Mortgage rates have risen over the past few weeks, contributing to a decline in mortgage applications. The average rate on a 30-year fixed mortgage was 4.83 percent this week, compared with 4.61 percent last week, according to Freddie Mac. This rate was 4.17 percent in November, the lowest point recorded by Freddie Mac since it began tracking rates in 1970.

Historical mortgage rates

Have you been dragging your fee about applying for a mortgage refinance or a loan to purchase a home? If so, don’t panic. While mortgage rates have risen during the past few weeks they are still near historic lows. For instance, if you had applied for a mortgage in October 1981, 30-year fixed-rate mortgages were averaging 18.45 percent, according to HSH Associates. Even as recently as 2008, mortgage rates rose above 6 percent.

Improve your profile as a borrower

Mortgage rates can change at any time, but that’s no reason not to shop around to find a good deal. Take steps now to make yourself a more attractive candidate for refinancing or a new home loan. Use the following tips to improve the chance of getting a mortgage:

• Clean up your credit. Read your credit reports to find inaccurate or outdated information. Contact the credit reporting agency and creditors to clear up any mistakes. Do not wait until you are about to apply for a mortgage loan to do this.
• Pay off as much debt as possible. Not only do credit cards have high interest, but having too much debt from them can keep you from getting approved for mortgage refinancing or a loan to purchase a property. The less high-interest debt you have, the more income you can put toward monthly mortgage payments.
• Save as much as possible. Whether you are trying to refinance or buy a home, your ability to bring more cash to the closing can improve your chances of getting a loan. When buying a property, the larger the down payment, the less your monthly payments on a mortgage. If you are refinancing, bringing cash to closing–a cash-in refinance–can boost your home equity, making you a more attractive loan candidate to mortgage lenders.

Shop for mortgage deals

Mortgage rates may continue to climb, or they may fall again. You can’t time the market, so it’s not really worth it to try. If you really want to get a home loan to purchase a property or refinance, go ahead and do what you need to do to qualify for the best loan.

Cases of wrongful foreclosure are on the increase, according to a USA Today article. Reports are pouring in of homeowners who are battling foreclosure proceedings even though they are current on mortgage payments. The mess is being related to stories about banks robo-signing foreclosure documents without reviewing them. Although most of the robo-signing involved people who had stopped paying on mortgage loans, it appears that some homeowners are being targeted for foreclosure proceedings.

Mortgage foreclosure snafu

The USA Today story uses examples of people who were foreclosed upon by banks that they never had mortgage loans with, people who had never missed payments, and even a guy who paid for his house with cash. In some cases, people’s homes were ransacked and padlocked, and their belongings were taken away.

According to the article:

“This is the worst I’ve ever seen it,” said Ira Rheingold, an attorney and executive director of the National Association of Consumer Advocates. Diane Thompson, a lawyer with the National Consumer Law Center, has defended hundreds of foreclosure cases. “In virtually every case, I believe the homeowner was not in default when you looked at the surrounding facts. It is a widespread problem throughout the country.”

Lawsuits involving mortgage mess

Some homeowners in wrongful foreclosure cases are attempting to fight back by filing lawsuits against mortgage lenders. Class-action suits have been filed against mortgage lenders in Kentucky and California who foreclosed upon homeowners who claim they made mortgage payments after having home loans modified.

So just how widespread are instances of wrongful foreclosure and could you become a victim? There don’t appear to be any formal statistics for how many homeowners have been affected. But according to the USA Today article:

Tammie Lou Kapusta is a former paralegal with the law offices of David J. Stern, a Florida firm that works for all the major banks and handles up to 70,000 foreclosure cases a year. Kapusta testified in September that she received as many as 50 calls a day from homeowners who said they were the victims of mistakes. But she was told, she testified, to ignore the callers and push through the foreclosures anyway. The law firm is under investigation by the Florida attorney general.

The take away

A lesson to be learned from all this is to always pay attention to correspondence from your mortgage lender. Open all mail in a timely fashion and address any concerns immediately. Apparently having good credit and making mortgage payments on time is no guarantee that you won’t become the victim of a wrongful foreclosure.

The “shadow inventory” of U.S. real estate rose to 2.1 million homes in August 2010, according to data from CoreLogic, a mortgage research firm. These numbers represent an 8-month supply of homes, compared to a 5-month supply, or 1.9 million homes, a year earlier.

Troubled home loans

Shadow inventory includes homes that are in foreclosure, homes that have mortgage loans that are at least 90 days past due, and real estate owned (REO) properties owned by mortgage lenders but not yet listed for sale. Shadow inventory usually is not included in official statistics about unsold properties. The visible supply of unsold inventory was 4.2 million units, unchanged from a year earlier.

The total supply of unsold homes at the end of August was 23 months, compared with 17 months a year earlier. Usually a supply of 6 to 7 months is considered normal.

“The weak demand for housing is significantly increasing the risk of further price declines in the housing market,” Mark Fleming, chief economist for CoreLogic, said in a statement. “This is being exacerbated by a significant and growing shadow inventory that is likely to persist for some time due to the highly extended time-to-liquidation that servicers are currently experiencing.”

Problems with shadow inventory

Homes included in shadow inventory may be difficult to sell even if they eventually are put on the market. They may be located in areas that have many distressed homes. The properties may need a lot of repairs before they can even be marketed properly.

Delinquent mortgage loans

Meanwhile, the delinquency rate for mortgage loans fell to a seasonally adjusted rate of 9.13 percent of all loans outstanding at the end of the third quarter of 2010, according to the Mortgage Bankers Association.

Michael Fratantoni, MBA’s Vice President of Research and Economics, said in a statement:

“Most often, homeowners fall behind on their mortgages because their income has dropped due to unemployment or other causes. Although the employment report for October was relatively positive, the job market had improved only marginally through the third quarter, so while there was a small improvement in the delinquency rate, the level of that rate remains quite high. As we anticipate that the unemployment rate will be little changed over the next year, we also expect only modest improvements in the delinquency rate.”

The delinquency rate includes mortgage loans that behind at least one payment but not in the process of foreclosure. The quantity of home mortgages that were in foreclosure fell to 4.39 percent in the third quarter, down from the previous quarter and down from a year earlier.

A new Federal Trade Commission (FTC) rule is aimed at cracking down on mortgage relief companies that make use deceptive practices. Some homeowners who are struggling financially have become victims of various mortgage relief scams that have proliferated during the housing crisis.

No advance fees for mortgage relief

The FTC rule makes it illegal for firms offering help with mortgage loans to collect advance fees before any services have been provided. Some companies that offer foreclosure rescue or loan modifications services have required homeowners seeking assistance to pay large sums of money upfront without delivering on their promises. Some of the companies claim that they are affiliated with the government and government programs that offer housing assistance.

“At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results,” FTC Chairman Jon Leibowitz said in a statement. “By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams.”

Documentation before collecting money

Now mortgage relief companies must provide written proof that a mortgage lender or servicer has agreed to make changes to a mortgage loan before any fees can be collected. Companies that offer help with mortgages also must inform consumers that they have the right to turn down an offer without paying any fees.

Mortgage relief firms also must disclose to consumers that:

• They are not affiliated with or approved by the government
• They are not affiliated with or approved by mortgage lenders
• Mortgage lenders may not agree to modify home loans
• If they tell customers to stop making payments on a mortgage, that they could lose their home and damage their credit

False claims about help with home mortgages

Mortgage relief companies also must refrain from making false claims about their services. Among those false claims are those that about the likelihood that customers will get the results they want, refund and cancellation policies, whether the company provides legal representation for consumers, and the amount of money a homeowner will save using the company’s services. The FTC rule also prohibits mortgage relief firms from telling consumers to stop communicating with their mortgage lenders or loan servicers.

Millions of Americans take a tax deduction for their mortgage interest payments each year. For many people the tax deduction is considered as a perk of being a homeowner, and for many people getting the tax break is viewed as a right. So what’s up with the government’s deficit reduction commission entertaining a proposal to change the mortgage interest deduction?

Trying to reduce the deficit

First, it’s important to understand why changes are being proposed. President Obama established the National Commission on Fiscal Responsibility and Reform to propose recommendations to cut excess spending and balance the nation’s budget. “We must stabilize then reduce the national debt, or we could spend $1 trillion a year in interest alone by 2020,” states the Commission in their draft proposal of Nov. 10, 2010.

Limiting mortgage interest

Proposed tax reform measures include limiting the mortgage interest deduction so that second homes and home equity loans would be excluded. Also, the mortgage deduction could have a cap of $500,000 instead of the current $1 million. Reaction to the proposed change in the deduction for mortgage interest has been met with concern and outrage.

Michael D. Berman, CMB, Chairman of the Mortgage Bankers Association, said in a statement:

Given the fragile state of the nation’s housing market, now is not the time to be scaling back incentives for homeownership. The mortgage interest deduction is one of the pillars of our national housing policy, and limiting its use will have negative repercussions for consumers and home values up and down the housing chain … We share the widespread concern over the growing national debt and want to help identify reasonable solutions, but we cannot support proposals that would chip away at the foundations of the real estate market.

A setback for the housing market?

Bob Jones, chairman of the National Association of Home Builders said in a statement:

Tampering with the deduction would be a major setback for today’s slowly emerging housing recovery. It would disrupt the plans of young households who are gathering their financial resources to purchase a home. And it would impose a substantial tax burden on existing home buyers, many of whom continue to stay current with their mortgage payments even as they struggle to make ends meet.

Arguing against the mortgage deduction

However, some tax experts say that the mortgage deduction should go. “What the subsidy is doing is driving up prices by encouraging well-off people to take out bigger loans, to buy bigger houses,” Roberton Williams, a fellow at the Tax Policy Center, told the New York Times. “So I think there’s a question about whether that is something the government should be doing with tax money.”

The deficit reduction commission is looking at many areas, not just mortgage interest deductions. If you feel strongly about any of the measures in the proposal, you can email comments and suggestions to the commission at commission@fc.eop.gov.

Despite continuing struggles in the housing market, a majority of Americans still believe that buying a home is a good investment. A survey by the National Association of Realtors found that 68% of those polled strongly believe that buying a home is a good financial decision.

Job security and mortgages

The survey measures how affordable housing issues affect consumers and found that concerns about job security were at the highest level in eight years. About 70% of those polled said job layoffs and unemployment were a big problem in their area. The job situation makes it tough for many people to qualify for a home loan or get approved for a refinance.

Even with the tough conditions, 39% of renters say owning a home in the future is one of their highest priorities and 24% say it is a moderate priority. Only 21% of renters said owning a home is not a priority. If you’re among those who currently rent but believe that home ownership is in your future, here are some things you can do to prepare yourself.

• Pay off all debt.When it comes time to get a mortgage, you’ll want to have the lowest debt-to-income ratio and the best credit score possible. Pay off credit cards, student loans, and other debt while you are still renting. After those debts have been paid off, put the money you that used to go toward those payments into a savings account. The more money you save for a down payment, the better position you’ll be in when you’re ready to compare mortgage loans.
• Research the ins and outs of getting a mortgage. Read newspapers, magazines, books, and online sources of information to learn more about buying a home. Many homeowners who made the mistake of applying for mortgage loans without doing their homework are now facing foreclosure and other financial problems. Getting as much knowledge as you can about the home buying process will equip you to make smart choices when you finally get ready to buy a home.
• Stay employed for as long as you can. Even if you have a job that you aren’t always thrilled about, it’s better to stay where you are than quit in this job market. If you want a job that pays more money, keep in mind that mortgage lenders usually base part of their decision to approve mortgages on how long you’ve been at your current job. They want to know that you have a stable work history and will repay money you borrow.

You can buy a home

A house can be an important piece of your plan to build wealth. Don’t let the current housing market discourage you from pursuing a dream to own a home.

What are people looking for these days in newly built homes? According to the American Institute of Architects (AIA), some of the most requested spaces are home offices and outdoor living spaces. There also is growing interest in home features, products, and systems that promote greater energy efficiency and accessibility throughout the home.

Remodeling instead of getting mortgage to move

The AIA’s Home Design Trends Survey for the second quarter of 2010 found, not surprisingly, that homes at the lower end of the price spectrum are doing better than higher-end homes. Remodeling projects continue to gain steam while second homes and vacations homes continue to be the weakest sector of activity. Activity has picked up for kitchen and bath remodels. With housing values still struggling it makes sense for many families to stay put and do renovations than try to get a mortgage to move.

Fewer requests for luxury rooms

The struggling economy has taken a toll on home projects, including the way in which people want to use their homes. It’s tougher to get a mortgage loan these days and people need to make their dollars stretch further. More people are requesting mud rooms, reflecting a need for additional storage space.

Meanwhile, as some people are downsizing their homes, some previously popular luxury rooms are no longer in as great of demand; among them are media rooms/home theaters, exercise/fitness rooms, hobby/game rooms, home workshops, kid’s wings/guest rooms, interior kennels, and interior greenhouses.

Energy efficiency

Many architects surveyed said they were seeing more demand for projects that have immediate savings implications, such as insulation projects. According to the AIA:

Systems with the greatest increase in interest include energy management systems, solar panels/collectors/photovoltaics, and geothermal heating and cooling heat pumps. While it is fair to assume that the actual levels of adoption for solar panels and heat pumps still remains quite low, residential architects are indicating that saturation rates could well begin to increase as interest continues to grow. At the other extreme, systems and technologies where interest has not yet caught on, or where it has begun to wane, include electric docking stations for cars, automated lighting controls, and security systems.

Mortgage loans for new construction

If you are gettin a home loan to purchase new construction, make your dollars stretch to get the most bang for your buck. At some point you may be looking to sell, so it’s a good idea to build a home with features that will appeal to as many potential buyers as possible. You can begin searching for a new home loan here.

Fannie Mae is offering help to military families struggling to make their mortgage payments. The programs will help struggling military families avoid foreclosure by offering a forbearance of up to six months if an active-duty service member dies or is injured, creating a financial hardship for their family.

Mortgage loan help

Fannie Mae is also creating a hotline for military families to call if they need help with home loans. If you need help staying out of foreclosure, the number for the hotline is (877)MIL-4566. Mortgage loan specialist will discuss your options for getting help with a mortgage loan.

Jeff Hayward, Senior Vice President of Fannie Mae’s National Servicing Organization, said in a statement:

The men and women of the Armed Forces have shown extraordinary commitment to our country while facing unique challenges as a result of their service. No family impacted by a death or injury in the line of duty should have to face the additional burden of foreclosure as a result of the hardship. We want to do all we can to provide support to these families at a time of need as we honor their sacrifices and service to our country.

Help for families

Families who seek help with their mortgage and receive a forebearance, also will have credit bureau reporting suspended during that time. That will allow them to recive assistance without having it negatively impact their credit.

Many military families struggle financially, especially when one spouse is deployed overseas. Others, faced with multiple relocations, end up with high levels of debt. In some cases military families rely on credit cards and payday loans to cope with bills, escalating the cycle of debt. In 2007, a law was passed to cap interest rates on payday loans at 36% for members of the military.

To complicate matters, some new veterans have difficulty finding employment. The unemployment rate for veterans is about 14.7%, according to Daily Finance, compared with 9.6% for the entire U.S.

Think no-down-payment mortgages are dead because of the housing crisis? Think again. The Affordable Advantage program run by Fannie Mae has allowed some home buyers to purchase a property with only $1,000 as a down payment. The mortgage loan program helps people with moderate incomes purchase homes, and housing grants can be applied toward the down payment.

Four states pilot mortgage program

Only four states are offering the mortgage loan program at this point: Idaho, Massachusetts, Minnesota, and Wisconsin. An article in the New York Times says the Wisconsin Housing and Economic Development Authority has issued 500 loans since March.

While it may seem risky to issue mortgages with low down payments, some housing experts seem to believe that the program’s requirements can cut the risk of homeowners defaulting. Only 30-year fixed-rate mortgages are available through the Affordable Advantage program. Risky adjustable-rate mortgage loans are not available.

Verifying borrower information

Homebuyers must have a credit score of at least 680 and live in the home purchased. Mortgage lenders also must verify the income and assets of home buyers, something that did not always occur before the housing crisis and contributed to a surge in sub-prime lending.

“In addition, we want to see what other lines of credit people have, and their performance. We look at their work history. We call their employers,” Kate Venne, spokesperson for the Wisconsin HFA, told the Washington Independent. The program helps borrowers if they become unemployed. Also, there is no requirement for mortgage insurance, which can bump up monthly fees.

Should you apply for a home loan?

If you live in one of the four states and are wondering whether or not to apply for a home mortgage through the program, here are some things to consider:

• Are you really ready to take on mortgage payments and other expenses associated with home ownership? In addition to principal and interest, you need cash to cover homeowners insurance, property taxes, utilities, routine maintenance, and home repairs.
• Would you rather save up a larger down payment to lower your monthly housing costs? Remember, the larger your down payment, the lower your monthly mortgage costs.
• Do you need to clean up your credit to qualify for a home loan through the Fannie Mae program? Being on time with bill payments, reducing debt, and deleting outdated information in a credit report can help raise your credit score.

Finally, consider whether you are willing to buy a home in this economy. Housing prices and mortgage rates are low, making it a good time to buy a home. But home values could continue to fall even after you purchase a property. Honestly assess your tolerance for risk, as well as your commitment to staying in a home that could decline in value if the economy doesn’t improve.

Some reverse mortgages may be getting cheaper. The Department of Housing and Urban Development (HUD) plans to modify the Home Equity Conversion Mortgage (HECM), the nation’s most popular reverse loan program.

Convert home equity to cash

Reverse mortgage loans allow people 62 and older to convert some of their home equity into cash. The proceeds can be used for any purpose and are paid out in a lump sum, through a line of credit, or a combination of both. Although reverse mortgages have helped many seniors supplement retirement income, some of the biggest complaints about these loans are the high upfront fees.

Upfront cost of reverse mortgages reduced

The National Reverse Mortgage Lenders Association revealed the HECM modifications in a press release. Under the proposed changes to the HECM program, the upfront cost of getting a reverse home mortgage would be reduced if borrowers applied for the HECM Saver. The HECM Saver would decrease the upfront cost of Mortgage Insurance Protection (MIP) to 0.01% of the property’s value. The HECM Standard would keep the upfront cost of MIP at 2% of the property’s value, or 2% of the maximum FHA loan limit of $625,000, whichever is greater. HECM Saver borrowers would receive less money than if they applied for a HECM Standard.

“We applaud HUD for undertaking the analysis required and re-engineering the HECM program to create options that will make it a viable solution for more older homeowners,” Peter Bell, President of the National Reverse Mortgage Lenders Association, said in a statement. “The upfront mortgage insurance premium has been a deterrent to some prospective borrowers, particularly those needing less than the full amount available under the traditional HECM Standard program. This new variation, the HECM Saver, presents a sensitive response to their needs.”

Reverse mortgage pros and cons

Anytime you apply to borrow a large amount of money there are going to be pros and cons. Evaluate your situation carefully before committing to a reverse home mortgage. There may be other solutions that can help improve your cash flow. A knowledgeable housing counselor can help you learn more about reverse mortgages so that you can make an informed decision about tapping into home equity.