In early 2010, a remake of the loan modification program, Making Home Affordable, has gained acceptance from the four major lenders. Its forerunner, unfortunately, fell short of performing as per the intentions of President Obama. Foreclosures continued to the point where 250,000 homes were added to those already in default as 2009 came to a close. Modification Program Needs to be Modified The original program provides for a 3-month trial period that could extend another 30 days for processing the modified mortgage loan. While this is happening, there are no payments applied to the original mortgage. This means that the homeowner is accumulating non-payments, fees and penalties. If the borrower was not in default before entering this program, that home will definitely be in default by the time a trial period reaches its third month. Early in 2010, this program modification became available. The first goal of the program was to gain commitments from the four major lenders: Bank of America, Chase, Citi and Wells Fargo, There are new incentives that should encourage their participation. All of the program provisions from 2009 still exist for the homeowner. The modification is now reaching out to a vulnerable group of homeowners left out of the original program. FHA and the TARP Program This program now extends to homeowners with loans guaranteed by Federal Housing Administration (FHA). Newly targeted homeowners are unemployed or have underwater loans ... or both. Part of this group will be offered time to recoup their financial health without making payments for a period of 3-6 months. Another option is that their payments would be lowered for a similar period of time. Troubled Asset Relief Program (TARP) will set aside $50 billion to fund this initiative. This program cannot possibly help every person who asks for it. First priority will go to the responsible, struggling homeowner in this situation through no fault of their own. Mortgage payments that exceed 31% your income due to subprime, adjustable rates and programs will be top priority as long as the remaining principal balance is less than $720,750. Homeowners must be able to verify their financial hardship. Lender Incentives Under this program, lender incentives are higher when a delinquent loan principal is lowered. Bank of America has indicated that they intend to cut principal on adjustable rate or underwater mortgages. A borrower does not have to miss one or more payments to qualify to participate. The anticipated default by a homeowner is enough to receive federal assistance. Also, this modified program includes the homeowner with a second mortgage. Previously, the homeowner could be good with his primary mortgage and still be foreclosed if they default on second mortgage payments. The Big Four have made commitments to participate in the 2MP part of the program. 2MP is the modification program for those homeowners with second mortgages. Modification Goal Making Home Affordable should be able to curb the crisis of foreclosures, although the program is subject to scrutiny by the public until it proves its worth. Applying the program to homeowners with second mortgages is in the hands of the major lenders. If they honor their commitments, this program should meet its goal of slowing foreclosures. Hopefully, this will be the home ownership reality of the future. Read More »
It is now a given that we will shortly (could be as early as July) have a Financial Reform Bill. No matter what the final state of the bill is there is no question that the Mortgage Industry will be heavily impacted. The creation of a Consumer Protection Agency is sure to mean attention will be focused on any and all current practices that might be deemed as “questionable” as they may not be fully understood by the consumer or might mean additional or hidden costs that the consumer may not understand or be aware of. The YSP (Yield Spread Premium) will most certainly be targeted and scrutinized. In its most basic form, the YSP is extra profit created by the loan originator when a mortgage loan is closed at a higher than market rate. Let us say a mortgage broker offers a consumer a no closing cost loan with a principal of $175,000 and the YSP is 2%. This will net the broker a $3,500 commission. The loan fees will be paid by the broker since it is sold as no closing costs. If the fees are $1,750, the broker’s net realized commission is $ 1,750. The YSP percentage (2% in this example) is calculated between the lender and broker and results from a calculation based on the how much higher the loan interest rate is over the market rate. In our example, let us assume the mortgagee qualifies for a 6.0% rate but the final rate on the loan is 6.55%. The .55% is additional interest that will be paid to the lender over the amortization period of the mortgage. This will become considerable profit to the originator. What the Consumer Protection Agency created by the Financial Reform Bill will most likely do is ensure that the YSP is highlighted and explained on all loan documents. The YSP is also known under various other terms such as par-plus pricing or rate participation fee. Thus, one should look for a standardization of terminology, full disclosure on all loan documents (which isn’t necessarily required now in all states), and perhaps a limit to the % allowed between the originator and broker. This will allow the consumer know that he is eligible for a lower rate and therefore the consumer may opt to find a broker that will forego the YSP in order to lock in a lower interest rate or the consumer may decide points and closing costs offer a better deal. After all, the lower the interest rate, the more money saved by the mortgagee. The Senate has the House Bill now and while it is certain that the Financial Reform Bill will become law, what isn’t certain is the final structure of the bill. One thing is certain. The creation of a watch dog agency to oversee the financial markets will mean more regulation and more scrutiny of the mortgage brokering business. It is highly likely that forms will be standardized as well as terms. The resulting changes will mean more scrutiny and protection for consumers. While this will be welcomed by the consumer, it will more than likely increase the costs to the mortgage industry and affect its profitability. Thus, the mortgage industry most be poised to examine all of its practices and be prepared to conform to the changes mandated by the new law. Read More »
Although the majority of subprime loans are in relatively good standing as far as avoiding foreclosure, quite a few are going to hit some rocky times. This isn’t good for the homeowners, and in some cases the speculators who attempted to cash in on a good thing, but neither is it good for the housing market. The housing market is already in a lull with too many houses to sell and not enough buyers to purchase. Putting another 500,000 houses on the market across the nation over the next month or so is simply going to make a big problem worse. If you are a potential buyer though, you have lots of choices. Unfortunately, that isn’t going to help the United States economy much at all. So, the government offers FHA Secure to bail out some of the homeowners and speculators who hold these subprime loans that are about to go through the roof with their adjustable interest rates. They save a few thousand people from self-destruction. When you look at the situation, you have to ask yourself, “If someone offers you a deal and you feel like you have just won the lottery because the deal is too good to be true, don’t you have to wonder if maybe it is?” Unfortunately, Americans don’t seem to wonder anymore about whether or not they deserve it or are entitled to it or if they can afford it or even if they have earned it. The proof is in the pudding. After all, the government lets Americans declare bankruptcy, and then turn around and start up another company. And now, they let Americans obtain loans that they do not have the earning capacity to maintain only to bail them out with FHA Secure so they don’t lose their homes. Um, my money is a little tight this month what with college costs, medical premiums, and the high cost of gas. Can somebody pay my mortgage for me this month? Read More »
Mortgage Refinancing: How Does it Work? A home loan is a long term commitment. For most people, signing on the dotted line is a 30-year contract. In this amount of time many things can change. Some people will outgrow their home and sell their house. Sometimes people also outgrow their mortgage. In this instance, mortgage refinancing can be useful. Benefits of a Mortgage Refinance There are many reasons why people decide to refinance their home. As you pay off your home loan, the principle of your loan reduces while the value of your property increases. The difference between these two figures is known as equity. When you refinance your home, the bank may give you a home equity loan. You can use this money to improve or enlarge your home, pay for tuition, or even take a holiday. Sometimes, as a home loan decreases, home owners decide to refinance in order to lower their monthly repayments. This is a good option if you are struggling with difficult financial times or are just looking to free up cash flow for other projects. Refinancing your home also gives you a chance to renegotiate your loan terms with your bank or lender. This means that you may be able to achieve a lower interest rate and also lessen the fees and charges which are attached to your home loan. The Refinancing Process When you refinance your loan, you can stay with your current lender or shop around for a new one. The refinancing process is similar to the one when you originally bought your house and applied for a mortgage, although sticking with the same lender will require less paperwork. The bank or lender will most likely go ahead with the usual checks, such as employment and identity checks. They will also require a valuation of your home, which they will arrange. Once this has all been finalized, your old mortgage will be discharged and your new loan will come into effect. There are usually some fees attached to a refinance loan. These can include a loan establishment fee, a valuation fee, and the possibility of ongoing fees. There is a chance that there may be a fee from your lender for the early discharge of your loan. Home Loan Research Finding out as much mortgage information as possible before you sign up for any loan is a good idea. Being aware of not only the interest rate, but the fees and charges attached to the loan product, is essential. Reading the small print now can save a lot of heartache later. Read More »
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