Blown Mortgage » Mortgage Musings

The Real Cost Of Low Interest Mortgage Refinancing.

Andrew — Tue, 28 Jul 2009 05:48:52 +0000

If you have a mortgage and you have been keeping an eye on the interest rates lately you are likely to have shed your share of tears. Interest rates in some cases have dropped by over 2% which means thousands and thousands of dollars extra interest you shouldn’t have to pay. You obviously would like a piece of the action and reduce your interest rate, who wouldn’t?

Now that sounds all very good but is it realistic to think you can save money on your mortgage by changing your mortgage to the current interest rates? It depends, it is possible to change mortgages to a lower interest rate and that can save you a lot of money, but it is also true that modifying your mortgage could also be an expensive and uneconomic move for you.

So what are the expenses, the real cost of low interest mortgage refinancing.
Prepayment penalties. These are often the mother of all mortgage refinancing expenses. Lenders often “protect “ their interests and avoid clients changing to cheaper loans by inserting clauses in mortgages that establish that paying the mortgage early (and not paying a whole lot if interest in the process) incurs a penalty to compensate the lender. The penalties can vary from a percentage of the amount of the principal paid to a fixed amount like 6 months interest payments upfront. Check carefully what interest rates you must pay before deciding to change mortgage provider.

Application fees.
The current economic crises that has caused so many to lose their income and consequently their homes has also had the effect of jumpstarting a new industry, loan modification advisors. These companies will ride you over the rocky terrain of loan modifications. Most of us don’t need them as the steps you need to take are rather simple. Whatever you choose to do remember they cannot guarantee you any outcome and that they can’t do anything you couldn’t for your own interests.
Title search, inspections and surveys.
The costs linked to mortgage refinancing and loan modifications are rather large. One should expect to pay anything between 3 to 6 percent of the outstanding principal in setup fees. This will include the survey of a qualified inspector that will determine if your home is still sound and therefore a good investment.

Title surveys, check the accuracy and availability of the titles attached to a home or property. Some banks will also ask for insect infestations and other smaller issues before agreeing to the loan.

These are just a small sample of the fees you will have to face. It is important that we compare our income, the c of loan modification and the savings the loan mod will provide. Do yourself a favor and check the real cost before signing.

Share At:

Hide Sites

HUD Expands Making Home Affordable Eligibility

Jay Hammond — Thu, 02 Jul 2009 11:20:31 +0000

On July 1, 2009, U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan announced an expansion of the Making Home Affordable Refinance Program to include borrowers who are current but up to 125 percent underwater on their mortgage. The announcement was made while the Secretary toured a Las Vegas neighborhood with Senate Majority Leader Harry Reid (D-NV) and Congresswoman Dina Titus.

“This decision is part of our ongoing efforts to maximize the effectiveness of the Making Home Affordable program and adapt to an ever-changing housing market,” said Treasury Secretary Tim Geither. “By expanding refinance eligibility, we can bring relief to more struggling homeowners more quickly. It’s a crucial step in our broader efforts to get America’s housing market and economy on the path to recovery.”

Las Vegas is the ground zero of the foreclosure crisis. Not only does the area lead the nation in foreclosures, more than two-thirds of current mortgage holders in the market have mortgages higher than their property is currently worth. Prior to the announced expansion, only those borrowers whose first mortgage did not exceed 105 percent of the current market value of their property were eligible for the program.

Donovan also announced plans to deploy HUD Foreclosure Rapid Response Teams to assess the area hardest hit by foreclosure, starting in Las Vegas. The Las Vegas team will consist of two-senior-level HUD Field staff having experience in Single Family Housing and community outreach. Over they next two weeks these team members will be determining the need in Nevada and surrounding areas. HUD will commit two full-time employees to implement the Foreclosure Rapid Response Team’s recommendations.

Additionally, HUD plans to deploy two Fair Housing equal opportunity specialists to the Las Vegas HUD office. HUD receive about 100 housing discrimination complaints annually from Nevada residents, more than double what was received in 2005. The Fair Housing specialists will conduct local outreach and education as well as receiving discrimination complaints and conducting investigations. With a local presence, HUD’s Fair Housing & Equal Opportunity office should make it easier for Nevada Residents to obtain justice and relief , to educate housing consumers about predatory lending and to conduct program compliance and monitoring in more than 3,000 public housing units and over 8,500 Section 8 Vouchers.

Share At:

Hide Sites

Is Trust Returning to the Mortgage Industry?

Jay Hammond — Wed, 01 Jul 2009 16:12:57 +0000

“The economy is based on trust,” said Dean Johnson, associate professor of finance at Michigan Technological University in Houghton, Michigan.

In situations like the recent housing bubble, or even the stock market collapse of 1929, where markets were driven by debt and fueled by the false expectation that values can only increase, trust can be a very fragile thing.

“One little blip and everything started to unwind,” Johnson said. “The particulars are different, but the basics are familiar.”

Trust, however, seems to be coming back, according to Johnson. If people are cautious and not spending money, the government and financial industry must take action to encourage capital liquidity. During the first half of 2009, this is exactly what they have been doing. And if the effects have not been as immediate as some would like and others needed, at least their efforts are beginning to take effect.

Why does Johnson believe trust is returning? He points to the Volatility Index, or VIX, which measures investors’ expectations of how volatile the stock markets will be. The VIX reached all-time highs in 2008.

“People think of it as the fear gauge,” Johson explained. “it’s encouraging that the VIX, though still high be historical standards, is down about 60 percent from what it was at its peak in November.”

Other, more recent, signs that trust is being rebuilt in the American housing/real estate markets and the financial industry include:

USA Today reports that while the construction market remains weak the housing market may be improving slightly. Residential construction reportedly dropped to the lowest level since December 1995. Pending homes sales increased slightly in May, according to the National Association of Realtors (NAR).
Proposed legislation to create a Consumer Financial Protection Agency is making progress at the federal level, according to the Washington Post. The Post reports that the Treasury Department’s proposal for a new federal agency to consolidate the plethora of state and federal regulators responsible for overseeing the lending industry arrived on Capitol Hill on Tuesday.
At the end of June, Fannie Mae, which is still under the conservatorship of the federal government, reported its mortgage portfolio grew at a compound annual rate of more than 35 percent in May. A report from Dow Jones appearing in the Wall Street Journal indicates a large jump in the issuing of mortgage-backed securities offset continued rises in single-family and multi-family mortgage delinquencies.

Notes of caution, however, are also being heard. Yale University economist and co-founder of the S&P/Case-Schiller home-price index, Robert Schiller told Bloomberg: “At this point, people are thinking the fall is over. The market is predicting the declines are over.” At the same time he is “not optimistic that we’re going to see any sharp rebound.”

Johnson agrees with Schiller.

“It’s still a risky market,” Johnson stresses. “This is the first time in history that you’ve been better off if you’d put your money under a mattress 10 years ago. But hopefully, this indicates that the financial markets are returning to normal.”

Of course this doesn’t mean the housing market or the financial industry will be returning to the halcyon days of pre-mortgage crisis days anytime soon. It doesn’t matter how badly investors, bankers, consumers, lenders, the government or the world at large want it.

“There’s no easy fix,” Johnson concluded. “We have to take our medicine. It took 20 years to create the over-leverage and it will take time to undo that.”

Share At:

Hide Sites

No “green shoots” in employment

Morgan — Sun, 21 Jun 2009 21:52:15 +0000

Unemployment rose in nearly every state in the nation in May, with many reaching record unemployment levels not seen since 1976. So much for green shoots. If 70% of our economy is driven by consumer spending, and more and more consumers are out of work, how exactly are we coming out of this mess? Where is the driver going to come from? Even with the government doing everything it can to keep the printing presses pumping out money there isn’t a viable way to easily replace that massive consumer spending. I’m no economist, but the common sense in me says that an umemployed consumer doesn’t spend like one with a job and a house-sized ATM.

The top hardest hit states in terms of unemployment are: Michigan, Oregon, South Carolina, Rhode Island and California. (Image courtesy of CNN.com)

When you’ve got the nation’s most populous state in the top 5 in unemployment, a budget deficit of $20+ billion and new taxes going in left and right (not to mention a whole slew of Option ARM resets coming down the pike) it’s rather silly to be talking of recovery at this stage in the game.

What do you think?

Some more images of doom from CNN:

Share At:

Hide Sites

California Foreclosure Prevention Act goes into effect tomorrow

Morgan — Mon, 15 Jun 2009 05:36:31 +0000

The state of California is imposing a 90-day moratorium on all foreclosures as part of the new California Foreclosure Prevention Act that goes into effect tomorrow. The law requires that lenders prove they tried to modify a borrower’s loan before initiating foreclosure proceedings.

From the San Jose Mercury News:

The law is expected to make lenders try harder to keep borrowers in their homes. Loan companies must prove they tried to modify the delinquent loans before they can begin foreclosing.

But supporters acknowledge the California Foreclosure Prevention Act won’t stop thousands of foreclosures from eventually happening. There have been more than 365,000 foreclosures in California since early 2007, with many more already scheduled.

The highlights of the law are (from California Assembly Member Ted Lieu’s site):

1. Imposes a 90 day foreclosure moratorium to allow distressed homeowners time to work out loan modifications with their lenders.

2. Allows lenders to avoid the moratorium if they have a comprehensive loan modification program based, in part, on criteria set forth by the Federal Deposit Insurance Corporation. Loans may be modified several ways, including interest rate reductions, extension of the loan term, or principal reduction.

3. Provides oversight and accountability by requiring regular reports to the legislature on loan modifications and foreclosure reductions, and coordination with appropriate state regulators.

We have some real rocket scientists up in our state legislature. At least I’m not the only one who thinks this is completely idiotic. From Mish:

This bill is no more likely to work than a bill declaring poverty to be illegal or the sky to be green.

Share At:

Hide Sites

Stay or Go? Freddie Mac changes offer homeowners more refinancing choices

Jay Hammond — Mon, 08 Jun 2009 13:23:18 +0000

“We are responding to consumers’ desires to have more refinancing options,” said Freddie Mac Executive Vice President Don Bisenius. “As an added benefit, we are expanding the program and providing greater flexibility in financing closing costs. Freddie Mac is committed to doing everything we can to bring the benefits of the Administration’s Making Home Affordable program to as many borrowers as possible.”

In changes announced last week, Freddie Mac aims to assist borrowers current on their mortgage payments who would benefit from refinancing into mortgage with better terms that will put them in a better position for long-term homeownership. The changes, when they become available, would allow borrowers to refinance their Freddie Mac-owned or guaranteed mortgage with any lender affiliated with Freddie Mac. In addition, Freddie Mac will allow the lesser of 4 percent of the new refinance mortgage amount or $5,000 of closing costs, financing costs and prepaid/escrows to be rolled into the new refinance mortgage. Freddie Mac’s standard post-settlement delivery fees, up to a maximum of 2 percent, will apply to the Relief Refinance Program.

Borrowers can continue to work with their existing servicer to refinance the mortgage. In the majority of cases, if a borrower works with their current servicer, the borrower will not need to be re-underwritten. If the borrower chooses to work with another Freddie Mac-affiliated lender, the mortgage will need to be re-underwritten.

Borrowers should complete the online form at https://www.freddiemac.com/corporate/ to determine if Freddie Mac owns their mortgage.

In other news, Freddie Mac also attempted last week to reduce the organization’s short-tern debt by buying back $30 billion of its debt. According to the New York Times DealBook, it would be the largest tender offer in the organization’s history. The Home Builders blog reports that Congressional hearings began last week on the future of both Freddie Mac and Fannie Mae after both companies reported losses during the first quarter. Both remain a critical concern for the federal government although mortgage rates, which have risen for two consecutive weeks are inspiring optimism in some quarters.

Share At:

Hide Sites

One million foreclosure landmark a boon for some buyers

Jay Hammond — Tue, 02 Jun 2009 01:17:32 +0000

The Center for Responsible Lending (CRL) estimates that one million new foreclosures have been filed so far in 2009. The news comes on the heels of the release of the first quarter 2009 National Delinquency Survey from the Mortgage Bankers Association (MBA) which reveals that 12 percent of all mortgages are now delinquent, the highest level in the 37 years the MBA has been measuring delinquency rates.

Yet, for some Americans, foreclosure properties represent an excellent opportunity to buy homes.

CNNMoney.com reports that more Americans than ever are interested in purchasing properties that have been foreclosed upon. The article also provides some suggestions regrading where to find listings of foreclosure properties. One site they missed however, is ForeclosureDataBank.com.

“There are just so many foreclosure listings on the market right now,” said Moises Da Silva, CEO of Brivin Corporation, the parent company of ForeclosureDataBank.com, one of the largest foreclosure databases on the Web. “In an area where options were once somewhat limited, the choices are now absolutely amazing for first time home buyers and real estate investors.”

Currently, ForeclosureDataBank.com lists more than 1 million properties in its database. Many of the properties listed in the database, which is updated daily, are 20 to 40 percent beneath market value. According to the Standard & Poor’s Case-Shiller Home Price Index, which are calculated monthly but published with a lag of two months, reveals that home prices in 20 major metropolitan areas declined 18.7 percent during March. A similar drop occurred in February while January experienced a record plunge of 19 percent.

ForclosureDataBank.com offers consumers educational tools, search filter options and access to neighborhood demographic information as well as an easy-to-use interface and 24/7 customer support. It is not the only resource for buyers considering the purchase of foreclosed properties. The Wall Street Journal Blogs offer advice on making money in real estate as does NCFly.net. Organizations such as Habitat for Humanity are also purchasing foreclosed properties and restoring them, as described in this article on Foreclosure Homes Information, which also lists foreclosure homes for sale. As these sites indicate, purchasing foreclosure property is not without risks…or rewards, both for the buyer and the larger economy.

“The escalation of foreclosures on all types of loans is alarming,” said Michael Calhoun, President of CRL. “It’s easy to think, ‘Well that’s tough luck for the families that lose their homes.’ The truth is that foreclosures are costing neighboring families hundred of billions of dollars and dragging down the entire economy. Foreclosure’s started today’s crisis, and foreclosures will keep the crisis going if this epidemic continues.”

Share At:

Hide Sites

Do Homebuyers Need More Encouragement?

phillenbrand — Mon, 18 May 2009 23:21:28 +0000

Here we are, well into the aftermath of the financial crisis that torpedoed home values across the country, sent mammoth financial institutions into the poor house, and drove unemployment numbers toward the double digits. The government, for its part, has taken increasingly drastic steps to put the real estate market right again, to mixed effect. From rock bottom interest rates to massive loan modification programs to tax credits to entice first time homebuyers, we’ve seen a lot of effort from Uncle Sam. With signs of a recovery mounting and buyers starting to emerge from the woodwork in greater numbers, the question becomes whether we are doing too much to spur a recovery.

New homebuyers, for example, already have a pretty sweet deal going. Currently, if your credit score is up to snuff, you’ll be able to obtain a mortgage at historically low rates and in addition you’ll get an $8,000 tax credit. Speaking to friends and siblings, this alone seems to have generated a lot more interest in purchasing a new home to get while the getting is good. Yet apparently that wasn’t enough, and some prepared remarks from the Secretary of Housing and Urban Development suggest that not only will you get an $8,000 tax credit, but in the near future you may be able to use that $8,000 credit as a down payment for your home. Wow.

The concern here is that pushing too many people towards housing too fast will end up re-inflating the housing bubble, and the concern here is somewhat valid. Super-low mortgage rates and little to no down payments are in part got us into this mess in the first place. Let’s not also forget that the loan modification programs are being spearheaded by government-owned mortgage giants like Fannie and Freddie. Both of these institutions are bleeding billions of dollars a quarter, and that money is being provided by taxpayers. We don’t have this cash lying around, either, we’re borrowing it, and the ballooning deficit has caused widespread concern as well.

Ultimately we do want these efforts to work, and we do want to Share At:

Hide Sites

Deflation is real and it’s spreading

Constantine von Hoffman — Thu, 23 Apr 2009 15:10:50 +0000

So far Spain, Ireland and the UK are already seeing it and Japan is teetering on the brink.

“Ireland, struggling with a ballooning budget deficit and record unemployment, has been at the vanguard of Europe’s economic collapse. Now deflation threatens to push the country deeper into its worst recession in eight decades.” (Bloomberg)
“Britain’s statistics office says the country’s retail price index is falling for the first time in nearly fifty years.” (FoxNews)
“VALENCIA, Spain — Faced with plunging orders, merchants across this recession-wracked country are starting to do something that many of them have never done: cut retail prices.” (NYTimes)
“Japan starts with significantly greater deflation risks” than the U.S. or Europe.” (IMF report via Wall Street Journal)

All of this as the IMF predicts the global economy will shrink for the first time since 1949. The US will provide a fascinating case study on possible causes and effects of deflation. No one really knows what will happen now that we’ve flooded our economy with faux dollars. The standard behavior of more dollars chasing fewer goods is, of course, inflation. A best case scenario for us then is a collision of inflation and deflation — resulting in the ever-dreaded stagflation. I said it was a best case. I didn’t say it was a good case.

My own observation sees more things coming down (housing, clothes, consumer electronics, automobiles) than are going up (food seems to be increasing slightly).

Even more scary news from the UK: “University students could earn, rather than have to pay, interest on their student loans from September now Britain has gone into deflation.” Yes, they will pay you to borrow money. Ouch.

Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.

Share At:

Hide Sites

Is Mortgage Aid Helping Those Who Need It?

phillenbrand — Fri, 10 Apr 2009 21:16:47 +0000

Love it or leave it, but we’ve seen extraordinary actions in the past couple months in terms of efforts, both on the side of lenders and government, to help those who are struggling with their mortgages. Uncle Sam has gone out of his way to drive interest rates down to historic lows, and consumers are scrambling to take advantage. Some banks, most notably Wells Fargo, are even starting to turn a profit from the increased activity. Here’s what Wells Fargo CFO Howard Atkins had to say about the recent quarter:

““Business momentum in the quarter reflected strength in our traditional banking businesses, strong capital markets activities, and exceptionally strong mortgage banking results — $100 billion in mortgage originations, with a 41 percent increase in the unclosed application pipeline to $100 billion at quarter end, an indication of strong second quarter mortgage originations.”

Roll out the victory celebration, right? Strong mortgages? No way! But let’s look at this flurry of activity and see who’s really benefiting from it. Certainly we all stand to benefit from confidence in the U.S. Financial system, which has plummeted for well over a year now, but who’s getting the mortgage aid? So far, it looks like refinancing efforts have primarily affected those that weren’t in trouble in the first place (not that there’s anything wrong with that). The vast majority of consumers refinancing are homeowners with conventional mortgages who aren’t in serious trouble of losing their homes anyway.

That’s all well and good, since we’re all shouldering the tax consequences of these efforts, so why not benefit, but if those who aren’t in trouble are gaining the most help, it misses the mark of the program’s intention. The other goal of these efforts to lower rates was also to spur additional mortgage applications, bring those would-be buyers out of the wood work finally and get them to pull the trigger. We haven’t seen that yet either, as mortgage applications still remain depressed. Using actual lending standards will do that, I suppose, especially in comparison to application levels over the past few years, but the government may want to take a closer look and make modifications as needed to ensure their efforts are hitting the intended targets.

Share At:

Hide Sites