Mortgage Archives - Page 4 of 4

Do I Qualify For The Making Home Affordable Home Refinance And Modification Program?

Over the past year and a half millions of people have attempted to refinance or modify their home mortgages in order to help them stay in their home. Others have just taken advantage of the program in order to be able to refinance their home under better terms than might otherwise have been available. Our family is one of the latter, we were able to refinance our home mortgage and drop over a full point off of the interest rate. We saved over $200 a month off of our mortgage, and while we did have closing costs, they're already paid back 1 year later.

Since the program is still available, I thought I would briefly cover the details of who is eligible for each program – the refinance and modification programs.

Who Is Eligible For Home Affordable Refinance Program (HARP)

So who is eligible for the Home Affordable Refinance Program? According to the government site, people who meet these criteria:

Own a one- to four-unit home that is your primary residence;
Have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac
Are current on your mortgage payments and have not been more than 30 days late making a payment within the past 12 months
Have a first mortgage not exceeding 125 percent of the current market value of your home;
Have income sufficient to support the new mortgage payments; and
Can improve the long-term affordability or stability of your loan with the refinance.

Want to figure out if you're eligible? Go through this questionnaire and it will let you know. Eligible For A Refinance.

Who Is Eligible For Home Affordable Modification Program (HAMP)?

Others may be in more dire straights, and find that they need a loan modification. So who is eligible? According to the government site, to qualify for HAMP, you must:

Own a one- to four-unit home that is your primary residence
Have received your mortgage on or before January 1, 2009;
Have a mortgage payment (including taxes, insurance, and homeowners association dues) that is more than 31 percent of your gross (pre-tax) monthly income; and
Owe an amount that is less than or equal to $729,750 on your first mortgage for a one-unit property (there are higher limits for two- to four-unit properties).

MakingHomeAffordable.gov expands on the requirements:

Homeowners who qualify must complete a trial period of three or four months to demonstrate that they will be able to make their reduced payments on time before their mortgage will be permanently modified. To create an affordable payment, your mortgage servicer can lower your interest rate to as low as two percent, as well as extend your mortgage term up to 40 years, or forbear (defer) payments on your principal. A portion of the principal can also be forgiven, although that is optional on the part of the servicer.

So if you believe you can make the payments on your reduced and modified mortgage, the program may help you.

Several States Get Extra Help To Avoid Foreclosure

As of June 2010 several states that had greater than normal declines in average housing prices (greater than 20%) will see funding in the new “Hardest Hit Fund” of foreclosure prevention funding. Details:

State Housing Finance Agencies (HFAs) in Arizona, California, Florida, Michigan, and Nevada can begin to use $1.5 billion in “Hardest Hit Fund” foreclosure-prevention funding under plans approved today by the Obama Administration. This aid will support innovative local initiatives to assist struggling homeowners in those states, as part of the first round of funding available under this new program.

“These states have identified a number of innovative programs that will make a real difference in the lives of many homeowners facing foreclosure,” said Treasury Assistant Secretary for Financial Stability Herbert M. Allison, Jr. “While we've made important progress stabilizing the housing market and keeping responsible families in their homes, the Obama Administration will continue to do everything it can to help those who are struggling the most during this difficult time. Today marks an important milestone for delivering relief to homeowners through the Hardest Hit Fund program.”

If you live in one of the states above and are interested in the programs they now have available, check out this post for details.

Have you done a refinance or home loan modification under the Making Home Affordable Program? If so, did it go through, or have you experienced problems? Tell us about it in the comments!

Deadline To Close On Your Home And Receive Your Homebuyer Tax Credit Extended To September 30th

By Mr. Money Leave a Comment

Last month I wrote about how congress and the White House were considering extending the $8,000 and $6,500 homebuyer tax credits. At the time it wasn't a done deal that an extension would be granted because the provision was being included as a rider on a controversial jobs bill that wasn't sure to pass both halls of congress. Sure enough, the bill didn't pass, and legislators were sent scrambling trying to find a way to pass an extension for the thousands of people thought to be in limbo with their closings on their new homes. If something wasn't done they would lose out on the tax credit.

H.R.5623 Passes And Extends Closing Deadline

Last week congress got the deal done and passed H.R.5623 – Homebuyer Assistance and Improvement Act of 2010. The bill doesn't allow new homebuyers to get in on the tax credit, but gives people who were under contract by 4/30/2010 a few extra months to get their deals finalized, and still receive the credit.

From BusinessWeek.com

Qualified homebuyers who signed purchase contracts before April 30 will have until Sept. 30 to complete paperwork and settle on the house. The original settlement deadline was June 30.

“They’re cheering out there, they’re really rejoicing,” Lucien Salvant, a spokesman for the National Association of Realtors, said of homebuyers. The group sought the extension.

The House voted 409-5 on June 29 to extend the deadline, and the Senate approved the measure on a voice vote last night. Republicans, including Senator Jim DeMint of South Carolina, had tried to block the extension, calling the tax-credit program flawed.

“We only created a bubble, which will eventually burst,” DeMint said on the Senate floor late yesterday as the deadline was about to expire. “For the people who haven’t closed on their homes by today, it’s not that they won’t get their house, only that they won’t get a taxpayer subsidy for having bought a house now rather than later.”

The bill was signed into law on July 2nd by President Obama.

Extension Of Homebuyer Tax Credit Will Make Some Happy – Others Skeptical

I know the passage of this bill will be a relief to many folks who ended up buying a house this spring simply because of the credit, and were horrified to find out they might not close on their house in time.

Whether or not this is a good idea is another story. Many have said that the tax credit only artificially pumped up the real estate market, and is causing another mini real estate bubble. They say the worst is yet to come. May and June have both shown a significant drop in new contracts on homes, and some experts expect that to continue.

What do you think about the tax credit extension? Is it ok since it isn't extending the credit to new buyers – and only extending the deadline for those under contract by 4/30? Have the tax credits and other stimulus created another mini-bubble only delaying a bottom to the market? Tell us your thoughts in the comments.

Will Congress Extend The June 30th Deadline To Close On Your Home And Receive Your Homebuyer Tax Credit?

By Mr. Money 8 Comments

The tax credit deadline has been extended from June 30th, 2010 to September 30th, 2010. Details here.

Over the first few months of this year a lot of people who might not otherwise have been looking for new homes decided to move their timetable up, and purchase the home of their dreams because of the first time homebuyer tax credit. Why not move things up a bit if you can get $8000 cash? When the credit was extended to current homeowners as well, things really started to heat up.

April 30th was the hard and fast deadline to be able to get a signed contract and still qualify for the tax credit. Most people were able to reach that deadline with no problem, however, some are now thinking that they're going to miss the June 30th deadline to complete the sale. If they do, they'll get no credit.

Tax Credit Closing Deadline Extended?

Now there is an amendment to H.R. 4213, “the American Jobs and Closing Tax Loopholes Act of 2010” bill being offered that would offer extra time for homebuyers to close the sale.

The amendment, which is attached to another bill, is being sponsored by Senate Majority Leader Harry Reid, D-Nev., Sen. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn. It was passed by the senate this week, and now needs to be passed by the House.

The bill would simply extend the time available to homebuyers to complete the sale on their new homes from June 30th to September 30th. So will it pass?

Many Sales May Not Complete Without Extension

The National Association of Realtors has been pushing hard for this bill, but many are saying that even with the extension, many of the sales – especially short sales – will still not complete.

Up to 180,000 buyers who were hoping to close by June 30 and get the tax credit are likely to miss the deadline, according to the National Association of Realtors (NAR).

“We are hopeful,” says Paul Bishop, vice president of research with NAR. “We've heard a lot of concern from Realtors out there. There seems to be a sense of fairness. The tax credit was essentially promised” to those buyers.

But some Realtors say even if a three-month extension is granted, that still won't be enough time for buyers pursuing houses through short sales, which can take many months to close.

“How are you going to close a short sale in two months?” says Edward Goldfarb, a Realtor with Keller Williams in Fort Lauderdale. “Hundreds of people are not going to close and are going to lose their tax credit. September is not any better. A short sale can take a year and a half.”

So a lot of people out there are in a holding pattern, hoping to get their credit. Some of them may get it because of the extension, but it sounds like a lot of folks who are buying short sales still may end up being left out in the cold.

Another concern is that buyers who face losing the tax credit could pull out of pending deals altogether. Any extension must be passed this week, or buyers will start canceling deals next week, before the deadline hits, says Richard Smith, president and CEO of Realogy, parent company of Century 21, ERA, Coldwell Banker and Sotheby's International Realty.

“We're concerned, as many people are, that this will force people to cancel their contracts,” Smith says.

So now it is up to the House to get this bill passed so that some homebuyers can be helped. The question remains – how many will it help?

What do you think – should the deadline be extended past the June 30th deadline? Will it be enough time for most unclosed sales, or will it be a pointless exercise? Tell me your thoughts in the comments!

Your Credit Report May Be Re-Checked Just Before Your Closing (And It Could Cost You Money)

By Mr. Money 8 Comments

The closing date on the new home that you put a purchase agreement on is coming up and you've been approved for a loan. You were given a decent rate, and you think you're all set to go.

After you were approved for the loan, your credit took a hit because you financed a new car and put some purchases on your credit cards. You're not too worried about it because your credit has already been checked, and you got the rate you were hoping for. Nothing to worry about – right? Maybe not.

Fannie Mae has put out new lending guidelines called their “Loan Quality Initiative”, which means that lenders have incentive to revoke a mortgage approval, right up until the time the loan is funded at closing.

Fannie Mae's Loan Quality Initiative

This program that Fannie Mae is putting out is being called the Loan Quality Initiative and it is their attempt to try and minimize the bad loans that have become so common since 2007. Fannie Mae is asking lenders to take more ownership for the loans that they give, and is then giving them the responsibility if things go bad. From themortgagereports.com

The Loan Quality Initiative is Fannie Mae's response to the foreclosure surge since 2007. The program shifts the onus of mortgage guideline compliance away from the the government-backed group and to the individual banks responsible for making loans…

For the most part, mortgage applicants won't be bothered with the changes. It's just extra work for the bank. Things like Social Security Number validation checks and borrower occupancy standards.

There is, however, one major consumer hurdle.

The hurdle? The last minute credit check!

Credit Checks Right Before Closing

Normally the loan process works like this:

Apply For The Loan – Credit Check – Underwrite & Approve – Fund Loan.

Because of the Fannie Mae Loan Quality Initiative the process is changing for many borrowers – there is an added credit check right before the loan is funded.

Apply For The Loan – Credit Check – Underwrite & Approve – Credit Check – Fund Loan.

The reason for the added credit pull? Fannie Mae wants lenders to verify that an applicant and their credit profile doesn't change while the loan is in underwriting. If the profile does change Fannie Mae may refuse to buy the loan from the bank because of the added credit risk. That means the bank is on the hook for that loan, and they don't want that.

Things That Will Be Looked At

To make sure the loan can be sold to Fannie Mae, banks will be looking for the following events occurring after the loan was underwritten:

Are there new credit cards?
Do existing cards have new charges on them?
Were there any major purchases financed since the loan was approved?

If there have been changes since the original credit pull the mortgage may need to go through the underwriting process again – and it could be subject to being turned down. Even if it isn't turned down, it could result in the borrower paying a higher interest rate on their loan because their credit situation has changed – for the worse.

If You're Trying To Buy A House – Be Careful

Fannie Mae's Loan Quality Initiative is meant to improve Fannie Mae's loan pool, decrease defaults and reduce the burden that foreclosures is putting on the taxpayers.

Trying to be more responsible about the loans they give isn't necessarily a bad thing, but it does mean that you need to be extra careful when you're in the process of buying a home.

In other words while you're in the process of buying a home don't sign up for new credit cards, don't put new charges on existing cards, and don't make any major purchases unless it's done with cash. In other words – don't do much of anything that might show up on your credit report because it could mean that your loan will be denied – even if your loan was already cleared to close beforehand.

What do you think of the new Fannie Mae initiative? Is it a good thing in the long run? Will it cause you to be more careful when buying a home? Tell us your thoughts in the comments.

If Your House Is Worth Less Than You Owe, Is It OK To Just Stop Paying Your Mortgage And Walk Away?

By Mr. Money 68 Comments

Since the market collapsed back in 2008 we've seen the real estate market take a nosedive. People who bought at the height of the market (assuming that real estate would always appreciate) found themselves in a situation where their homes had dropped significantly in value. My wife and I are a part of the group who have taken a significant hit, our home value has dropped by over $40,000.

Many people, especially those who bought homes without a down payment, or with a sub-prime loan are now finding that they also owe more on the home than it is currently worth. According to a report by First American Core Logic, a real-estate data firm, more than 11 million families are in “negative equity”, that is, they owe more on their home than it is worth.

Thankfully we aren't underwater, but what about those people who are? What are they to do? A growing group of people are saying that for most of those people it would make complete sense to just walk away from their mortgage, stop paying, and take the credit score impact of a foreclosure. They call it a “strategic default“.

My question is this. Is it OK to walk away from your mortgage if you have the money to pay, just because you're underwater and have negative equity?

Credit Score Impact Of Foreclosure

There are a lot of things to consider when you're thinking about walking away from your home. First of all, you need to consider the financial impact of walking away from your mortgage.

One of the most obvious impacts a foreclosure will have on your financial life is on your credit score. Now, I'm not one of those people who will tell you to constantly check your credit score and rely on it for everything, but the fact is that it does play a part in a lot of things these days, so you can't completely ignore it. So what impact does a foreclosure or delinquent payment have on your credit? Fair Isaac pulled back the curtain a bit and revealed a little bit about what kind of a credit score impact those things might have:

30 days late: 40 – 110 points
90 days late: 70 – 135 points
Foreclosure, short sale or deed-in-lieu: 85 – 160
Bankruptcy: 130 – 240

So having a late payment, a short sale, foreclosure or bankruptcy can have a pretty significant impact on your credit score, and mean you'll have to improve credit score later. In any of those situations it is going to show up on your account and have pretty negative impact. What does a lower FICO score potentially mean?

Absorbing a big credit-score hit can make many transactions more costly. It's not just paying more for credit card debt and auto loans, insurance can cost more as well.

The average savings for someone with a good versus mediocre credit score is about $115 a year for auto insurance and $60 for home, according to Loretta Sorters, of the Insurance Information Institute.

A low credit score can even make it harder to rent a home because landlords often use credit scores to weed out prospective renters.

So having a foreclosure, short sale or even late payments can mean you'll end up paying more for a variety of things. Definitely a huge impact to consider when you're thinking about walking away.

Moral Dilemma Or Just A Contractual Transaction?

While walking away from your mortgage will obviously have a negative financial impact, especially as it relates to your credit score, this still isn't enough for many people to not consider it. There are still those who are just having a hard time making ends meet, and while they can still make the payments, they would prefer to just walk away from the hefty mortgage on their underwater home, because they don't want to lose upwards of $50-100,000 (or more) on their home value. Why take the hit when the bank can better absorb the blow?

It does seem to make sense on the surface, but now we need to ask the question, is backing out of a mortgage contract an OK thing for a homeowner to do, or is it morally wrong to back out of a contract you are still able to fulfill?

Personally I tend to come down on the side of paying your obligations if you're able. I like to think that a contract is something you live up to. You knew the terms of the deal when you signed up, and now you should live up to it if you can. We need to be responsible for the obligations that we've made.

Others would counter that a strategic default is a legitimate option that is even spelled out in the mortgage contract, where specific ramifications of a foreclosure or short sale are spelled out for the homeowner. To exercise those options is just a a part of the legal transaction.

I understand that argument, but don't agree with it. Just because the ramifications of missing payments or defaulting are spelled out in a contract, doesn't mean it is an acceptable or desirable thing to do. Also, there is nothing in the mortgage agreement that makes your continued payment contingent upon the value of the home going up! It is a risk that you take!

What do you think? Should morality come into play when making a decision about a strategic default? Is it just a contractual transaction, and should we not feel bad about defaulting or going into foreclosure? Tell us what you think in the comments!

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