Category: Mortgage Info

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HARP, HAMP, HOPELESS

Turned down for a mortgage refinance or afraid you won’t be approved? Are you angry and frustrated with your mortgage lender? Why is it so difficult to get a better rate? Why does the lender say that I don’t qualify for a LOWER payment when I am already paying my current HIGHER payment?

I am a mortgage Broker here in PA and I share your frustration and can maybe offer some insight and even a little hope about how it works from the inside. I will save the details about Short-sales and Foreclosures for a future post but just note these are not good for lenders… loans gone bad! I think we can all agree that if the lender lowers you mortgage payment then regardless of the property equity you would be better able to make your mortgage payment and stay current. Many of the new HARP type programs are designed to help homeowners left out of the normal products that require substantial property equity or at least not have your home value be less than your current mortgage balance. Great Idea but they fall short on the execution, meaning that many questions of loan structure, lender participation, pricing and the guidelines for underwriting have been left up to the lenders. The result is that many lenders are not participating and many have placed restrictions or overlays on top of the standard rules like; Credit scores,  income and property ratios resulting in many rejected loans that may be approved at a different lender without the overlays. WHY? Lenders are about risk and many of these loans have past a certain point of liability to the lender so a new loan even though the payment is lower for you it will increase the lenders direct liability if the loan goes bad.

What to Do: Talk with your existing servicer and see what they can do for you (many say you don’t qualify because they don’t offer a program)and then talk to a Broker with a good reputation and compare prices and products… a broker will have access to many lenders and should be able to direct you to a lender that is favorable to your particular circumstance.  It is always smart to get a second opinion.

By Bill Frantz at Norstar Mortgage 6-18-2012

 

Bi-Weekly Mortgages, Deal or No Deal…

DEAL- The benefits of a bi-weekly mortgage

  • Faster Equity Build Up
  • Pay Less Interest
  • Easy Automatic Withdraw
  • Easier to Budget

NO DEAL- The cons

  • Higher Rates
  • Increased Fees
  • Contracts
  • Less Flexible
  • Higher Annual Payments

OK… What gives? Is it a good deal or not?

 On a normal mortgage your payment is posted 1 time per month… It’s due on the 1st and generally will have a 15 day grace period but the posting is adjusted on the 1st. So if you pay your mortgage early on the 25th or later on the 10th your payment is posted on the 1st and this is when your interest and principle + any pre-payment will be applied. Basically a 30 year mortgage is a series of 360 payments with a fixed payment. If additional principal is paid it will reduce the balance which will reduce the interest portion of your next payment (Bal x % /12 = interest portion). Your total payment remains constant resulting in a quicker amortization. (pay off  sooner)

Now let’s look at what a True Bi-Weekly mortgage is and how it works. A Bi-Weekly Mortgage is about Posting. There is no grace period and it must be drafted from your account every 2 weeks and Posted to your account. This quicker Posting results in a reduction of interest on the unpaid balance as well as making 26 payments per year which would be about equal to 13 monthly payments so you are also adding principal compared to a normal loan.

This can be a great deal but be careful.

NOTE: You can not make a regular mortgage into a Bi-Weekly by making extra payments because the POSTING periods cannot be changed!!

Here’s the problem. Many lenders charge a higher rate for a Bi-Weekly negating much of the posting benefit. Some lenders and some third party companys will try to sell you a Bi-Weekly payment program wrapped around an existing mortgage… Several hundred dollar fee upfront and cost per draft… Save your money and just divide 1 payment by 12 and add that to your regular monthly payment and avoid all the additional cost. Be Careful… some lenders will use Bi-Weekly to sell negative amortization type loans which could lead to trouble unless you fully understand them

If the payments work and you can find a TRUE Bi-Weekly at the same rate as a comparable regular loan then it may be a great deal… but make sure you fully understand how it works.

By Bill Frantz

PaFhaMortgage.com

 

 

 

CASH POOR, GET MORE!

$12,000 DOLLARS!  Did you know that in Pennsylvania the average closing cost  run about 5% to 7% of the sale price… $12,000 for a $200,000 purchase!! Closing Costs are in addition to your down payment. Is it any wonder Buyers have a hard time getting a new home.

Fortunately there are several ways to structure your financing to secure additional cash from a Real Estate transaction.

SELLER ASSIST-  The name is somewhat misleading. The seller does not pay out of pocket for the buyer’s closing cost. Here’s how it works. The home is priced at $200,000. The buyer will determine their net price they would pay for the home.

1. $200,000. The buyer would add the assist of $10,000 and make an offer of $210,000. $10,000 would be a credit to buyer.

2. $190,000. The buyer would add the assist of $10,000 and make an offer of $200,000. $10,000 would be a credit to the buyer.

This only works with a mortgage, the result is that the buyer increases their mortgage by $10,000 and essentially finances the seller assist. The seller simply is agreeing to a finance option for the buyer.

NOTE: the home must appraise for the Sale Price. In option 1 the sale price would be $210,000 and must appraise for $210,000. If you are competing with a strong buyer that does not need an assist the seller would accept their offer over yours not having to worry about the home appraising.

How Much Assist Can I Get? It varies based on the type of financing and can only be used towards allowable closing cost. If you have $8,200 in allowable cost then your assist would be capped at $8,200. Below are the basic Max assist percents generally allowed but like everything there are some caveats, so always check with a mortgage professional when structuring your financing.

  • FHA= Max 6%
  • USDA= Max 6% with zero down!
  • 5% down= Max 3%
  • >=10%= Max 6%
  • Investor= Max 2%
  • 

LENDER ASSIST-  Again the Lender is not just giving you money. Lender assist is more accurate to be called Premium Pricing. Basically if you select a higher rate the lender can credit the YSP (yield spread premium) toward your closing cost. For example taking a rate .25% higher might give you a 1 point (1% of loan) credit toward closing cost with only a minimal payment increase. More info:   http://pafhamortgage.com/norstar-university/ysp-and-srp/

REALTOR ASSIST- The Realtor can also contribute. Let’s say that you need to sell an existing home. The Realtor may charge full or reduced commission on the sale of your home but because they benefit from multiple transactions they may be willing to discount or credit commission on your sale/purchase package. Many seller/buyers lose this advantage. A good example might be new construction. You went to the new construction sample home and put down a deposit and then called a Realtor to sell your home. If you tied the sale and purchase together with the same Realtor you could easily save 1% to 2 % and reduce your expense. More info:   http://pafhamortgage.com/real-estate/buyer-agent/

These techniques can also be combined and can really be significant in reducing the cash needed to purchase a home.

By Bill Frantz   www.PaFhaMortgage.com

Homeowner Tax Credit is Still Here!

No… Not that flash in the pan backward $8,000  stimulus credit… The real Homeowner credit! The Credit that has  been here in the form of deductions all along… Still here!

What am I talking about? The IRS allows you home mortgage interest along with your property taxes to be deducted from your income on Schedule A of your federal tax return. That means if you have a $250,000 mortgage at 4.75% that’s over 11,500 in interest. If you add that to a $4,800 property tax bill you would have a $16,300 tax deduction. You would need your actual tax bracket but let’s assume a net rate of 20% for federal taxes. $16,300 x 20% would be a $3,260 refund and you get to do this every year!

The smart money would adjust your W4 federal withholding and take home $271.67 more each month! That’s like giving yourself a raise…

If you are considering a home purchase in the current year don’t forget about the tax saving associated with home ownership. Remember it’s not what you make but what you keep that is really the bottom line.

For more onfo check out  “What can we afford”

By Bill Frantz    PaFhaMortgage.com

Understanding Foreclosures and Short Sales

With foreclosures and short sales being such a large part of current Real Estate inventory here in Pennsylvania it’s important for potential Buyers and Sellers to understand what they are and how they differ.

What is a Short Sale?  Jack and Jill bought a house on the hill and their value came tumbling down. They now owe more on their home than the current value. Jack and Jill decided to sell and after meeting with a Realtor realized that they would need an additional $30,000 to clear title so the home could be sold. They do not have the money. The Realtor suggested a short sale that would work like this; List the home and when an agreement of sale comes in that Jack and Jill accept, it would then be sent to the mortgagee (lender/s) to see if they would agree to accept a less than full payoff. Basically if they would forgive Jack and Jill $30,000 and be short on the sale!   Short Sales generally take longer to get the lender approval and it may delay you several months, so a good Realtor is essential to avoid a huge waste of time. Remember that a debt forgiven may be income to the IRS and/or the lender can place a deficiency judgement meaning they accept the sale but still want their $30,000. Current rules may allow a bypass on both, sort of a get out of jail free card. Jack and Jill need to make sure they get the terms in writing prior to! After a short sale you will be eligible for most new financing:

  • Two Years= 80% Max LTV, 90% LTV Extenuating Circumstance
  • Four Years= 90% Max LTV
  • Seven Years= LTV per Eligibility Matrix 

What is a Foreclosure?  There are 3 basic documents that we will look at here. 1. Deed/Title is who owns the property. 2.  The Mortgage is signed by all owners of the home accepting the lien on the property used as collateral. 3. The Note is what we commonly think of as the mortgage but is really like a big IOU for the money borrowed. When you fail to meet the terms of the Note the lender can then use the Mortgage to gain Title to the property in the process called Foreclosure. You can’t sell it till you own it! The foreclosure process in PA is handled by the Sheriff’s Department so they are considered a “Sheriff Sale” along with other types of sales such as delinquent taxes, etc. Same as a short sale you can be hit with IRS income and/or deficiency judgements so negotiate before the foreclosure happens.  Once foreclosed the properties usually come on the market as HUD homes (FHA), HomePath (FNMA), REO (real estate owned, Bank) and several others. Most are listed in the MLS and a good Realtor should be able to get you access to those that are not listed as well.

A foreclosure will most times be a minimum of a 7 year waiting period for new financing. Extenuating circumstance is now 3 years = 90% LTV.

What is Deed in Lieu?  Jack and Jill may elect to voluntarily hand over or surrender the title in lieu of the foreclosure process. This saves the lender time and money so Jack and Jill might be able to cut a little better deal with the lender. Same eligibility and other rules as short sale.

more info: http://pafhamortgage.com/real-estate/foreclosure-short-sale/

Disclaimer: This is meant as generally information and legal counsel is recommended if you are considering any of these actions in order to protect yourself. Information from FNMA seller Guide 3/31/2011.

By Bill Frantz  at PaFhaMortgage.com

I Want the LOWEST Mortgage Rate!

Me Too! As a Mortgage Professional giving people what they want would seem to be the easy sale. Wait… don’t we have record foreclosures because Lenders gave borrowers what they wanted? Rates and payments that seemed too good to be true “1.75% fixed Payment Loans” and you could “choose you payment option each month” and do it with “NO Money Down” and “No proof of income” to make it really simple. To be fair it’s like the gun dispute “guns don’t kill people, people kill people”. Let’s assume it was not a bad mortgage product, it was just sold to 99.7% of the wrong borrowers!

The lowest rate on a poorly constructed financing package is a bad deal! With recent changes in how loans are priced and disclosed it is more important than ever for a consumer to understand some mortgage basics.

You have done your homework and decided that a 30 yr fixed is your best option and you want to purchase with 10% down needing a loan of $200,000. Seems easy enough, the only thing left is to get the lowest rate, or is it? Let’s break down your payment or PITI (Principle, Interest, Taxes, Insurance) Insurance, what insurance? Homeowners, Fire, Hazard which are really just different names for the policy that covers your house. Additionally with 10% down you will need Mortgage Insurance. Mortgage Insurance protects the lender if you default so do not confuse this with insurance that pays your mortgage if you are disabled or pays it off if you are deceased. First lets look at the P&I associated with rate on $200,000.

Which rate is better?   4.75% P&I $1043.29 or 4.875% P&I $1,058.41. The 4.75% rate saves us $15.12 per month and times 360 payments saves $5,443.20.

What is the YSP or Discount Points?  YSP is the Yield Spread Premium that either the bank keeps or the lender may credit it to you. Discount points you would pay to reduce your interest rate. Lets assume the difference between 4.75% and 4.875% is 1 percent or 1 point and would equal $2,000. Which is the better rate now? Would you trade $2,000 for $5443.20? Could you use an Extra $2,000 to lower your  closing cost?

Mortgage Insurance Options?  You do know you have options. Lets assume a 760 credit score you could choose monthly MI or .62 ($103.33) or Single 1 time at 1.25 ($2,500) that you can pay 1 time upfront or may be able to finance into your loan. ($202,500). Take a look at your payments adjusted with the MI insurance

  • MONTHLY
  • 4.75%     $1,146.62
  • 4.875%   $1,161.74 ($2,000 YSP Credit)
  • SINGLE (cost $2,500)
  • 4.75%     $1,043.29
  • 4.875%   $1,058.41  ($2,000 YSP Credit or cost $500)
  • FINANCED
  • 4.75%     $1,056.33
  • 4.875%   $1,071.64  ($2,000 YSP Credit)

 If we now compare 4.75% monthly MI against 4.875% Financed MI we have a monthly savings of  $74.98 and we saved $2,000 on your Closing Cost. Let me say this a different way… You would need a rate of 4.00% with monthly MI to match the payment of the 4.75% financed MI…

You also have the option for an 30 yr fixed 80/10/10 loan to avoid PMI…

Rate saved $15 per month and product saved $90 per month and we just compared 1 option… I agree that rate is important but the lowest rate will not make up for the wrong financing package! When shopping for a mortgage ask about rate but also ask about options and alternate programs!

For more info on these topics:  YSP, MI Programs and Split Loans checkout the   NORSTAR UNIVERSITY  

By Bill Frantz

Avoiding PMI with a Split Mortgage

PMI or Private Mortgage Insurance can significantly increase your monthly payment and the cost of home ownership. Let’s face it without PMI many conforming home buyers would simply be locked out of the market unable to make the required 20% down payment necessary to avoid PMI. Not all PMI is equal and there are many programs available that are great alternatives to the standard monthly BPMI that we will discuss in the future. I would just like to inform buyers of an option that does still exist called a split loan. Here’s how it works. On a 1st mortgage there is no PMI required at a max LTV (loan to value) ratio of 80% (20% down). You may add a 2nd mortgage on top of the first that will not trigger the need for PMI. These may also known as a Piggy Back loan. They would be expressed as 80/5/15,  80/10/10,  80/15/5,  80/20 and may also be structured various ways to fit your needs such as 75/15/10 etc. The  numbers represent:  1st mortgage/2nd mortgage/down payment. There are many options of 1st and 2nd mortgages that can be combined to create a custom financing option to meet your specific needs.

Another great use of a split loan is to extend your purchasing power by maintaining a conforming first loan of $417,000 and adding a 2nd to avoid the increased pricing of Jumbo financing.

By Bill Frantz

PaFhaMortgage.com

Fannie, Freddie To Raise Rates

Borrowers, get ready for higher interest rates on new conforming mortgages.

It’s no secret that rates have already risen as the outlook for the U.S. economy has brightened in recent weeks. But rates on some new home loans are also set to go up regardless of economic activity.

That’s because Fannie Mae and Freddie Mac, the two government-controlled entities that purchase mortgages from lenders, have announced new “loan-level price adjustments,” or LLPAs, which will jack up the “pricing,” aka rates, on certain new loans.

Fannie Mae’s new pricing, announced Dec. 23, 2010, is set to take effect April 1, while Freddie Mac’s new schedule will be effective March 1.

The price increases will be based on the borrower’s loan-to-value ratio and credit score, and even those who have a large down payment and score in the 700s will be affected. That might seem unfair, but the reality is that a price increase that affected only less-qualified borrowers wouldn’t accomplish much, since those borrowers by definition aren’t able to get a new loan.

The rate increases might not show up in the official measures of inflation, but they are, in fact, not unlike recent rises in prices for fuel and food in some respects. Borrowers won’t get anything extra, but will still pay more for the same product. The increases won’t be due to increased demand or manufacturers’ higher costs, but rather as a result of bad bets in the past and more perceived risk in the future. The profit motive is naturally at work as well.

By: Marcie Geffner

Found at: www.bankrate.com

The Obama administration is laying out three broad options for overhauling the mortgage lending system, but will let Congress make the final decision.

The Treasury Department says in a report released Friday that the government should withdraw its support for the mortgage market slowly, over five years or more. The report describes a path for winding down the troubled mortgage giants Fannie Mae and Freddie Mac.

The three options are: end the government’s role in guaranteeing most mortgages; support the mortgage market only in times of stress; or provide a government guarantee for mortgage investments created by private companies.

Under any scenario, the private sector will assume a greater role in housing finance as the government scales back its involvement. The government currently owns or guarantees more than 90% of U.S. mortgages.

The bailouts of Fannie and Freddie, which were created by Congress but became public, stockholder-owned companies, have cost taxpayers nearly $150 billion.

The report comes after years of debate about how to end the government’s role in housing. The options have been discussed for years.

By handing the decision to Congress, the administration sidesteps one of the most complex and politically explosive questions facing the financial system. Any of the three options will almost certain force mortgage rates to rise.

Republicans have called for Fannie and Freddie to be abolished. But there is a growing recognition that drastic action would upend the housing finance system, threatening the broader economy.

A near-complete withdrawal by the government could end the popular 30-year fixed rate mortgage or, at least, make it more expensive. Banks would prefer adjustable-rate mortgages that would fluctuate with market interest rates.

Treasury Secretary Tim Geithner says mortgages would be “modestly” more expensive as government withdraws.

However, all three options maintain some level of government support, either through guarantees or through existing agencies,such as the Federal Housing Administration.

Administration officials say the proposals will end the hybrid model of public-private companies that left the public on the hook for billions when Fannie and Freddie failed.

“Under any of the scenarios there’s going to need to be more private capital in the housing system,” said Michael Barr, who recently left his post as assistant treasury secretary to return to teaching at Michigan University Law School. “That’s going to mean more pressure on interest rates.”

The greater the government involvement, the milder the impact on borrowing costs. But more government involvement also places more taxpayer money at risk.

Republicans complained that the administration is stepping back from one of the most consequential, and politically explosive, questions for the financial system.

“It’s disappointing that the administration is abdicating an opportunity to lead and is instead opting to punt,” said Kurt Bardella, spokesman for Darrell Issa, R-Calif., a vocal critic of Fannie and Freddie and chairman of the House Committee on Oversight and Government Reform.

“It’s mind-boggling how the administration is not acting with more urgency to put forward a plan given the multibillion dollars taxpayers have at stake,” he said.

But Republicans, who control the House of Representatives, have offered no specific plan of their own. And even conservative scholars concede that the remedy is less about urgency than it is about stepping away from the reliance on Fannie and Freddie at a moderate pace.

A report prepared by scholars at the conservative American Enterprise Institute, which the Treasury report is expected to allude to, also calls for gradual withdrawal of Fannie and Freddie from the housing finance market over a period of five years.

Mark Zandi, an economist who has advised Democrats and Republicans, proposed the middle-of-the-road option of giving the government a role that insures mortgages only in catastrophic market conditions.

That type of insurance would be paid for by homeowners, he said, and it “would keep rates measurably lower, allow mortgage credit and would preserve the 30-year fixed rate mortgage.”

The report comes as Republicans and Democrats struggle to find a way to find a way to repair the financing system for the nation’s $11 trillion housing market. By offering options and spelling out the advantages and disadvantages of each, the report is designed to have a soft landing on Capitol Hill.

Recognizing that the changes in the system will be gradual, the administration is in no hurry to demand a quick fix.

At a House hearing Wednesday, neither Republicans nor Democrats displayed a desire to push specific plans or timetables for overhauling Fannie Mae and Freddie Mac. Republicans, however, have long argued the two mortgage lenders were central players in the 2008 financial meltdown and have called for their demise.

The report also is expected to call for the gradual reduction of Fannie’s and Freddie’s combined $1.5 trillion portfolios. The administration would like to reduce the government’s mortgage support to somewhere below 50% within five to seven years.

It also would support trimming the maximum size of mortgages they can purchase from the current high of $729,750 to $625,000. Congress set the higher limit in 2008 and it expires in September.

By: Justin Vaught, Alan Fram, and Daniel Wagner
Found at: www.activerain.com

This Weeks Mortgage Rates Forecast

Mortgage markets worsened last week as Wall Street came to terms with the expanding economy; and realized the Federal Reserve may be trying to induce inflation.

Better-than-expected retail sales and positive job growth buoyed stock markets and sank bonds.

Mortgage rates in Illinois rose for the 4th time in 5 weeks last week, extending a losing streak which dates back 4 months.

Today, fixed, conforming rates are three-quarters of a percent higher as compared to the market’s low point, November 3, 2010. For a $200,000 home loan, that size rate hike equates to an increase in a monthly mortgage payment of $89 per month.

Mortgage rates are at their highest levels of the year and, this week, they may continue ticking higher.

There isn’t much data set for release this week so markets will take their cues from two major events — one economic and one political.

The major economic event is Fed Chairman Ben Bernanke’s testimony to the House Budget Committee late-Wednesday. Chairman Bernanke is expected to speak about employment, but will likely touch on other topics of import including economic growth, the U.S. dollar, and the nation’s debt ceiling.

The Fed Chairman’s comments will move mortgage rates in one direction or the other, so locking in advance of his testimony may be prudent. Mortgage rates have more room to rise than to fall, after all.

The second major event is Egypt’s ongoing political strife. By Thursday of last week, Wall Street had shrugged off the region’s crisis and unwound the safe-haven trades that had helped mortgage rates during the week prior.

If instability returns, mortgage rates, once again, will be pressured lower.

Regardless of your rate-locking plan for this week, it’s important to recognize that, although rates have risen, they’re still well below historical average. Therefore, rates may have a lot of room to move higher, still.

If you’re shopping for a mortgage, or are now under contract, consider locking your rate as soon as possible.

By: Kevin Lanham
Found at: www.activerain.com