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Having been helping people with mortgages for over 12 years, I am happy to see the industry returning to rational thinking regarding mortgage approvals. There are many ways to 'think outside the box' of chasing rates when it comes to the proper plan to help a client find the right program for their financial plans and needs. I love my work making new friends with each new mortgage loan. Most of my work comes to me through Financial Planners and CPA's who make the extra effort to help their clients manage their assets and liabilities wisely. I help people manage their debt, maximize their largest investment, and therefore their happiness quotient. Helping first time homebuyers to move into their first home is most rewarding knowing that this will be the foundation upon which they are building their financial lives and that I am such a big part of it.

What kind of modification to my mortgage can I ask my note holder for?

1. Incease my payment until my missed payments are paid off (forebearance).
2. Add what I now owe to the balance.
3. Decrease my interest rate -permanently or temporarily.
4. Reduce my principal balance owed (forgiveness) lowering the payment.
5. Change my 30yr to a 40yr.
6. Hold off on the foreclosure until we can work something out (moratorium).
7. Allow me to sell my home and accept the amount I sell it for as satisfaction of the debt (sell it Short).
8. Work something out where I can handle the payments easier or you can push back what I am currently overdue until a time in the future where the total balance will be due...maybe five or ten years from now (balloon payment).

What caused the current mortgage mess?

There are many contributing factors that all needed each other to exist. Basically when banks went from approving loans and keeping them to selling off the ones they shouldn't have closed....the door was opened. They packaged the bad loans, mixed with a larger amount of good ones and sold them in the bond market on wall street as a new product. It is called 'securitization' ....sounds 'secure' doesn't it? The Fed did nothing to curb the overinflated increase in housing asset values, the SEC which is supposed to regulate U.S. investment banks did not prevent them or Fannie/Freddie from purchasing these toxic mortgage securities packages. Eventually, people like you, me and the big institutions bought them because they paid a high return and we were more interested in the high return than the 'why such a high return'. Large institutions(domestic and international) bought in because they thought the they were backed by the government... through it's implicit relationship with Fannie and Freddie.
At about the same time the pressure to put everyone into their own home by government edict, caused lenders to invent programs that would facilitate that goal. The race was on to be more 'creative' (and forgiving) than one's competitor in this new feeding frenzy amongst lenders. Also about this time the industry came out with automated underwriting via computer instead of an underwriter. Computers don't ask questions so that worked fine for someone wanting a larger loan than they could handle and it allowed everyone to say yes to everyone so everyone was happy. With all these large money transactions going on, the world of finance imploded while profitting from these 'creative' new programs, operating beyond the reach of the overseers, and lending beyond their capacities. New accounting methods(SIV's) relative to securitization provided funding which the lender had to pay back before the borrower had to repay the principal. There was such a demand for easy money and housing prices were rising so quickly that nobody wanted to be left out so many self-serving individuals jumped in one way or another. Not adding square footage or owning another home at the Jersey Shore seemed unthinkabe. While the feds fanned the flames with historic low interest rates, the lenders were creatively giving hundreds of thousands of dollars to people -some without jobs (sub-prime loans), and Fannie and Freddie were really trying to make money for their stockholders instead overseeing the insanity of it all. While the wall-streeters were profititeering by selling financial stocks short (that they had spread negative reports about), the SEC finally stepped in to institute a temporary ban.
Once the subprime loans started defaulting and it was revealed to the world that the government's role was implicit and not explicit (as it has become since the GSE's were placed in conservatorship), everyone wanted out at the same time which brings us where we are today. Home values have dropped (which makes it better for buyers until the spring) and those who can pay but don't want to own or repay a balance that is higher than it's appraised value want out. Others who aren't paying simply can't now and really couldn't then, and should never have been offered the money to put themselves in this heartbreaking situation.
Structured investment vehicles have caused the loss of the world's confidence in our largest bond market which is reflected in today's stock market. The stock market has always come back (like after 9/11) and surpassed the level it was at the time. For most people who didn't plan on selling stock or moving anyway, it will all just be a memory of when the market dropped... but for those who need money now for education, bill paying, or retirement it can be a timing problem that can cause people who have not seeked professional financial advice, to make poor financial choices that weren't necessary.
The question that is so important today is 'when' will the market return to a point where I can use the money I need. Between now and then there will many opportunities to make alot of money and to lose alot of money....some of us will do both - which will you be? Start formulating your plan today with expert advice from people you can trust and a conservative approach.

What if I want to pay down the mortgage-what happens to the payment?

On an amortized loan (paid off over usually 30yrs) the extra payment you make is deducted from the back end of the loan period so you will be paying off the mortgage sooner eliminating a number of payments. The payment doesn't change.
On an interest-only loan the extra payment you make reduces your loan balance the day you make it and following month your payment is reduced because you have less of a balance on your mortgage. Most interest-only loans are interest only for 10yrs. and then begin to amortize (pay off) pay off the balance over the following 20yrs.

Should i wait to purchase?

Consider a typical home that sells for $400000. You put down 20% and get a 30 yr fixed at 6.375% for $1996 per month. Let's say that 12 mos from now the same house sells for 10% less but by then the recession is history and the fed jacks up the rates to stem inflation. If mortgage rates rise .75% to 7.125% your monthly payments would be $1940 and you would have saved almost nothing. Meanwhile, home prices might steady and sellers might become less willing to negotiate. You have now spent a year living someplace you would rather not be and missed out on the increased tax benefits. Oh well.

How can I best use a purchase price reduction to buy or sell a house?

By making more buyers mortgage eligible or by using the reduction to make yourself eligible as a buyer. By buying down the interest rate of the mortgage, a buyer who may have wanted to purchase a home can become eligible for a mortgage that he would not have been eligible for if the seller merely reduced the price instead of buying down the rate.
For example on a $539000 purchase price being reduced $14140 results in a savings of $126.10. However if that same price reduction is applied to buy down the rate instead....the savings would be $258.10 and that could be the difference between qualifying or not for a mortgage. Another selling point for the buyer and seller is that over the 30 years the buyer would save $92916. Another example of using financing wisely when planning a mortgage. You work to hard for your money not to.

Interest Only loans are bad.

Besides being your new best financial friend, your mortgage is not something most wealthy people want to be without. People who maximize their finances have mortgages they could pay off but don't because they would rather be able to access money to invest in other options. By putting the money (principle) into a growing, compounding liquid account, you should accumulate enough money to pay off your mortgage six years early with very conservative estimates of growth. Would it be better to bury it for 30 years in the bricks and mortar of your house? What happens if you need it for an emergency or education and the rates are too high to refinance. Would there be more flexibility in funding an account running parellel to your mortgage that could meet these other needs if necessary. That is called planning for your contingencies (because Life happens) with options from your mortgage. The other plan is to put the money into the house and hope you don't need it.

Thursday, March 5, 2009

march 4 2009- American Recovery and Reinvestment Act of 2009

37 year low rates are now available for 30yr/15yr fixed mortgages in the 4-5% range for homeowners who have homes that have decreased in value.

1. Must be a Fannie Mae or Freddie Mac held loan or one they placed in securities. I can find.
2. New first mtg cannot exceed 105% of your current property value.
3. Full Documentation applications only with no mortgage lates.
4. First mtg being replaced cannot exceed 105% of current value.
5. Second mtg holder must agree to remain in second lien position.
6. No interest only on new mortgage.
7. No cash out
8. $8000 tax credit for first-time home buyers
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Friday, February 13, 2009

Refinances that have Home Equity Loans Attached

Although rates are now at an all-time low for first mortgages, home equity loans (seconds) are becoming an obstacle to homeowners wishing to take advantage of those low rates because the holders of the second mortgage does not want to remain in the second lien position of an asset (your home) with a declining market value that may decline below the balance of your first and their second amount. During the process of paying off your current first with a refi, at the moment your first is paid off the second moves into first position unless they agree to 'subordinate' (remain in the second position) and allow the new lower rate first to replace the current higher rate first.
They can refuse to subordinate unless you have established that the new first and their second do not exceed a new lower combined loan to value (CLTV) that they have recently enforced on their customers. In light of today's declining appraisal values and their lowering of the CLTV, it doesn't leave any room for most homeowners to take advantage of today's lower rates on their first and larger mortgage.
In cases where they are the first and second mortgage holders (result of 100% purchase to avoid pmi) they have the homeowner's first mortgage locked at a high rate with them because they won't allow the homeowner to change the second or have set the CLTV so low that the decline in appraisal value eliminates the possibility of a refinance to take advantage of the lower payment available (due to lower rates they can't get).
In some cases where the combined value of both loans puts the loan amount over $417000 lenders with the lowest rates (in the 4's) add to the rate due it's size and eliminate today's opportunity for a Rate and Term Refinance by just refinancing the first mortgage.
In most cases when the existing second was not used to originally purchase the house, the payoff of that loan would make the transaction of paying off both loans with a new combined first, a cash-out refi which could add to the rate of the new loan depending upon the applicant's middle fico(credit) score.
For those homeowners who are even considering using their largest asset to avail themselves of today's historic low rates it is critical that they move now before their income, debt, credit score, appraisal amount, current lenders policies, or continuing tightening of underwriting for new loans makes homeowners who are eligible today ineligible.
The example set forth here is just one of many that occur on a weekly basis in today's mortgage market...only a Mortgage Banker can help you navigate through the maze of products and guidelines to avoid the pitfalls of today's banking system.
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