Mortgage interest rates drop but illegal mortgage fees could negate savings
The steep drop in interest rates has caused a shopping frenzy in many western countries with buyers looking for a good deal. The rise in applications has not been in proportion to the number of sales but the figures are still encouraging.
If your credit score is in good shape and you have some savings for a down payment and some more for three to six months mortgage payments you could do very well with either a refinance of your current mortgage or with a new mortgage. Even the high end jumbo mortgages have opened up as the interest rates for large mortgages starts to drop also.
However illegal mortgage fees could nullify the savings you make on your mortgage refinance, loan modification or new mortgage.
How can you identify illegal mortgage fees and what can you do about it?
Illegal mortgages how to find them and avoid them.
It would be hard to list all the possible ways of charging illegal fees from borrowers. Three principles might be more useful: Lenders deserve to be paid for their work and services. They should not charge for services they did not perform and they should not receive illegal kickbacks.
For lowly borrowers like us finding out about illegal kickbacks is pretty much impossible unless we invest counterproductive amounts of money investigating lenders what is more feasible is to check for lenders that mark up on service other companies or individuals provide. For instance if your bank requires a valuation of your property by a qualified surveyor and the company charges the bank $300 the bank is not allowed to charge a handling fee or markup in any other way fees for work they have not carried out.
As I mentioned above it is difficult to provide a comprehensive list of fees you must beware of but this will give you an idea. Banks cannot put mark-ups or get kickbacks for that matter on:
- Appraisals
- Settlement fees. That is settlement fees charged by other banks or institutions. Banks will charge settlement fees when you pay loan early as well as other circumstances unless you have negotiated some other arrangement.
- Credit reports.
- Flood certifications.
- Pest inspections.
- Title insurance and title searches.
This is important to understand because most of us would expect that banks are allowed to charge a handling fee for services they arrange but they aren’t, although that hasn’t stopped many lenders to try and get away with it.
There is an opportunity to find a good mortgage deal or to refinance your mortgage, do your homework find the right mortgage for you, but whatever you do make sure you don’t lose all your savings on illegal mortgage fees.
Obama’s Mortgage Refinancing Aid, Who Really Benefits?
Obama’s administration latest efforts to protect and aid family’s that cannot pay their mortgages and are in serious risk to foreclose aims to help 9 million home owners and further measures intend to provide information and advice to home owners on mortgage refinancing and on mortgage options to home buyers.
What are the effects of these measures and who really benefits from them?
Obama’s refinance and modification program could help as we said up to 9 million homeowners to reduce their monthly payments to an affordable level. The program does not stop there, aiming to provide 5 million homeowners with aid through government owned Fannie Mae and Freddie Mac as well as earmarking $75 billion to prevent foreclosures.
What has happened up to now? Up to date it seems (reliable stats are still to be produced due to the lack of a tracking system) around 200,000 borrowers have received the option for trial modifications according to the U.S Department of Housing and Urban Development, HUD.
This is great news for the 200,000 that benefited but still a far cry from a real solution. It is early days to bury the program but the predictions of the Mortgage Bankers Association are not promising. The MBA says that the government’s expectations are unrealistic and that lenders will only make $2.03 trillion from mortgages this year, not even close to the associations forecast for this year which was $750 billion more than the estimated amount.
Why is this the case when the U.S government is investing hand over fist in mortgage backed securities and printing money like it’s going out of fashion to invest in banks. The banks will say that the increase in interest rate is negating the government’s efforts while others blame the fact that banks have little incentive to speed up the financial aid procedures and that there is not enough control from the government. It does seem like banks are getting a pretty good deal being provided with cash to invest in government backed mortgages, a win-win situation for the lender.
On the other hand the borrowers that need the aid to continue living in their home are facing long procedures that stretch for months and months with no guarantee of a clear answer after the ordeal.
Another glitch in the mortgage refinance aid is that it seems to ignore those that are worse off with upside down mortgages. Although the latest aid packages have included mortgages that are up to 125% of the current value of the house this only applies to Fannie and Freddie backed mortgages that do not have a very large presence in the worst hit areas like California and Las Vegas to mention two.
Obama’s Mortgage Refinancing Aid, Who Really Benefits
Will Jumbo Loan Refinancing Stage A Comeback
It is hard to feel bad for millionaires and billionaires when there is enough misery going about in the real estate market to keep everyone in tears.
However there is no denying that foreclosures have respected neither class nor wallet size with jumbo mortgages being shredded with foreclosures all over the place in what some have called the million dollar home massacre. Houses that only some months ago were priced at $3 million are now struggling to be sold at $1 million with some streets having dozens of luxury home on sale.
Has the time for large mortgages on luxury homes come to a sudden end?
Although this sector is feeling the flak as much as any other sector there might be light at the end of the tunnel for jumbo loans. Why should I care you might ask? Well as the saying goes rich women (and men) are only pitied by their psychologists but the health of jumbo mortgages might be a serious indicator of the health of the economy as a whole which is kind of interesting to all of us.
To illustrate this, note how the largest jumbo lenders are Bank of America, Wells Fargo, JPMorgan Chase and Citigroup. The share of the total mortgage market dropped from 14.3% in 2007 to 4.4% in the last quarter of 2008. For some companies the percentage of their portfolio invested in jumbo mortgages is even higher, take for instance ING Direct, 40% of their mortgages are jumbo mortgages. In the U.S the jumbo mortgage market alone was worth $100 billion last year, now that is important to all of us if we are part of the economy, which like it are not we are.
So what is the news for this important sector of the housing industry?
Up to now the drop in interest rates that lower cost loans were enjoying hadn’t really affected jumbo mortgages as banks and lending institutions clammed in shock and made jumbo mortgages expensive and very difficult to obtain. But interest rates are predicted to drop for this sector making it easier to buy a house worth $1 million or more as interest rates drop at more affordable levels as banks view them as a better and better asset for their portfolio.
The interest rates are still much higher than complying mortgages (complying as in loans guaranteed by the a federal mortgage agency). For example jumbo loan interest rates is now at 6.63% in comparison to the 5.07% for a conforming mortgage.
Interest rates drop but requirements tighten.
Even though jumbo mortgages will be cheaper they won’t necessarily be easier to get. Banks have been bruised by the credit crisis and are very careful who they lend to. Jumbo borrowers will have to Glatt Kosher in order to qualify for a jumbo mortgage with credit scores in the neighborhood of 700, 20% minimum downpayment and 3 to 6 months payments in savings.
Are Loan Modifications Worth the Hassle?
Loan modifications can help you or can sink you. They can give you a break and allow you to afford your monthly payments or even pay off your mortgage sooner or with a lower interest. Unfortunately they can be the worst financial mistake you ever made. This has caused many to ask themselves if weighed in the balance of common sense are loan modifications worth the time and hassle.
The quick answer is quite predictably, it depends.
It depends why you want the loan modification and what kind of loan modification you need.
There are two main reasons for loan modification we will analyze in this article, financial duress and trying to get a better deal.
Loan modifications for those in financial difficulties.
In the last year the number of mortgage foreclosures due to financial duress has reached the estimated number of 4.5 million. These homeowners cannot meet there monthly commitments and are defaulting on their home mortgages. Loan modifications for them are a must if they want to keep their home. The governments worldwide, and the U.S are no exception, are doing a lot to supply ways out for those that cannot afford their mortgages. In these cases loan modifications are very often worth it. What can you do to save your home with a loan modification?
However let’s start with a fact that many ignore, loan modifications don’t have to cost you anything. In their most basic form they are an agreement between you and your bank’s loss mitigation sector. As we have repeatedly said in our articles foreclosures are a lose-lose situation, the client loses, the bank loses and the economy as a whole suffers. This means that banks will work with you, up to a point, to modify your mortgage if you are undergoing financial hardship.
A loan modification could increase the time you have to pay back your mortgage, reducing the monthly payments but increasing the overall cost of the loan or mortgage. A loan modification could also consolidate a number of debts into one large loan which could also reduce the monthly expenses of a family.
Loan modifications for those in search of a better deal.
The current drop in interest rates has caused many to wish their interest rate was as low as the current going rate. It’s like when you buy yourself a new car and find out 2 weeks later they dropped the price by $5,000 you obviously wish you had waited but nobody is going to buy it off you now and resell at a lower price.
Happily some banks are willing to do that with your mortgage. This can produce great savings on homeowners that can reduce their mortgage’s interest rate. There is the danger of hidden costs and increased debt.
Many loan modifications can look great and shiny from a distance but hide closing fees and other nasty surprises. Before you sign anything ask for a detailed summary of costs and savings and make sure what closing fees your current lender demands and what expenses your new lender is willing to cover.
If in doubt contact a qualified financial adviser that can help you make sure there are no surprises in your loan modification.
Benefits For All When Loan Modifications Work
Loan modifications have a bad reputation for being expensive on the customer and a gold mine for the greedy banks that offer them. It is true that a bad loan modification can be expensive and even lethal for a family’s economy. We saw this during the housing boom when owners saw their house value increasing with no end in sight and decided to “free” some of their locked capital by modifying their mortgage to have some cash to spend on their home, buy a car or go on the holidays of their dreams. This was all fine and good until financial hardship hits and incomes wobble and home prices topple.
To illustrate, just in Queens, New York, 100 families lose their homes to foreclosures. The President of Queen’s Borough, Helen Marshal blames the “mortgage lenders and realtors” who prey on uninformed homeowners “trying to plug into the American dream”. According the Marshall homeowners panic when they receive the foreclosure notices and don’t seek help due to shame and confusion.
Sadly the 100 families a week in Queens, the 13,000 homes in the city of New York and the 4.5 million distress foreclosures nationwide may have had or even have a chance to never occur with smart and fair loan modifications. This way everybody is a winner, families don’t lose their homes, banks don’t lose money but make more instead. However as Queen’s President said lack of information is often the worst culprit for foreclosures, home owners don’t know what to do, feel embarrassed to find out and end up losing all they have.
A good example of a success story in foreclosure avoidance is that of Philadelphia which New York City is trying to imitate. In 2008 the Mayor of Philadelphia Michael Nutter and the Association of Community Organizations for Reform Now (ACORN) started up the Philadelphia Foreclosure Diversion Program. The main resource the program offers is information and advice for home owners in risk of losing their home. Nutter admits that one of the hardest tasks of the program was to attract the homeowners in order to give them the information and advice. The program took drastic measures and Jehovah’s Witness style went from door to door to talk to the people that needed the help.
The results?
In Philadelphia alone 3,380 homeowners at risk have entered a pre-foreclosure mediation process, PFDF, 1,200 have reached an agreement and 1,500 are still in the process of being settled.
If you live in New York you can now call 311 to get advice on your home and the risk of foreclosure but wherever you live you can get advice and counsel from financial advisers, websites like ours and your bank that is very interested in coming to an agreement with you before foreclosure is even a risk.
Has The Mortgage Refinancing Season Ended
Mortgage refinancing has become as exciting as watching the stock market. The once droll and wonderful (for home owners) business of seeing interests remain pretty much stable while house prices increased with any sign of stopping has been exchanged for the much more exciting activity of seeing how low the interest rates can be dropped and how far the Government can bend back to lower them further.
This has created an excellent opportunity for those conservative people that were boring and smart enough to save when everybody was spending of being prudent when prudence seemed pointless, because if you have cash now and an excellent credit score you could get the deal of your life. With 30 year interest rates at historical lows you could buy the house of your dreams for around 4.25%.
This window of opportunity is of course not the main outcome the Government is working towards although it may very well prove to be a benign side effect that can further contribute to jump start the credit and housing industry.
The main issue Government is trying to deal with when lower is as we mentioned to incentivize the buying of new and built homes while giving home owners that have fallen in financial difficulties the possibility of renegotiation their mortgages at a more advantageous rate of interest. If a family renegotiates their mortgage wisely the significant drop in interest rates could mean the difference between affording the monthly mortgage payments and not. For those home owners that are not in any particular financial strife it can mean paying off the mortgage sooner or financing the purchase of a car or a home improvement on the interest drop.
However the fear for those that are planning to modify their loans or are in the process of getting their paperwork or credit in order is that they will miss the train. That the Government’s incentives will work raising interest rates and closing the window of opportunity that currently exists.
Should we worry?
If we are to trust the Mortgage Bankers Association’s chief economist the answer is no. Jay Brinkmann the MBA’s chief economist predicts that in the next the current interest rates should hold for the next six to seven months. That is music to the ears of home owners that see how their loan modification and mortgage refinancing procedures take more than they expect or is experiencing delays in getting to the closing table.
If you are wondering who to thank for the drop in interest rates thank the Uncle Sam for investing so heavily in Banks, providing cheap money for banks to invest in insured loans and mortgages.
The sobering question is how long can this continue for, the short to mid-term may be safe but can this continue in the long term? It can’t if you listen to Dan Cutaia, president of Fairway Independent Mortgage Corp who recently said at an MBA’s conference: “The government can’t keep printing money and buying mortgage backed securities forever”.
Historically the secondary housing market has been a meeting place for investors and borrowers where offer and demand created its own prices and conditions. The government has modified the “natural” state of things by using its muscle to provide the money few are willing to invest.
What will happen in the long term is a bridge we have yet to cross, however if you are currently in the market to refinance or buy a home don’t worry you will not miss train, low interest rates are here to stay, for now.
Avoid Foreclosure With A Personalized Home Loan Modification
Foreclosure has turned from being a four letter word so taboo it was barely mentioned to a common feature of life we have nearly got used to. Can we avoid foreclosure? Or is the common household doomed to foreclose and buy again depending on the economic climate?
Well although economic pressures can sometimes cause irreversible damage to a family’s income and resources making foreclosure the only way out this does not have to be the general rule. There are steps we can make at every stage of economic hardship to try to avoid the “f word”.
The first fact that we must understand is that nobody likes a foreclosure, banks don’t like them, the government hates them and you and I certainly don’t want anything to do with it. All this begs the question; if everyone hates a foreclosure why have them? The same question could be applied to wars, famine, violence and the answer may be similar. Often one or more of the parties involved simply don’t have the will to continue working towards a positive outcome.
Well, enough generalities and poetic comparisons what can a real family or individual do to avoid foreclosure.
Step 1. Don’t buy a house outside of your means. Obviously if you already own the house this advice comes a little late but for any new home buyers it is great advice to not be swallowed up by the temptation of paying more than you can afford for a house. A good rule of thumb is to not pay more than 30% of your income on your home. This gives you a little bit of a safety net if things go bad and the opportunity of saving a portion of your income for a rainy day.
Step 2. Control spending. Be ruthless. If income and expenditure are not tallying take control of your budget and keep to it.
Step 3. Talk to your bank as soon as possible. Banks hate foreclosures because they more often than not lose money and it is not what they prefer to be doing. They are not estate agents they are banks that want to be making money by lending and investing not sweating the details with a bad house sale. If you approach them before your credit is in the dirt and you provide them with a plan they will try and work with you.
Options open to your bank you might apply for are payment holidays for a determined amount of time if you have evidence that your income situation will change in the future, or a full on loan modification. Remember these modification actually make more money for your bank. What do you think they will prefer, foreclosure or a making more money on your mortgage?
Loan modifications come in a large variety of colors and shades. You can modify your loan to last longer which will make your monthly payments lower. Imagine you owe your bank $1,000 and you need to pay it in three months, $333 and you can’t afford it, so you ask the bank if you can pay the same amount in ten months making it a much more affordable monthly payment of $100. The only glitch with this option is that you end up paying more interest. Another option is to change your mortgage provider to one that is willing to charge you a lower interest. This is a great option that is often combined with a larger mortgage (not a good idea in most cases) and a lengthening of the loan’s tenure (also expensive in interest), the only problem is that changing mortgage providers or even just changing interest rates if your bank is willing to renegotiate terms is often a lengthy process.
The thing to remember is that there are options, the ones we have discussed are just a sample. Talk to your bank or even with a financial adviser and study what options you have, just don’t give up.
What poses the greater threat to homeowners during the current mortgage crisis, predatory mortgage modification companies or the costs of hiring an attorney to represent them during the modification or foreclosure process?
According to California Governor Arnold Schwarzenegger, lawyers’ retainers and fees represent the greatest threat to homeowners. Over the weekend he demanded state legislature include a clause prohibiting attorneys from accepting retainers for performing legal services to prevent foreclosures in SB 64 if they wanted him to sign the bill into California law.
SB 64 is intended to protect homeowners from mortgage modification companies. It seems that preventing homeowners from retaining legal representation to work on their behalf would not constitute protecting the homeowner. Of course, to give the Governor the benefit of the doubt, his intent in demanding the clause may be to assure all homeowners are able to retain counsel whether they can afford it or not.
At issue is whether eliminating retainers or allowing lawyers representing homeowners during the mortgage modification process to receive payment or security deposits upfront will effectively limit their ability to represent their clients. According to Martin Andleman of ML-Implode this is exactly the effect this will have.
“SB 04 will essentially deny homeowners their right to counsel guaranteed by the 5th and 14th Amendments, by making it so that no lawyer would be able to take on such a client,” Andleman explained.
The National Association of consumer Bankruptcy Attorneys (NACBA) agrees, saying “While there have been a very few law firms implicated in loan modification abuses, adequate legal recourse against bad actors in our profession already exists, including disbandment and criminal prosecution for fraud. Because other fly-by-night scammers can pack up and move on to greener pastures on very short notice and don’t have a bar license to lose, it is understandable why consumer advocates would seek protections for consumers against those predators. However, placing blanket retainer restrictions on attorneys whom consumers may need to represent them is an unconscionable effort to interfere with their legal rights.”
The simple fact is, retainers are a standard business practice for attorneys. Retainers assure lawyers that they will be paid for their services at the time they are rendered, something that is particularly important in situations like mortgage modifications which can take months to resolve or may be over in a matter of weeks.
In addition, the possibility exists that lawyers may not get paid for the work they do on mortgage modifications if they have to wait until the process is complete. Loan modifications are not the solution to every financial problem homeowners encounter. In fact, some homeowners may still end up losing their home to foreclosure or filing for bankruptcy after their mortgage is modified raising serious questions regarding how attorneys would be paid in these circumstances. Also, consumer filing bankruptcy commonly consult attorneys during that process and it makes no sense for consumers not to have the same protections while trying to prevent bankruptcy.
“Homeowners are scared, emotional, unknowledgeable and panicked when at risk of losing their homes,” said Andleman. “For the government to support a position that they should go to their lender alone is criminal. It is the worst abuse of power I’ve seen in my lifetime.”
If consumers do not benefit from the elimination of retainers, the question must be asked: who does? The obvious answer is lenders and mortgage servicers who will be more likely to be dealing directly with homeowners rather than attorneys. This gives lenders a distinct advantage in negotiations. Beyond the favorable terms lenders are likely to insist on before agreeing to modify a mortgage there are also the fees banks will collect. Data collected by the federal government indicates banks will earn $38 billion in fees this year and that’s just from overdraft fees. Imagine what else might be hidden in the fine print.
When you dig a little deeper it becomes obvious that the clause eliminating retainers in SB 94 is just not in the best interest of homeowners. It may even prove to be instrumental in prolonging the current crisis rather than shortening it. As with so much in this crisis it is “buyer beware”.
“The modifications that the loan servicers are offering homeowners, if they will even talk to them, are short term fixes that will leave the homeowners facing foreclosure at a later date,” said Alan Jablonski, a Long Beach, CA based consumer tights attorney and author of “Successfully Navigating the Mortgage Maze”.
A bill in congress would suspend a set of rules designed to reform the relationship between mortgage brokers and appraisers. The Home Valuation Code of Conduct, which went into effect on May 1, prevents lenders from directly picking appraisers for Fannie Mae and Freddie Mac secured mortgages. This was aimed at eliminating conflicts of interest suspected of inflating home values. Under HVCC lenders must contract with third parties known as appraisal management companies which then select the appraisers.
The National Association of Realtors (NAR), The National Association of Home Builders (NAHB) and other groups say HVCC appraisals under-value properties. In a release, the NAHB said more than a quarter “of builders are seeing signed sales contracts fall through the cracks because appraisals on their homes are coming in below the contract sales price.” HVCC critics say this is because lenders now have to use lowest bidder appraisers allegedly unfamiliar with local market conditions. Another interpretation is that the appraisers are setting prices that show actual – as opposed to hoped for – market conditions.
It is interesting to note that the complaints are carefully worded to imply the problem is with the appraiser and not with the seller’s pricing. As the NAHB put it: “Of those who are reporting appraisal problems, 54 percent said that the appraisal amount was actually less than the cost of building the home.” This is very different from saying the appraisal was wrong. Instead the claim is that the property is no longer worth as much as what it cost to build it. Is that really any surprise?
The NAR used some incredibly artful phrasing in a release: “Among Realtor® respondents obtaining an appraisal for a client, 55 percent reported a perceived decrease in appraisal quality.” (Emphasis added) It is also worth noting that the appraisers are protesting the new regulations because the management companies are taking a chunk of the fees that used to go to the appraisers. They say that paying lower fees means using “appraisers from distant locations with less experience and training, or more pointedly: those who will work for less.”
In response to these complaints Freddie Mac issued rules clarification stating appraisers “must be familiar with the local market,” choose “appropriate comparable sales,” and certify they are “most similar” to the property being appraised.
So, yes the appraisers do have to consider all market conditions and not just those that push home prices up.
Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.
Keep Your Finances Afloat With Suitable Loan Modifications
You don’t start worrying when you hit the iceberg; you make sure you are working hard to avoid foreclosure or financial duress as soon as you hear the radio signals warning you of danger. Just as Titanic was prey of bad planning, pride and reckless behavior many of us fall prey to foreclosure and financial difficulties when there is really no need for it.
This is not rocket science, we all start saving on non-vital aspects of our monthly spending when we our income is reduced or we fear we might lose our job. However we often think of our mortgage as a fixed expense that cannot be modified or fine-tuned. The reality is completely different. Mortgage providers like banks and other lending institutions know too well that many borrowers and their families are struggling and they appreciate responsible clients that are willing to make sensible modification or changes to their mortgage than simply foreclose or claim bankruptcy. Here are some basic steps to keeping your family finances afloat by fine-tuning your mortgage.
1) Be sensible in the percentage of your income that is used to pay your mortgage. A conservative rule of thumb is to not spend more than 30% of your total income on your mortgage. The origin of this guideline is quite interesting. Apparently it began when railway companies started to spread over the continent and supply housing for their workers, they would charge a week from every month of their wages for housing. Situations have changed completely and this rule is obviously not set in stone but if you are spending much more than 30% on your house you are probably spending too much and not leaving yourself with much room for maneuvering in case of financial difficulties.
2) Don’t remortgage to “invest” in your home. Too many have fallen in the trap to remortgage their home to invest in house improvements. If you need the house improvements and you can afford them I would recommend saving for them or if you really must borrowing for them , but don’t view them as an investment that elicits large lumps of cash. In the current market you are very unlikely to get your investment back and quite likely to pay dearly for the loan increase.
3) Talk to your bank as soon as possible if you see trouble. Banks appreciate customers who will be candid and realistic about their situation and are much more willing to renegotiate when you are not in the red yet. If you are expecting a large payment or your income is seasonal you might be able to renegotiate a payment holiday for a certain amount of time. Remember that banks are likely to make money or loan modifications like this instead of losing a lot of cash when a client forecloses their mortgage.
4) Don’t panic. Talk to an experienced financial advisor or to a trusted and knowledgeable friend. Bad situations can often be averted or fixed if caught in time.
Fighting Foreclosure, What Are Your Home Loan Refinancing Options?
Have you heard of the caught in the headlights syndrome? It is a serious problem for wildlife in areas that are crossed by highways. Many animals like cats, dogs and deer will stay complete still if caught in the beam of a car’s headlight while crossing the road, transfixed by the glare. As you would imagine this causes a lot of accidents, often fatal for both animals and humans.
Something similar happens to all of us when we are hit by a serious financial blow like the risk of foreclosure of our mortgage, we panic. Instead of using that energy to find ways to get out of the whole we are in, we suffer the headlight syndrome and do nothing believing (more often than not erroneously) that there is nothing one can do anyway. The truth is that there is nearly always a way out for those who are willing to look hard enough.
This article provides a list of some of the steps you can take to fix things when you are at risk to foreclosure.
1) Talk to your bank and negotiate a solution. Foreclosure is really a lose – lose situation where nobody makes a buck. It is a last and desperate measure by banks to get some money back from a bad debt but not their preferred option. If a client really wants to pay his debts and keep his home banks will try their best to re-negotiate. It can actually be good for your bank as they can make more money on your mortgage if they extend the term of your mortgage.
2) Take on a loan to pay up the months you are behind. It is often cheaper to simply get a small loan to pay back the money you owe your bank. Borrow from your family, friends or another bank. Just make sure you pay back, you could break important friendships and relationships or destroy your credit rating, both very painful with life changing consequences.
3) Refinance with another bank. Some banks will not renegotiate bad debts but if your credit is still good you can find another bank to renegotiate the mortgage and salvage the foreclosure situation. This is not the best situation in which to ask for a refinancing of your mortgage as you have little leverage when desperate for financial aid but it could get you out of the pickle you got yourself in.
4) Sell the house. This is called short selling the house, which means selling it fast, very likely well below the actual value. The issue with this option is that it is not fast, it could take various months.
As you can see there are options when threatened with foreclosure, don’t panic, look for the option that works best for you and get out the way before you are hit.
Do’s and don’ts of mortgage refinancing.
This is not a very technical article. If you are a mortgage refinancing guru you will most surely be bored and completely unimpressed with the advice it contains. However the truth is that making good and bad decisions is not a technical issue it is rather simple to apply common sense to your mortgage refinance choices.
However common sense tends to be rather uncommon especially when we are dealing with emotional issues like refinancing a house and dealing with money you will never actually see. Refinancing a mortgage can be like using a credit card it can be awfully easy to spend without realizing the real cost and spend more than you wanted to or could actually afford.
Here is a completely incomprehensive list of do’s and don’ts that should help jump starting your common sense before doing anything crazy.
Do not..
Trust lenders who are too eager to lend you more money. Borrowing more money is always expensive and lenders who are very free with their cash are probably charging high interest to cover for borrowers that default on their payments or worse have “other” methods to guarantee the loan payments.
Sign a loan without working the real cost of refinancing. When you ask a bank or are offered a refinancing deal on your mortgage find out the real cost/savings on the loan modification. Unless you are in serious financial duress I would recommend never borrowing more but only reduce the tenure, the interest rate or preferably both. Now is a good time to modify your loan because interest rates have dropped so much. However if you refinance your mortgage with a new interest but extend your tenure you will end up paying more for your mortgage which is counterproductive unless you are in serious financial difficulties.
Do
Check the closing fees on your existing loan.
Modifying your loan at current interest rates is generally a good idea that makes financial sense but that depends completely on the overall costs of the loan modification or switch. If your current bank charges you a 5% fee for pre-paying or switching your mortgage you might lose money on the switch regardless of how good the new interest rate is.
Have all your paper work organized in a file.
With mortgages, loans and other financial products paper work is really just that, what makes things work. If you know what paperwork you need and you have it organized in a simple and accessible way you will save time, stress and money.
The perfect plan for refinancing your mortgage
You have thought about it but never taken the plunge. You have been told it is risky, or maybe you are simply scared of making a financial mistake that could cost you more than you can afford to lose.
All these are good reasons to think twice about refinancing your mortgage and although this article is by no means selling the idea of refinancing your mortgage it will provide some reasons why refinancing your mortgage can be a good idea.
Let’s start with the basics. What is a mortgage?
A mortgage is a loan where the security is your home. In other words if you don’t pay the loan and the interest on your loan you lose your house which is sold to cover the principal (pending amount) of your loan. What is important here is that all mortgages are the same, the only thing that matters is the interest rate you pay and some basic conditions like what penalty must be paid if you pay back your mortgage early. Apart from those basic conditions it doesn’t matter if you get a loan with the biggest bank in the world or your next door neighbor. What does this mean for you and me?
It means that if you have the opportunity of switching your mortgage with another supplier or with the same supplier at a lower interest rate it is probably a mighty good idea. Unfortunately many people don’t actually understand what refinancing a mortgage actually means. A bank or lending institution that is offering to refinance your mortgage at a lower interest rate is basically offering to buy your house off the bank that holds your mortgage (at least the percentage they own) and sell it back to you for less than you were paying for it before. Why would a bank want to do that? Well they are actually investing in the promise that you will pay your mortgage and are willing to accept a lower rate of return than your old bank or mortgage provider was when you first signed your mortgage. This is often because the going rate of interest has dropped and everyone is willing to invest money for a lower return.
There is however another way of refinancing your mortgage. Some banks or financial institutions will offer to increase the principal on your mortgage or increase the time you have to pay for it while keeping the interest the same or even increase it. This is becoming rather popular recently because people are struggling to pay for their mortgages at the current interest rates.
Lets explain this a little better. There are three main ways or reasons to refinance your mortgage:
1) You need more cash and refinance your mortgage so that your bank or a new bank gives you more cash with your home as security.
2) You want to pay less every month because you are struggling to meet your monthly expenses so you lengthen the tenure (the length in months or years of the mortgage), this reduces your monthly expenses but increases the interest you pay for the money you borrowed and therefore makes your mortgage more expensive although more affordable if you depend on a monthly income.
3) You simply refinance the same mortgage at a lower interest, reducing the cost of the mortgage.
These three types can be combined with each other in a variety of ways. For instance some smart people refinance their mortgage at a lower interest and reduce the tenure of the mortgage. This way they reduce the overall cost of the mortgage while keeping their monthly expenses similar.
What are the risks? This is where the perfect plan comes in.
The risk with refinancing your mortgage is that you will be tempted to borrow more money making your mortgage unaffordable causing you to default on payments and lose your home. The perfect plan is to not borrow more money but reduce the cost of your mortgage by shortening the tenure, lowering your interest or both. Of course your circumstances might be that you really need the extra cash and that this is the main reason you are looking for a mortgage.
However as far as it is feasible be smart, don’t fall into the trap of ever growing mortgages and take control of your debt.
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What is a Home Loan Modification?
Mortgage modification is where your current mortgage lender agrees to change the terms of your current home loan so that you may afford to service the monthly payments and avoid foreclosure. Generally the mortage provider will lower the interest rate and change the length of your repayment.
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Be very careful if you choose to use a loan modification company that takes a fee up front to negotiate your loan modification for you. They cannot guarantee a successful modification and can end up costing you another month’s mortgage payment in exchange for false hope. The best of these companies have done the modification countless times and will actually try to help you in earnest without guarantee. The worst are scams that take your money with a cursory attempt to help you (if any).
We have found that Foreclosure Fighter offers useful advice that achieves a high loan mod success rate and we therefore recommend you visit their site.
Do It Yourself Loan Modification – A DYI Guide
We are big fans of Do it Your Self Home Loan Modifications. And we currently believe that the down to earth ebook entitled The Mortgage Relief Formula is the most useful resources currently available on the subject . This book walks you through how to modify your loan on your own – saving costs and headaches of false promises of loan modification companies. This book is wide ranging and covers everything from loan modifications to dealing with debt collectors to short selling your home in 9 days. Even if we receive a small commission for recommending it this ebook we are confident that if you are in a situation where you are looking to modify your home loan or short sale your home you will be happy you have read this book.
Below you can see a sample of the type of loan modification information you’ll find in Mortgage Relief Formula. If you find the sample video below interesting we are confident you’ll really appreciate the loan modification course and book.
[See post to watch Flash video]
We recommend that you check out the full information on Richard Geller’s Home Loan modification insights.
Read our full article on loan modifications on your own
The July 17 deadline for cities and nonprofits to apply for their share of nearly $2 billion in Neighborhood Stabilization Program funding. A new report from PolicyLink, a national research and action institute advancing economic and social equity, detailing how some states and cities are dealing with foreclosure may provide some inspiration for those who have still not applied and hope for communities suffering from blight or plummeting property values.
“As foreclosed properties fester, communities are reeling from blight, crime, and property value decline,” said Kalima Rose, co-author of the report and Director of the PolicyLink Center for Infrastructure Equity. “Thankfully, some proven strategies are showing communities how to reclaim their housing stock and get their cities back on track.”
The report, “Reclaiming Foreclosed Properties for Community Benefit,” features several of the most promising practices and stories from communities around the nation including:
Creating Community Land Trusts
Land trusts have been very successful at securing vacant properties and ensuring they remain affordable for years to come. For instance, in Providence, RI, city and state leaders acquird foreclosed properties in two of the hardest-hit areas and put covenants on their sale to ensure they remain affordable for decades.
Marketing Foreclosed Homes and Offering Tax Incentives to Buyers
Some cities whose housing markets are still functioning have been able to attract new buyers to foreclosed properties. Boston offer potential buyers a trolley ride tour of foreclosed properties while Los Angeles has hired marketers to tour the benefits of buying foreclosed homes. Other cities offer low-interest loans or tax incentives to attract buyers.
Increasing the Cost for Owning Vacant Foreclosed Properties
Owners of foreclosed properties are often large investors waiting for the market to revive. Meanwhile, their properties fall into disrepair. By imposing taxes or fines on properties remaining vacant for more than a year, some cities and towns can change the incentive structure making it easier to sell the property to someone willing to fix it up and live in it.
Rehabbing or Demolishing Vacant Properties
In Cleveland, OH, community leaders have started a pilot program to identify properties in six neighborhoods that can be rehabbed and demolish ones that cannot. Getting new homeowners into salvageable properties and saving the upkeep and repair money on non-salvageable properties reduces the burden for local government. Other cities having excess housing stock and low demand are following suit.
In addition to the new report, PolicyLink’s “Equitable Development Toolkit” is a key resource for community leaders, advocates and residents advocating for more equitable communities.
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