More changes happening that impact your mortgage.
Monday, April 13, 2009
So do you want the good news or the bad news this week? It seems that every time something positive happens in the business, we have a new hurdle or challenge to handle as well. This week is no different.
First here is the good news. Several large national lenders have rolled out their guidelines to refinance consumers impacted by a drop in their homes value. The "Obama Plan" allows folks who have an eligible mortgage to secure financing when they, to date, have not been able to take advantage of the low rates out there today.
To be eligible, your mortgage should not currently have PMI and you have not likely been able to refinance due to a drop in value. Though previously you would not be able to refinance and because your loan would now require PMI, you will not have to add it through the "Obama Plan". This program has quite a few hoops to jump to take advantage of it so expect a 60 day rate lock and it's likely to be a little more challenging than your last refinance. But it is available and the professionals at America's Mortgage Choice are ready to work to help you get the new mortgage and relief you deserve.
Now, here is the bad news part of the story. On May 1st, mortgage brokers will not be able to order an appraisal of your property from an appraiser that they have a relationship with. Effective May 1, all appraisals must be ordered "blind". Central repositories are being set up and will take your appraisal order and generate the order randomly to a licensed appraiser.
This is being done to avoid pressure being put upon appraisers to "hit the number". However, the consumer impact could backfire. Today, appraisers tell brokers up front to "forget it" any time the value of a home makes it unlikely that a loan would get approved. This courtesy saves the consumer $300 bucks. Now appraisals will likely be closer to $400 and there is no way to gauge the risk the consumer is taking. The appraisals are likely also take longer to deliver. So you could wait six weeks (versus one) for an appraisal that could kill your home purchase or refinance.
So in a nutshell, appraisals will take longer, be more expensive and there is going to be less communication between the consumer and the appraiser about the prudence of even trying to do the deal. The message is clear, if the numbers make sense to refinance, do it right away and avoid more expense and delays after May 1.
Labels: appraisals, current market
posted by Dylan Kramer @ 7:02 AM,
Crazy Things Happening in the Mortgage Business!
Monday, April 6, 2009
Word is the mortgage business is busy. And to a degree, it's true. We are in a situation where rates are down and the phones are ringing off the hook. If you are one of the lucky ones who can secure a mortgage at today's rates, get it done though. The landscape continues to change and there is no reason to think that the pendulum will swing back toward "easy lending" any time soon. Combine that with a short staffed industry working at full, albeit reduced capacity you have a recipe for challenges.
Sure we are swamped, the phones keep ringing and everyone wants to get take advantage of today's lower rates. However, it's not that simple for us and more importantly the customers. We have told dozens of people who would love to refinance, "Sorry, we can't get you approved". Any one of several factors can prevent you from getting a loan. First, changing guidelines are an issue. Last week on one day notice several lenders reduced the amount of cash you could take out of your home to consolidate debt or raise cash by ten percent of the property value. This was done by email and effective immediately. Also, if you live in a condo, you have a "risk adjuster" that makes it impossible to get the lowest rate in the market unless you have 30% equity in your property. Finally, speaking of equity, most people we are talking with have a drop in property value making it challenging if not impossible to secure these rates.
Add to this the customer service challenges. Brokers, lenders and others that support the mortgage process were all struggling to survive in 2008. With that they all have lost money and are often not willing to "staff up" to meet current demand. This has caused the standard 2-3 days in underwriting to balloon to 2-3 weeks and longer. In fact, as of this writing on March 28th one of our lenders is working on loans submitted to them on February 16th. This is causing customer service problems through out the industry, especially related to rate lock periods, and purchase closing deadlines.
Finally, getting the lowest rate is the final hurdle. Every week there is a great interest rate survey published. The most recent one's results can be found here. Read it carefully though, it gives not only the average rate from last week and mortgage rates change every day (rising and falling). Additionally, the survey always mentions the average amount of points being paid (yes, points). Points can now financially make sense and we are seeing many people run the numbers. A further discussion of points will come to this blog soon.
The bottom line is this. If you have not tried to secure a mortgage since early 2007 or before but are thinking of it, the rules have changed. The interest rate market is in your favor but the lending environment is not. Get your loan up and running sooner rather than later, even if you don't lock the interest rate in right away. This way, you can manage all the other headaches that exist in getting a new loan approved and get the low rate you want.
Labels: current market, mortgage truths
posted by Dylan Kramer @ 8:03 AM,
Urgent news in the mortgage market
Thursday, March 19, 2009
The US Government announced today that they are effectively pouring capital into the mortgage market. Find out how this affects your mortgage!
Labels: current market
posted by Dylan Kramer @ 8:07 AM,
Capitalize on Term Reduction
Monday, March 16, 2009
Once you have been in the mortgage business a while it dawns on you that it's not a cliche. For most folks their mortgage is the biggest debt they will ever have and the house is the biggest single investment most customers will make. This realization combined with today's low rates allows an interesting reassessment of refinancing for most customers in today's low rate environment.
The traditional thought over the last few years has been to take every drop in rate as an opportunity to save money monthly. The usual strategy has been simple; a drop in rates equals a drop in monthly payment. Most folks who have had more than one mortgage in their lives have followed rates down into the low 6%s or high 5%s.
This drop in interest rates is different though. The financial statements we see from customers every day have several negatives compared to those of a year or two ago. The retirement accounts are smaller and the value of the property has dropped, reducing the average equity in the home. Combine this with adjustable rates and the stereotypical 30 year fixed refinance may not make sense.
This combination has caused people to reasonably reassess the remaining time on their mortgage. If you have been paying a loan for five or ten years, going back out to 30 years can often not be a worthwhile trade for $100 per month in savings. Many clients are now opting for 20 or 15 year fixed loans with the modest increase in payment being worth it for the long run savings.
How much savings you may ask? Well the answer depends on a combination of the interest rate, balance and length of time the current loan has been in place combined with the interest rate for the new mortgage. This calculation should be done though and a sample of how it should look can be found here.
In simple terms though a $200,000 30 year fixed at 6% that has been in place for 3 years can be refinanced to 5.25% on a 30 year fixed today. This refinance would drop the payment by $95 per month. With 324 payments remaining the life time savings of the loan would be just over $30,000. However, moving to a 20 year fixed would reduce the available rate to 5.125%. The monthly payment would increase by $133 per month over the current payment. This is a nominal amount for most family budgets.
This additional investment would eliminate the mortgage seven years earlier than the current plan and ten years earlier than refinancing. The elimination of seven years of payments at $1200 per month would save this family over $100,000.
For most families this strategy is a winner on two key fronts. The additional principal pay down can help rebuild equity lost in the housing crisis. The elimination of years of payments on the back end of the loan can help retirement or college planning.
The changes in our finances over the last couple of years mandate that we look at our mortgage in a new way. Run the numbers and see if taking advantage of today's interest rate market and reducing your term could work for you.
Labels: current market, term reduction
posted by Dylan Kramer @ 8:43 AM,
The Fix Is In!
Wednesday, March 4, 2009
The "fix" is in.
Today the details of the Obama Loan Modification and refinance plan were released. You can get full details at www.financialstability.gov. There will be the full details of the plan. We have broken down the big issues here. If you have any questions, let us know.
First on refinancing. There is good news for the homeowner who is upside down is unable to refinance due to a negative change in property value. If your loan is owned by Fannie Mae or Freddie Mac, you are now eligible to refinance. In fact, if a lender has already turned you down for a refinance here, directly from the website here is the way to figure if this refinancing option is open to you:
Do I qualify for a Making Home Affordable refinance? Answer these questions:
- Is your home your primary residence?
- Do you have a Fannie Mae or Freddie Mac loan? If you don't know contact:
- Fannie Mae, 1-800-7FANNIE (8am to 8pm EST).
- www.fanniemae.com/homeaffordable
- Freddie Mac, 1-800-FREDDIE (8am to 8pm EST)
- www.freddiemac.com/avoidforeclosure/
- Are you current on your mortgage payments?
- "Current" means that you haven't been more than 30-days late on your mortgage payment in the last 12 months.
- Do you believe that the amount you owe on your first mortgage is about the same or less than the current value of your house?
This program will help a portion of the market that is unable to get help today.
Second is Loan Modifications. The news is not as good here. In a nutshell if you are behind, your loan is a Fannie Mae or Freddie Mac loan and you can prove your income, you can get your loan modified within the following parameters.
- Fixed Rate loan no higher than the going rates for a 30 year fixed (about 5.5% as of today)
- Interest Rate Floor. Lenders will not be required to lower your interest rate below 2.0%
- The option (which all lenders will take) to capitalize (fancy word for add) any back payments, taxes etc. to the balance of the modified loan. (This will make borrowers more upside down than before)
- Payments will be moved to 31% of your documentable income for PITIA (principal, interest, taxes, insurance and association fees)
The challenges here are many but essentially, the lender can put off a loss by capitalizing the arrears making borrowers further indebted.
Anyone who "fudged" or got a stated income loan will have a tough time qualifying even at 2.0%.
Lenders will be swamped, so good luck trying to get through the process.
This program may help a small portion of the borrowing public. The bottom line though is we are sure that not enough homeowners will be eligible and that the rules are not tight enough for us. Combine that with the threat of the bankruptcy cramdown which will drive rates higher very soon and we have a recipe for more problems, not solutions.
Labels: government announcement, loan modification
posted by Dylan Kramer @ 11:17 AM,
The Credit Crisis Visualized
Monday, March 2, 2009
We've spent some time over the last year explaining the root causes of the current credit crisis. Today we're posting what we consider to be our final word on the subject. At AMC, we're looking forward; we're focused on helping buyers and sellers in the current market, as well as those needing to restructure their financing.
This video explains the causes of the credit crunch in easy to understand and extremely simplified concepts. We're providing it as a source of clarity for those who are still confused about how we got here.
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
posted by Dylan Kramer @ 8:06 AM,
Federal Foreclosure Initiative Review
Wednesday, February 18, 2009
Interesting announcement from President Obama today on the foreclosure crisis don't you think? I believe that if executed correctly, this could be a winner and get us on the road to recovery.
In case you missed it there are four key points to the plan and the biggest point made is that "everyone will not be saved". There are homes that will go to foreclosure, especially investors, speculators (both borrowers and lenders), folks who were pretty sure they could not make the payments but took the loan anyway will not likely benefit much.
But for many, this program will be a lifeline. If the program can be executed and that execution accomplished quickly, that is. Let's break down the four big objectives.
- Four to Five Million upside down mortgages may be eligible to refinance. If the mortgage loan is owned or guaranteed by Fannie Mae or Freddie Mac.
This is huge because currently there is no way for people to take advantage of lower rates available today. This will save people hundreds of dollars per month and lower payments will create an incentive to stay in the home. - Incentives to Modify. The government will be setting loan modification guidelines. This appears to be a statement to the banks who to date, have not shown a willingness to book losses through modification to get with the program. Federal guidelines limiting payments to 31% of existing income will force lenders to step up. Borrowers will have accountability. These guidelines will be official in the next two weeks and I will post them here.
- The government will keep rates low. This promise may be the toughest one to keep. With the admission that up to $200B of the Federal TARP funds may be dedicated to the purchase of Mortgage Backed Securities, the administration is making a statement that they want people to be able to secure mortgage financing at low rates. The question is, will the market agree and keep rates down?
- The threat of the Bankruptcy Cram Down. The carrot, or stick depending on your point of view is legislation allowing bankruptcy judges to "write down" principal balances on mortgages. It appears that this is currently only a threat but if the efforts to modify loans that banks are making don't improve, we will see this enacted and it will not have good results for the banks, or home buyers going forward as rates would rise because of it.
Overall, this effort is rather impressive. The program seems to address some of the critical issues out there today creating an opportunity for people to improve their situation. Also appreciated is the accountability tone. Too often in the foreclosure/housing debate borrowers, banks, investors and Washington have been pointing fingers instead of trying to find a solution. This program could be a great step in the direction of true solutions and answers.
Watch the full announcement right here, on AmericasMortgageBlog.com
Labels: current market, government announcement
posted by Dylan Kramer @ 12:20 PM,