and short sale properties be counted when calculating what your property is worth?

The National Association of Home Builders doesn't think so. And neither do I--here's why. Foreclosure sales are associated with many risks--there is a chance that the title might not be clear, the previous owners may have vandalised the property, and the home is often not worth what the lender initially asks. So the only way to get a foreclosed property unloaded, knowing that buyers are taking substantial risks when they open escrow, is to offer significant discounts to entice an investor. A buyer that would not have to worry about these issues if he or she was buying YOUR house.

Same thing for short sales. There is a reason that only about one in ten of these go through. The banks want to minimize their losses but are also overwhelmed with problem loans and understaffed to deal with them. So the process takes months. Lenders won't even tell the homeowner if they'd consider a short sale until an offer is presented. So the buyer doesn't even know if the bank will allow a sale. Many banks even have a policy of requiring more than one offer before making a decision.

And some just prefer to foreclose and get it over with. A local Realtor here in Reno told me about a short sale home listing that received SIX offers, two of them unconditional, all-cash deals. She called the lender every day for over five months. The employee assigned to the house finally said, "I have had this hanging over my head for months. But I can get it off my desk right now if I foreclose on it. And that's what I'm going to do right now." And she did, and the bank immediately listed the house for less than four of the offers had been. So people who buy short sale property only do it if the rewards are worth the hoops they will have to jump through--a substantial discount Which, again, they would NOT have to do were they buying YOUR home.

So, while I think that the trends in a neighborhood (prices increasing or decreasing, how long does it take to sell an average home, and the percentage of homes in foreclosure) should have a bearing on the lender's requirements, they should not be used to value YOUR actual home. The lender could simply require more equity if your credit, income, assets, or other factors aren't up to snuff. And if you are trying to sell YOUR home, don't you want it to be evaluated based on it's features and condition, rather than an artificial situation created by someone down the street who may have been an irresponsible borrower?

The Troubled Asset Relief program (TARP) was originally touted to Congress and the public as a request for funds to purchase troubled home loans, helping lenders get them off the books and loosening up money for deserving mortgage borrowers. However, once passed, that plan was junked in favor of less direct help.

TARP: What Happened to the Homeowners?
Instead of buying up bad home loans, Treasury Secretary Henry Paulson elected to purchase stock in the biggest lending institutions, in theory supplying cash to lend and thaw frozen credit markets. Treasury official Neel Kashkari claimed that this would somehow help struggling homeowners. "Our system is stronger and more stable than just a few weeks ago," he said.

New Plan Has Worked Before
The feds believe that putting money directly into mortgage markets is better because the money goes further. For every dollar banks receive, they can make more than $10 in loans because of something called the "multiplier effect." It's the way money works--for example, if a lender has $1 million in deposits it may lend $800,000 and keep only $200,000 on hand for depositors. So in effect that $1 million becomes $1.8 million. And it goes even further--that money is spent, and deposited, and loaned again, multiplying the effect of the original million on the financial system. Thos strategy has worked before: Swedish banks were successfully bailed out in the 1990s when the government bought up their stock and the economy was stabilized.

No Help for Homeowners in Sight
Unfortunately, this change means that no direct help to those in imminent danger of losing their homes will be forthcoming from TARP. FDIC Chairman Sheila Blair and House Financial Services Committee Chairman Barney Frank have warned that the foreclosure crisis will worsen to the tune of up to 5 million foreclosures over the next two years.

What Should Homeowners in Trouble Do?
If your mortgage is pulling you under, you won't get any breathing room from bailout funds. Your best chance to save your home remains with your lender, HUD housing counselors, or FHA. Hope for Homeowners has made some changes designed to help more people, increasing eligible LTVs to 96.5% from 90% and allowing 40 year terms, making refinances available to more homeowners. FHASecure allows those with ARM home loans to refinance even if they are behind on their mortgages or have credit problems--if the problems were caused by an upward reset of their ARM payment. The Treasury Department's current strategy is focused on keeping lenders afloat and driving refinance interest rates down, eventually stabilizing the economy. Those who can't wait for that should not count on help from the TARP program.

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."

These days it seems as though mortgage lenders are dropping like flies. So how does it affect you if your home loan company goes belly-up? It depends on whether you have a preapproved loan and are still house-shopping or are already making payments. Your response to the news is also driven by the reason for the company's exit from the business--if for example there is fraud involved, if the company is being sold, or if bankruptcy is in the works.

First, if you are still shopping for your home and you hear your lender is in trouble, you need to make a few phone calls. If you are working with a mortgage broker, find out what he or she knows about the situation, if your mortgage pre-approval is still valid, and if the loan product you are planning on using is still available. Keep in mind that programs are subject to change without notice and that payment option, stated income, interest-only, 100% financing, or other products may not be available even if you have been pre-approved for such a loan. Your broker should be springing into action and arranging alternative financing in the event that your lender can't close the deal when you're ready. If you are working with a bank and have a property in escrow, check with your loan officer to make sure that you are still on track to close on time. If you can't get this guaranty, preferably in writing, it's time to find another lender before an unpleasant surprise derails your home purchase.

If you already have a mortgage with a lender who is in trouble, what do you do? First, continue making payments. Federal law states that mortgage terms cannot be changed regardless of who is servicing the loan (collecting your payments). However, you want to be sure that your payments are being credited to your account properly--when someone else takes over your loan the transition isn't always as smooth you'd like. Check with your current servicer about future changes and continue to make your payments to the same address until you get TWO notices (sometimes called transfer letters). One will be from your old lender and one will be from the new servicer. Watch out for scammers! Some may deliver notices telling borrowers to make their checks out to a new lender and send them to a new address--and you might find yourself funding some dirtbag's permanent exit to Bermuda. You will also want to verify that your taxes and insurance are being paid by your lender if these amounts are included in your mortgage payment (impounded).

Finally, if your lender was shut down by regulators be extra-diligent. If there are fraud charges, find out what the lender is accused of doing. Some fraud cases involve identity theft--get a copy of your credit report asap if this is the case and put a fraud hold on your credit report. You may even want to register with a service to keep an eye on your credit information for a while. Other kinds of fraud involve misappropriation of funds such as impounded tax and insurance payments. Call your county and insurer and make sure these payments are current. Some fraud could even involve you! For example, you may have applied for a loan on an investment property, but, lo and behold, the final documents show a loan against a primary residence. Or the income listed on your application doesn't reflect what you told your loan officer. Or the property value is overstated. It is important to read everything before you sign, but if you spot something after closing on your loan, inform the authorities in your area.

Countless renters became successful homeowners in the past because of two programs: FHA mortgages and down payment assistance like the Nehemiah program. The US Department of Housing and Urban Development (HUD) allowed FHA loans to be made with very small down payments (2-3%), charging borrowers insurance to cover their default risk. The program remained solvent for decades and has largely been considered a resounding success. Borrowers who couldn't save even the tiny FHA minimum down payment could sometimes receive help through down payment assistance or community homebuyer programs, allowing them to buy a home with no down payment. And many more families became homeowners through these programs.Unfortunately, recent trends are showing that down payment assistance can have unintended results. For example, HUD discovered in a recent study that borrowers with no money of their own invested in a property are many times more likely to walk away from their homes and their mortgages than others with similar financial situations. And for the first time in its history, FHA's insurance premiums collected from borrowers will not be enough to cover its losses from mortgage defaults--meaning perhaps a taxpayer bailout is in the future.

HUD would like to change its guidelines to prohibit down payment assistance and not allow FHA mortgages in which the buyer has not made a down payment using his / her own funds. So what does that mean to those considering a home purchase today? Urgency. If you are considering a home purchase and think you might qualify for down payment assistance you may have very little time to close that deal. So STOP reading this blog and START your online search for a lender NOW. You can thank me later when you have time.