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Highlights, Lowlights, and Reading Between the Lines of Mortgage News

July 31st, 2008

Mortgage news was dominated by two items this week:

On the surface, the first would seem to be a highlight, and the second a lowlight, of the week’s mortgage and housing news. Reading between the lines, though, reveals that the first item may not be as good as it’s been reported, but the second item may not be as bad.

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Perfect Storm for Home Buyers

July 30th, 2008

For once, “It’s a Great Time to Buy!” isn’t just a bunch of real estate industry hype. Remember, these people were crowing, “It’s a great time to buy!” right up to the moment the housing market crashed and proved that salespeople are not the best industry forecasters, duh. But current economic and market conditions are in fact creating an environment for buyers that may be extremely favorable but not long-lived.

Incentives created by the newly-signed housing bill HR 3221 are designed to provide a quick shot to the housing market and may not be around long. Effective immediately, there is a first-time buyer credit (which others not technically “first-time” buyers may qualify for as well) of $7500, but it expires July 1, 2009. Conforming, FHA, and VA loan limits, which were raised as part of the economic stimulus package, will drop in many areas, although the new law raises the limits somewhat higher than limits in place before the stimulus package passed.

In addition, interest rates have been inching up. While still relatively low, many economists feel that rates are far more likely to increase than decrease in the coming years. And while buyers can’t be absolutely certain that the housing market has completely bottomed out, most experts say that the only way you know prices have hit bottom is when they rebound–and at that point its too late to take advantage of it.

What today’s buyers can take advantage of are lower home prices, fairly low mortgage rates, tax relief, and higher loan limits (meaning lower prices and greater availability for financing). If you can afford it and home ownership makes sense, you may never find a better time than the present to make a solid investment.

“Keys” Helpful? Probably Not

July 28th, 2008

Fannie Mae’s new initiative, dubbed “Keys to Recovery” looks great at first blush. Those with mortgages underwater can refinance them, up to 120% of the current home value. Wow.

 But a closer look shows this isn’t the rescue effort it appears to be. First, the loan has to already be on Fannie Mae’s books, and the refinance has to improve the borrowers’ position, either by fixing their adjustable rate or lowering the payments. But Fannie Mae loans haven’t been the main source of borrower misery in this country–people in Fannie Mae loans aren’t having the payment shock and other problems others have had because these people qualified for prime loans at conventional terms. And rates and indexes haven’t gone up all that much. So, Fannie Mae is taking a loan it owns and making it a little less likely to end up in default. And using the PR to paint it as some kind of ‘rescue’ effort.

 Maybe for its own shareholders…..

New Home Buyers Need to Focus on Forward Mortgage News

July 24th, 2008

With all the mortgage news coming out these days, it is important for new home buyers to distinguish between stories which primarily affect existing home owners and borrowers, and those which will impact future buyers.

As an example of the range of stories over the past week:

New home buyers should have a different take on these stories than the angles widely reported by the media.

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They Really ARE Crooks……

July 21st, 2008

The latest big mortgage news is from Florida (again!). The Miami Herald found that the majority of the state’s mortgage professionals are unlicensed, and worse, more than 5,000 of them are convicted felons! And this isn’t some mass-violation of the law–this practice is perfectly legal. What gives?

The deal is that while it’s illegal in Florida (as in most  states) for mortgage brokers or lenders to have a criminal record,  loan officers, loan originators, account executives, mortgage finance officers, or whatever the sales force members are called are allowed to. The broker / lender is considered responsible for the practices of his / her employees and is held legally accountable. This loophole has resulted in those who were stripped of broker’s licenses because of abusive lending practices getting right back into the industry, however. They just become loan originators and work for another broker. And there are brokers out there who don’t check the backgrounds of their employees (it’s not required by law) and don’t police their lending sufficiently.

So, how do you make sure the nice person sitting across from you isn’t on parole for something? First, know that you will almost certainly get a fair deal from an honest lender–the odds are overwhelmingly in your favor. Real estate expert Robert Bruss, in an article about financing real estate, states that “most mortgage lenders are honest.” As does Realty Times, which declared that while there are some “bad apples” you can expect honest dealing from the “vast majority” of lenders.

Second, learn what your state’s licensing provisions are. Some are quite rigorous, requiring background checks, continuing education, and even examinations in order for a loan officer to obtain a license. Others are less stringent, and some states have no requirements at all. Here is a good listing of state requirements for loan officers.

Third, check out the lender with your state licensing bureau. Check out this site for states which have lender databases online. You can generally find out if its licensing requirements are in order and if there are pending actions or investigations.

Fourth, shop with several lenders before making a commitment. Getting quotes from several mortgage loan companies can help you ensure that you are offered a fair deal.

Finally, really read your disclosures and know that in mortgage lending an oral agreement isn’t worth the paper it’s (not) written on. The most often-voiced complaint of borrowers is that the loan terms disclosed up front are different at closing. If the interest rate, terms (such as the addition of a prepayment penalty), or fees (disclosed in the Good Faith Estimate) have changed and you weren’t told about it before closing, don’t sign the documents. Hold off until the confusion is cleared up and you get a reasonable explanation or the loan terms you expected.

When refinancing a primary residence, borrowers get three days (called a rescission period) to undo the loan–use that time to be certain that your loan is what you expected. When buying property, insist that you get copies of your closing documents a day or two early. Then you can thoroughly go through them and ask questions under less pressure.

Finding a lender you  work well with and trust is as important as finding a trustworthy repair-person or babysitter. And the amount of money involved is serious stuff. A little research upfront can save you money and keep you from pulling your hair out.

Mortgage Foreclosure: The Latest Marketing Gimmick

July 18th, 2008

Forget suggestions about what to do with your government rebate check; that is SO two months ago. Today’s timely marketing is all about mortgages and foreclosures. Even the New England Patriots are getting into the act by co-sponsoring (with the Federal Reserve Bank) a mortgage extravaganza at the ballpark.

Okay, so any way to fill up a stadium….but it’s actually kind of cool, the idea of bringing all parties together for what looks to be a genuine problem-solving session, not just a photo-op or a pity-party. Homeowners who have a troubled mortgage should bring income, expense, debt and mortgage documentation with them. Lenders and servicers will include Bank of America, Chase, Citigroup, Countrywide, EMC, Freddie Mac, GMAC Rescap, Home Loan Services, HSBC, Indy Mac, Litton, National City, Option One/American Home Mortgage, Saxon, Suntrust, Washington Mutual and Wells Fargo. Housing and credit counselors also will be on hand.

Perhaps if this accomplishes something there will be more. Maybe even with hot dogs and beer…..

Heads-Up Borrowers: Dramatic Week for Mortgage News

July 17th, 2008

There were mixed messages for borrowers in this week’s mortgage news, but there was certainly no shortage of headline-worthy stories:

The message on balance was that potential mortgage borrowers may not want to delay exploring their options, as long as they make educated choices about their loans.

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Govt Support of Fannie Mae & Freddie Mac Important for Consumers

July 16th, 2008

The US Treasury Department’s plan to increase the two mortgage giants’ lines of credit and stabilize their liquidity is important to consumers looking for mortgage financing or refinancing. As long as Fannie and Freddie are able to purchase loans, banks and other mortgage lenders will be able to continue to offer mortgages to their clients  with reasonable terms and at relatively affordable rates.

According to MarketWatch, solid borrowers with good credit, reliable income, and substantial equity or down payments will be able to get loans with no problem anyway. However, Fannie Mae and Freddie Mac keep additional money in the mortgage lending pool, which allows more consumers to be able to obtain real estate financing at decent rates. This additional liquidity is needed to speed up the recovery of real estate markets in troubled parts of the country, dry up the oversupply of housing, get more first-time home buyers into the market, and allow homeowners to once again build equity in their property.

How Long Does a Short Sale REALLY Take?

July 14th, 2008

A year ago most of us probably didn’t even know what a short sale was. And now they are all the rage–buyers want to know what hoops they have to jump through and how much can they save on their home purchase, and sellers want to know how to unload a home that is draining their resources and can’t be refinanced or sold conventionally.

Well, here are answers to some of those questions. This is a short sale timeline from one of the larger lenders in the US, showing how the process may go and the time each step generally takes.

The Short Sale Timeframe
A short sale approve / decline can take 30-60 days from the date the offer is received. Several stages determine this timeframe:

  • Day 1: Legitimate offer (legitimate means all needed documents are included, such as listing agreement, MLS listing, preliminary HUD-1 from the title company, hardship letter from the owner, and a signed purchase agreement)
  • Day 2-15: Order appraisal
  • Day 15-25: Owner considerations: (owner to provide needed documentation to determine hardship and ability to contribute to the loss, this timeframe depends on current owner’s compliance)
  • Day 25 - 30: Negotiate delegated decisions.  Non-delegated decisions will take an additional 30-60 days. Investors like Fannie Mae and Freddie Mac and insurers (FHA, VA, MI companies) have to approve the short sale before it can procede.  Subordinate lenders (such as those who hold second mortgages)  must agree to accept a reduced payoff amount to release their lien.
  • Day 30 - 35: Approve or decline.
  • Day 35 – 80: Proceed with sale until closing.

So, if you are the buyer, note that many of these stages depend on the seller complying with the lender’s requirements and providing needed documentation. Even a fair offer can be derailed, if for example your seller misrepresents the degree of hardship claimed. If you are the seller, note that some of these steps vary greatly in the time needed to complete them. You should plan on making your mortgage payments through this period; it would be terrible to be foreclosed on when a successful sale was making its way through the approval process.

Fannie Mae 120% Refinance: Off and Running August 1?

July 11th, 2008

The near-collapse of mortgage giant Fannie Mae doesn’t appear to have yet derailed its latest initiative called “Keys to Recovery,” a program including provisions for refinancing “underwater” properties for up to 120% of the home’s value. There are some stipulations: first, if you want to refinance, your current loan has to be a Fannie Mae loan originated according to Fannie Mae guidelines. Second, you have to be current with your mortgage payments. Fannie Mae originally committed to begin buying these loans on August 1st. Interested consumers can begin checking with lenders now to see who will be offering the program and when they can apply for a refinance.