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Archive for the 'Ken Mascia on Mortgages and Finance' Category

What is a Mortgage Loan Modification and How can it work for Me?

Mortgage loan modification is something that has been talked about a lot over the past year as financial hardships have made it difficult for some to manage their monthly payments. Loan Modification is when your lender agrees to make a permanent change to the original terms of your mortgage loan. This could be in the form of an interest rate reduction, fixing the rate on an ARM loan, extending the amortization (i.e., making the loan a 40 year term to reduce the payment), changing the loan terms to require an interest only payment or even a principal reduction (reducing the amount owed). The purpose of the modification is to make it feasible for the borrower to make the monthly payments on the house.

Why would a lender agree to this and under what circumstances will they do it? Well, the lenders’ goal is to have loans it makes perform and, contrary to popular belief, they do not want to foreclose on anyone as owning homes is not the lenders business. So, if the borrowers’ personal circumstances indicate that a specific change in the terms of the loan will make it possible for them to make on-time payments on the debt then the lender will seriously consider making those changes.

Your specific circumstances are going to be the driving factor in whether or not a loan modification is possible. The lender is going to ask you to document your income so they can determine whether you are capable of making the existing loan payments and, if not, whether a modification of the terms will make it possible for you to make the payments. If you make $10,000 per month and your loan payment is $2,000 it’s not likely that your lender is going to modify the loan because it appears that you should be capable of making the payments. If you and your spouse were both working at the time you took the loan out and one of you has lost your job then a loan modification may be feasible as long as the lender believes making the change to the loan will enable you to make timely payments. If you are unemployed then a modification is not likely as the lender will want to know you have a stable income stream to make the new payments. Each case is different and they are going to be looked at individually.

There are a lot of companies that have popped up over the past year that offer to work as a facilitator to work between you and your lender. Generally, they charge an upfront fee (usually several hundred dollars) and give you no guarantee as to the outcome. Some of these companies are reputable but many are not so be careful. You really don’t need a modification company at all as you can work directly with your lender. However, some folks have reported excellent results working with a mod company. I have referred some of my clients to one which purports to have a 90% success rate. What they do is to review your financial data in advance of charging you a fee and then if they feel that your modification has a good chance of success they move forward. If it does not look like the lender will consider the modification they charge you nothing. This seems to be the best approach in my opinion.

So, a loan modification is one way for people who are experiencing a financial hardship to work with their lender and keep their home and their credit standing. It is a viable option and should not be ignored. If you think that you may be qualified for a loan modification give your lender a call and you may be surprised by the result. Good Luck!

Image courtesy of The Truth About Mortgage.com

Tags: loan modification

Mortgage Rate Update

Mortgage Market Update June 9, 2009
Well, it’s Wednesday, May 27th and I’m cruising along at the office working out various underwriting issues working towards closing a bunch of loans because for the first time in over a year, I’m really busy! Oh happy day! Until today.

On the day I am writing about interest rates had been very stable in and around 5% on a 30 Year Fixed for a couple of months and it did not appear that anything was going to move the rate up for the foreseeable future. That assumption turned out to be very wrong. On May 26th our rate (30 Fixed) was 5.0% with zero points. The Treasury Bond market was a little jittery at the end of the day because the Federal Government was scheduled to be selling a bunch of new debt over the next couple of weeks and if the bond auctions were not well received by investors then the rate on these bonds would rise. An increase in Treasury Bond rates will cause mortgage rates to rise also. The billions of dollars in 5 Year Bonds the fed sold on the afternoon of the 27th were not very well received and by the end of the day, May 27th, mortgage rates had gone up to 5.5%. In one day – Ouch.

The next day I awoke feeling very positive that this little spike in rates was going to reverse itself over the next week or so. Then on the 28th Durable Goods Orders figures were released and orders were up 1.9% – much stronger than expected. Also, released were new claims for unemployment benefits which were smaller than expected. People buying more stuff and fewer people losing their jobs is good news for the economy’s future but bad news for interest rates. Interest rates go up when the economy is doing well and go down when things are bad. By the end of this day the rate was up to 5.75%.

Rates had gone up ¾ of a point in just a couple of days. Since then this rate has held as more positive economic news has been released. Personal incomes and Outlays (consumer spending) were reported at the end of the week and both were stronger than expected keeping rates pegged at the new higher level.

The good news – we may get out of this economic mess we’re in faster than anyone thought. The bad news – a stronger economy will keep mortgage rates above the super low levels that we had been seeing. Overall though, when you can get a 30 year fixed rate mortgage anywhere in the 5’s that is a really great rate to borrow at. We may see a slight pull back in rates in the near term but as the year progresses there is little doubt that interest rates will be rising some more. If you’re in the market to buy a home I suggest identifying a home to buy, making an offer and getting your rated locked in now. Happy house hunting!

Tags: mortgage rates

The Two Most Overlooked Mortgage Options for Buyers

Many potential Oakland County home buyers in today’s market are looking for creative ways to purchase homes. There are a couple of options which are widely overlooked but present opportunities to accomplish specific goals of buyers in the market. If you want to buy a house that needs minor repairs – perhaps a new roof, an updated kitchen or bath, new appliances, etc – can you incorporate that into the loan to purchase the house? What if you want to buy a home and put zero down? Many people believe that these things are not possible but if you are working with a great lender that has all of the available options at their fingertips and knows how to use them these things can be done!

FHA 203(k)
An FHA loan is a mortgage loan that is insured by the Federal Housing Administration and because the loan is insured lenders are willing to make these loans are more flexible terms than a conventional loan. This means credit standards are not as tight and down payment requirements are lower. Right now the minimum down payment for an FHA loan is only 3.5% and credit scores of 620 are approvable. The 203(k) loan is a variation on the FHA loan which allows you to buy a house with only 3.5% down and borrow extra money to make specific improvements to the home you are buying. These improvements can include roof, electrical system or plumbing upgrades, flooring, remodeling of kitchen or bath, appliances, window or door replacement, etc (structural problem repairs are not allowed and neither are room additions). What you have to do is get a contractor estimate for the specific repairs and then we appraise the home on an “as completed” basis – the appraisal is based on what the home is worth after the improvements have been completed. The homebuyer is responsible for monitoring and completing the work after buying the house and the repairs may be inspected by the lender. The maximum loan amount can be 100 – 110% of the finished value (the buyer still has to make the minimum 3.5% down payment based on the purchase price of the home). The maximum amount available for repairs can be as high as $30,000 and the current loan limit for FHA loans in our area (SE Michigan) is set at $297,500. This is a great way to buy a house that needs some TLC and finance the repairs at the time of purchase!

VA Loans
A VA loan is insured by the Veterans Administration and is made to eligible veterans of the U.S. Armed Forces. Much like an FHA loan, the VA loan guarantee makes lenders willing to offer these loans at more flexible terms than conventional loans. Depending on the eligibility of the individual veteran it is possible to purchase a home up to $417,000 and put zero down! The seller can even pay up to 4% of the sales price to cover the buyers closing costs, property taxes, etc. This could be used to allow someone to buy a home in today’s market with little or no money out of pocket! Wow, I thought somebody told me zero down loans were all gone?

Working with an experienced, well informed lender that has the right tools and knows how to use them is a must in today’s challenging times. I have the experience and the tools to help you make your dream house a reality so feel free to contact me to discuss options to accomplish your goals.

Tags: fha loan, fha mortgages, fha mortgages in Michigan, va loans, va mortgages

What Really Happens after I “Give it Back to the Bank”?

I have been hearing people saying lately that foreclosure is so common now that being foreclosed really doesn’t have the same negative impact on credit and borrowing ability as it used to. Can this be true? Absolutely not. This article is directed at those folks who are considering walking away from a property they own because it has lost value – not because they are having a financial hardship, like job loss. If you choose to “give it back to the bank” you should understand the long term implications. A foreclosure will have at least 5 potential long term issues associated with it.

Credit Score Damaged
OK, it goes without saying that your credit score will be hammered. This is not an exact science and depending on what your credit report looks like now will affect the score reduction. However, you can expect your score to go down by 100 maybe 200 points or more and stay that way for several years. The foreclosure itself will stay on your credit report for a minimum of 7 years and you’ll be explaining that to creditors any time you apply for new debt.

New Loans Hard to Get
Lenders of all types – automobiles, credit cards, department stores, gas stations, installment loans, mortgages, home equity loans, every lender uses your credit score and credit report to determine your willingness to repay your debts. If you walk away from a mortgage loan every lender you currently borrow from, and those that you may apply with in the future, are going to wonder “If you didn’t repay that loan what’s stopping you from walking away from our debt?” You will not be able to obtain any mortgage financing for approximately 4 years (and only then if you have re-established good credit) and you may even have trouble leasing a place to live because landlord’s look at your credit score.

Existing Credit Cards Limit Reduced and Rates Increased
Surprising to some folks, your credit card companies review your credit report every year and even if you are paying that bill on time they can and will raise the interest rate on your credit card if your credit score goes down. They may also reduce your credit limit or change the terms on your card or even cancel and close the account.

Higher Insurance Rates
Insurance companies also use credit score as one means to determine risk and they may increase your rates if a score reduction occurs. This can impact your auto insurance, home insurance, even your health insurance!

Home Equity Loans and Second Mortgages can continue Collection Efforts
One thing that most people do not understand about foreclosure is what happens to a second lien on the house. If you have a home equity loan or a second mortgage on the property that lender will be forced to release their Lien on the home for the foreclosure to go through. However, this does not mean that they give up their legal ability to collect on the debt. The second mortgage lender will place a collection account on your credit report for the full amount of the debt and that collection account will not go away until you pay them off or settle the debt. This will make the impact of the foreclosure even worse for your credit score and ultimately you may be forced to pay the debt even after the foreclosure is completed.
The bottom line here is that the impact of a foreclosure has not changed. If anything has changed it’s the perception that letting a home go to foreclosure is somehow OK. Foreclosure will have far reaching implications on you and will continue to haunt you for years to come. If there is a course that you can follow that does not involve “giving the keys to the bank” then you should look hard and long at it because the foreclosure may seem like a good short term fix but in the long run it’s going to cost you a lot of money and heartache!

Tags: forclosures, foreclosure

What’s Going on with Rates on Mortgages??

So, you own a house and are wondering if you should refinance? Can you get a new loan? Are rates low and are they going lower? Man, you’ve got a lot of tough questions!

There has been a lot buzz lately about mortgage rates and mortgage availability; Rates are at 5% and the government is going to lower them to 4%. Nobody can get a loan. What’s the real deal? Well, we all know that the federal government does not “set” mortgage rates. Those rates are determined by the supply and demand for Mortgage Backed Securities (MBS) in the market place. When demand is high mortgage rates go down and vice versa. Lately, with all of the foreclosures the demand for MBS has fallen off because when a loan in a portfolio of loans (called a MBS and sold to investors) goes into foreclosure the investors in that pool all lose money, so mortgage backed securities are not the no-risk investment they were once thought of.

In steps the Federal Reserve with a mission to lower mortgage rates in an effort to stimulate the bruised housing market and what do they do? They become a buyer of mortgage backed securities – and a huge buyer to boot. The Fed announced last Wednesday a plan to purchase about a trillion dollars in MBS. The mortgage secondary market was elated and rates went down from 5.5% (conventional loan to $417,000) with no points to a low of 4.875%. Wow! The thing is that this can only be sustained if the Fed continues to support demand by buying and they can’t be a buyer everyday forever. So, as you can imagine, rates started creeping up the very next day and are currently at 5.375%. Still interest rates at or near 50 year lows.

The problem right now with keeping rates low is that the government is creating trillions of dollars of new government debt to pay for all of the various bailouts we are involved in and interest rates have to be attractive enough on this debt to encourage buyers to buy it and that is putting upward pressure on rates in general.

The bottom line on rates is that they are very attractive right now and although there may be some dips the likelihood of a significant drop is not very high.

In terms of availability, if you have good credit and equity in your home (or a down payment to buy) you can still get a great mortgage loan. Contrary to what you may have heard there are even some outstanding Jumbo loans available today. In my office we are doing loans up to $1.5 million at 5.25% on a 7 Year ARM. Granted, you have to have a 30% equity position in the property but if you do 5.25% is pretty incredible on a loan this size.

So, rates are great right now and are probably going to stick around this level for the immediate future, loans are still being made and if you are in the house buying market or considering a refinance the timing may be just right.

Tags: Adjustable-rate mortgage, Business, Federal Reserve System, Loan, mortgage, Mortgage loan, Mortgage-backed security, Refinancing

Michigan Home Buyers and Sellers to Benefit from Stimulus Bill

Congress finally came to terms on this stimulus bill that we’ve been hearing so much about. This thing is very far reaching and is going to cost a boat load of money, but I am just focusing on the items that will affect real estate sales and mortgage finance.

Mortgage Rate Reduction – There has been a lot of buzz about the government somehow forcing mortgage rates down to 4%. There has never been a clear answer as to how they would do this (mortgage rates are set by a free market pretty much like everything else in the USA!). This bill does not call for any specific measure that would peg mortgage rates at some direct level. It does, however, allow the Fed’s to continue to purchase mortgage backed securities (MBS) in the secondary mortgage market. Keeping this market de-thawed should allow mortgage rates to remain low as they have been for the past 8 weeks. The bottom line is that fixed rate mortgages in the 5’s are pretty great anyway!

Higher Loan Limits – One of the things this bill does is to re-set loan limits to 2008 levels. This is more important than it appears. For example, in our area of Southeastern Michigan, the FHA loan limit had been reduced from $297,500 to $271,050. This might not seem like a big deal but if you’re a homebuyer and want to purchase something that’s $300,000 then it is a big deal! Overall, conventional loan limits will remain unchanged around most of the nation because Fannie and Freddie did not reduce the limits this year so the conventional loan limit for most areas will remain at $417,000.

Changes to the Homebuyer Tax Credit – The homebuyer tax credit has been re-vamped in a couple of ways. The maximum credit amount has been increased to the lesser of 10% of the purchase price or $8,000 (up from $7,500).Now the tax credit does not have to be repaid (this is great!) unless the buyer sells the home in the first 3 years and then they have to repay the entire amount. Also, the time period has been extended and now the tax credit is available until December 1, 2009. All other income limits and first time buyer requirements still apply. The new tax credit begins on January 1. Anyone who bought a home in 2008 under the previous law is still subject to the rules of the old bill but anyone buying in 2009 is subject to these new rules even if they bought prior to the bill being passed as long as the purchase date was in 2009.
This “Stimulus Bill” is enormous – just another way for the government to grow even larger? How are we going to pay for these $800 billion dollar expenditures? What long term effect will printing all of this new money have on our future economy? Who knows! All I know is we have to head off a potential economic disaster and this seems like the best way to do that right now.

Tags: first time home buyer credit, home buyer tax credit, stimulus bill

Ken’s Oakland County Mortgage Update – January 2009

Well, there has been more interesting activity in the mortgage interest rate market this month.  The Federal Government has been busy trying to keep the economic ship afloat and they are doing OK in some areas and poorly in others (my editorial opinion, of course).

I applaud the Fed’s for seeking to reduce mortgage rates and inspire home buying.  On the other hand it was very foolish (opinion again) when Treasury Secretary Paulson came out last month and basically stated that the Fed’s were going to push mortgage rates down to 4 ½%.  The problems with this statement are 2 fold:

1. The federal government does not control mortgage rates.  Rates are set by the supply and demand for mortgage backed securities (MBS) in the secondary market.  Rates fluctuate up and down based on whether investors (primarily institutional) are buying or selling MBS.  So, the government can’t make mortgage rates do anything.
2. When Paulson claimed the Fed’s were going to get rates down to 4 ½% that set up an expectation in consumers across the nation.  Instead of saying “Hey look, mortgage rates are at 50 year lows with fixed rate loans in the 5’s and I’m going to go out and buy a house!”, now people were saying “I’m going to wait to buy a new home because I think rates are going lower”.  He basically put the brakes on the whole real estate market!

One of the things the Fed’s have done that has worked out has been the Federal Reserve Bank becoming a buyer of mortgage backed securities.   The Federal Reserve Bank bought billions of dollars in MBS and due to this buying activity mortgage rates fell down to around 5%!  The bad news is that rates started creeping back up again almost immediately as market forces took over again after the fed’s buying spree.

The good news is that mortgage rates are holding pretty steady in the mid 5’s and will hopefully stay in this range.  When you can get a 30 Year fixed rate mortgage anywhere in the 5’s, that’s a great borrowing rate!

There has never been a better time to be a homebuyer with housing affordability at levels not seen in decades (real estate is selling cheap), mortgage rates at 50 year lows and a first time home buyer tax credit of up to $7,500 still available through June 30th.  If you are considering buying a home there has never been a better opportunity!

Tags: economy, Finance, first time buyer tax credit, mortgage

Mortgage Guideline Changes for Oakland County Home Buyers

Each year limits are set on how much a conventional loan (non-government insured) can be and when a conventional loan exceeds the limit it is known as a jumbo loan.  Government loans (FHA insured) also have a limit and when a loan exceeds that limit the FHA will not insure the loan and therefore it cannot be an FHA loan.  Conventional and Government loan limits change every year.  Generally the limits increase, but, new limits are set based on average home prices across the nation and home prices have typically gone up year over year which causes loan limits to increase as well.  This past year, as we all know, housing prices have fallen all over the country and I just wanted to keep you abreast of how that will impact loan limits for the coming year.

As far as conventional loans are concerned the limits will remain unchanged at $417,000.  This is good news since the limit could have decreased significantly in light of the drop in average home prices in 2008.

The FHA loan limit in our area (Oakland, Macomb and Wayne counties, Michigan) is dropping from $297,500 to $271,050.  This is really important information if you are a pre-approved buyer and you’re looking at homes, plan to get an FHA loan and want to buy around $300,000.  Your maximum loan amount has just declined.  Hopefully the lender you are working with has made you aware of this!  For you Realtors, if your buyers are using FHA and are in this price range you’ll want to make note of this too so you’re not looking at homes in a price range that the loan cannot be approved in.

Here’s to a vastly improved economy and housing market in 2009.  Think positively and Happy New Year!

photo courtesy of Rev Dan Catt

Tags: metro detroit mortgage limits, mortgage limits, oakland county mortgage limits

The Facts About Reverse Mortgages

Have you heard the term “Reverse Mortgage”?  Many people have but it’s still a mysterious concept that many people don’t understand.   It’s really a pretty neat loan program and can be a very valuable tool under the right circumstances.  Like any financial tool, this product is not right for everyone, but, with the right guidance and knowledge it makes sense for many.

A Reverse Mortgage is really exactly what it sounds like. In a “normal mortgage” the borrower gets a fixed amount of money upfront in exchange for making payments of principal and interest over a set period of time.  Ultimately, the borrower either pays the loan in full by making monthly payments or the loan gets paid off when the house is sold.  In a Reverse Mortgage the borrower gets a loan that they never make a monthly payment on, the interest accrues over time (is added to the loan balance) and the loan is not repaid until the borrower is deceased or moves out of the house.

Who is eligible for a Reverse Mortgage? The borrower has to be at least 62 years of age, occupies the home as their primary residence, has significant equity in the house or owns the home free and clear.  The loan amount available is based on the value of the home and the age of the borrower.  The older the borrower the more money they can borrow.  The reason for this is that the loan will not grow as large over time if the life expectancy of the borrower is shorter therefore the loan balance can start out larger.

Why get a Reverse Mortgage? The main advantage to a reverse mortgage is the fact that you never have to make a mortgage payment again.  In retirement people are typically living on a fixed income and not having to make a monthly mortgage payment can really add to the financial comfort of the retiree.  If a person is getting a fixed income of $2,000 and has to make an $800 mortgage payment and they can eliminate the mortgage payment they now have an additional $800 a month to spend on other things!  If you were living on only $1,200 a month and that amount was increased to $2,000 your quality of life would be a lot higher.

A Reverse Mortgage can actually provide a monthly income stream as well. Let’s say a person is 70 years old and owns a home worth $250,000 free and clear.  With a Reverse Mortgage this borrower could get a monthly check in the amount of $905.  Not only are they not making a monthly payment they are actually receiving a check from the mortgage company every month!  They could also choose to get a lump sum at closing in the amount of $140,000 that they can do whatever they want with and never make a payment on the loan.  If this borrower has an existing mortgage on the property of $75,000 they could payoff that loan and still get a monthly check in the amount of $420 and never make another house payment.  There is also the possibility of using the proceeds of the loan as a line of credit – borrow as much as you want when you need it.  Pretty cool eh?

What happens if the loan amount grows larger than my house is worth? The answer is that you cannot be forced out of the house for any reason and in the event that you are deceased your heirs do not have to pay any shortfall back to the lender.  If, after your death, the house sells for more than you owe on the reverse mortgage then your heirs would get the difference.

Do I have to have good credit or income to qualify for the loan? No.  Your credit standing and income are not taken into consideration.  The only factors are your age, the value of the home and what you currently owe on the home.

Can I use a Reverse Mortgage to purchase a home? At this time our guidelines do not allow for the purchase of a home.  However, if a person sold a home and was able to purchase a new home with cash they could then immediately refinance the home with a reverse mortgage and get a lump sum back, a line of credit or a monthly check.

The bottom line is that this is a way for retirees to maximize their cash flow or to allow a person to keep a home they might not otherwise be able to afford.  It can really be a great tool for the right borrower but it’s very important to have a knowledgeable advisor and to fully understand what you are doing.   If you know someone who might benefit from this type of loan have them get in touch with me and we can figure out if this is the right move for them.

Tags: reverse mortgage

October Mortgage Update

Here we are at the end of October.  Summer is over, the leaves are turning beautiful colors and the temps are getting a bit cool.   We have a lot to be thankful for and the holiday season is on the way.  The business and investment climate is still a bit crazy, though.

Early this month the stock market began a sharp decline and the Dow (DJIA) fell through the 10,000 mark.  This caused a round of panic selling over the next 2 weeks which has left the DJIA around 8,000.  Ouch!  Typically, when stock prices are falling investors shift money from stock investments into safer treasury bonds.  When Treasury bond rates fall mortgage rates typically follow.  Nothing is following typical patterns right now though.

The Fed announced a surprise ½% rate cut on February 8th to try and settle the markets and to help the banking crisis by making it cheaper for banks to borrow money.  The bad news – over the course of that same week mortgage rates actually went up ½% and were approaching 7%!  Fear and negative sentiment were really the driving forces during that week.  Mortgage rates started to edge down again the week of the 20th when some weaker than expected economic news began being reported.  Keep in mind that interest rates typically go down when the economy is weak and rise when things are booming.

The Retail Sales figures reported a drop of 1.2% which was significantly worse than anticipated.  Also reported that day was the Producer Price Index which was reasonably close to estimates with a .4% drop in PPI (the cost to produce declined excluding food and energy – this is good because the last thing we need right now is inflation!).  The Consumer Price Index (also a measure of inflation) rose only .1% and was also under forecasts.  Industrial Production fell a whopping 2.8% and Consumer Confidence was down.  One piece of good news for all of us was that gas prices fell significantly!  Yee Hah . . . filled up my tank for under fifty bucks!

Anyway, all of this news lead mortgage rates back down again through the 24th.   The key right now is volatility.  My advice if you are buying a home, refinancing or working with clients who are doing either, is to work with an expert who can guide you and advise you as to when and why you should lock a rate.   With over 17 years of experience and a track record of truthful and honest service, I am that guy!  Please keep me in mind when you need help with any type of home finance.