This week, the Obama Administration unveiled a fresh set of incentives for mortgage servicers to help strapped U.S. homeowners. The U.S. Treasury will tap into a $50 billion housing rescue fund (TARP) to pay off mortgage investors and reduce monthly payments for millions of borrowers.
Under this new program, the government will pay mortgage servicers $500 up front and $250 a year for three years for successfully modifying or erasing a second mortgage, such as a home equity loan. According to a senior administration official, "It will be a shared effort with lenders, investors, borrowers and the government to ease or extinguish second-lien mortgage payments." It is expected that a significant amount of big banks will sign up for the updated federal program to bring relief to troubled homeowners. Once those firms sign necessary contracts, they'll generally be obligated to modify second liens when they've initiated a modification on the first.
Second liens typically have a higher interest rate than primary mortgages but those second liens will have a lower rate under the modification plan. The interest rate will go at least as low as the interest rate on the first and it will fall much further to get there.
The administration also announced a set of incentives for servicers and lenders participating in the Hope for Homeowners Program, which aims to restore homeowners' lost equity by encouraging lenders to write down loan principal. The administration said it will take steps to incorporate Hope for Homeowners into its loan modification program. Servicers will be required to determine eligibility for a Hope for Homeowners refinancing. Where it proves viable, the servicer would need to offer this option to the borrower.
Under the program, servicers must agree to modify all second mortgages where the first mortgage has already been modified. To qualify for payment, servicers must extend the term of the second mortgage and reduce the interest rate to match the first mortgage. Then, the government will share the cost with the servicer of reducing the rate down to 1% for amortizing loans and 2% for interest-only loans.
Borrowers will receive payments of up to $250 per year for as many as five years if they stay current on the loan. The payments will be applied to pay down principal on the first mortgage.
Changes to the Hope for Homeowners program are designed to place it in line with the taxpayer-assisted loan modifications. Launched last fall to help troubled borrowers refinance into more affordable government-backed loans, it has failed to gain traction due to onerous borrower requirements and the nagging problem of second liens. The administration announced a $2500 up-front payment to servicers that refinance borrowers into the program. Meanwhile, lenders that originate the new loans will receive $1000 a year for three years, as long as the loans stay current.
Officials also say that they will continue to remove other bureaucratic encumbrances and expand incentives where needed to steer more homeowner away from default...a very "Empowering" move...
Friday, May 1, 2009
Wednesday, April 29, 2009
Do You Understand Financing?
According to the "Loanable Funds" theory, interest is the price paid for the use of "Loanable Funds". It believes that the rate of interest is determined by the equilibrium between supply and demand of "Loanable Funds" in the credit markets. Supplies of "Loanable Funds" are derived from four basic sources...savings, dishoarding, bank credit, and disinvestment.
Savings by individuals or households constitute the most important source of "Loanable Funds". In the "Loanable funds" theory, savings are looked at in one of two ways. One concept is for savings planned by individuals at the beginning of a period in the hope of expected incomes and projected expenditures on consumption, or secondly, consumption of the present period coupled with savings from the preceding period.
Like individuals, businesses also save. A higher rate of interest return is likely to encourage business savings as a substitute for borrowing from the credit markets. This type of savings from business is often used for investment purposes by the firms themselves. This type of savings often Empowers them so they do not enter the market for "Loanable funds".
Dishoarding is another source of "Loanable Funds". Individuals may dishoard money from the hoarded stock of the previous period. Cash balances, lying idle in a previous period become active balances in the present period and are available as "Loanable Funds". At a higher rate of interest return, more cash will be dishoarded. At a lower rate of interest return, the investor tends to hold on to their cash.
The banking system provides a source of "Loanable Funds". By creating credit, banks can advance loans to the businessman. Banks can also reduce the amount of loanable money by contracting their lending. We have seen this dramatically over the last year with the housing market. Banks raised the ante on credit with respect to lending practices, as they were not getting the rate of return they needed to see due to more defaults and contraction within the housing markets. This ante was noticeable in different ways...higher fees, increased interest rates to borrowers, tightening up the guidelines to extend credit, to name just a few. New money created by banks in a period adds greatly to the supply of loan funds. The supply curve of funds provided by banks is directly proportional to the rates of interest return, as has been further noted within the current housing crisis.
"Loanable Funds" and the "Loanable Funds" theory encompass the different scenarios we have discussed. Having a basic understanding of this concept makes it easier to encapsulate concepts surrounding the mortgage industry and how it operates. Education gives you Knowledge...Knowledge is Empowering...
Savings by individuals or households constitute the most important source of "Loanable Funds". In the "Loanable funds" theory, savings are looked at in one of two ways. One concept is for savings planned by individuals at the beginning of a period in the hope of expected incomes and projected expenditures on consumption, or secondly, consumption of the present period coupled with savings from the preceding period.
Like individuals, businesses also save. A higher rate of interest return is likely to encourage business savings as a substitute for borrowing from the credit markets. This type of savings from business is often used for investment purposes by the firms themselves. This type of savings often Empowers them so they do not enter the market for "Loanable funds".
Dishoarding is another source of "Loanable Funds". Individuals may dishoard money from the hoarded stock of the previous period. Cash balances, lying idle in a previous period become active balances in the present period and are available as "Loanable Funds". At a higher rate of interest return, more cash will be dishoarded. At a lower rate of interest return, the investor tends to hold on to their cash.
The banking system provides a source of "Loanable Funds". By creating credit, banks can advance loans to the businessman. Banks can also reduce the amount of loanable money by contracting their lending. We have seen this dramatically over the last year with the housing market. Banks raised the ante on credit with respect to lending practices, as they were not getting the rate of return they needed to see due to more defaults and contraction within the housing markets. This ante was noticeable in different ways...higher fees, increased interest rates to borrowers, tightening up the guidelines to extend credit, to name just a few. New money created by banks in a period adds greatly to the supply of loan funds. The supply curve of funds provided by banks is directly proportional to the rates of interest return, as has been further noted within the current housing crisis.
"Loanable Funds" and the "Loanable Funds" theory encompass the different scenarios we have discussed. Having a basic understanding of this concept makes it easier to encapsulate concepts surrounding the mortgage industry and how it operates. Education gives you Knowledge...Knowledge is Empowering...
Tuesday, April 28, 2009
Do You Really Understand Loan Terminology?
You know what a mortgage is...how it works, and what to watch out for. However, when you go to ask for assistance with your loan modification, the language you hear from your mortgage broker might as well have come from R2D2 in Star Wars. That is what makes the loan modification process so confusing for many homeowners...why many of them simply give up...a hint to those of us in the business...we should operate on the KISS principal..."Keep It Simple Simon".
You do not have to be a financial expert to make sound decisions. A working knowledge of the lending and loan modification industry can help you better understand your situation , especially knowing what your lenders are talking about. I have listed a number of terms that you will likely come across and what they mean.
Amortization: The repayment of a loan through regular installments. The payments are determined by the term of the loan, the principal balance, and the interest rate.
Annual Percentage Rate (APR): The total cost of the loan, including the interest, mortgage insurance, points, and associated fees.
Adjustable Rate Mortgage (ARM): A type of mortgage in which the interest rate changes according to market conditions. This means your payments may increase or decrease from month to month. Most ARM's have a payment cap that keeps the amount from rising beyond certain levels.
Debt-To-Income Ratio (DTI): The ratio of the amount you pay on the loan to your total income. Lenders use this to determine whether or not you can comfortably pay the loan. According to the Federal Housing Administration (FHA), the mortgage payments should not exceed 29% of your monthly income before taxes, and your total debt including credit cards and other loans should not exceed 41%.
Deed-In-Lieu: A deed that passes interest in your property to your lender as settlement for your debt. It doesn't let you keep your home, but it helps you avoid the foreclosure proceedings and associated costs.
Equity: The amount of financial interest you have in your own property. This is calculated by subtracting the amount you still owe from your home's Fair Market Value.
Fair Market Value (FMV): A theoretical price given to your home considering the current market conditions. The FMV assumes that the buyer and seller are acting freely and have all the pertinent information for the deal.
Fixed Rate Mortgage: A type of mortgage that uses a fixed interest rate throughout the term of the loan. This gives you more stability as a borrower, as your payments will remain the same regardless of the market figures.
Foreclosure: A process wherein your property is sold off and the proceeds go to your tender, allowing them to recover their losses when you default on the the loan.
Forbearance: An agreement in which your lender revises your payment plan to help you get current and avoid foreclosure. This may involve lowering your monthly payments or suspending them for a given period. Unlink loan modification, this is usually temporary and is often used as a loss mitigation option.
Good Faith Estimate (GFE): An estimate of the total cost of the loan, including all the closing fees, lender charges, and insurance costs. All lenders are required to give you a GFE within three days after you apply for a loan.
Interest: A percentage of the principal added to your monthly fees, as a way of paying your lender for the use of money.
Interest Only: A loan structure in which you only pay interest for the life of the loan, and pay the principal only after a given period.
Lien: A claim held by your lender against your property as a form of security in case you default on the loan.
Loan-To-Value Ratio (LTV): The ratio of the total amount you pay on the loan to the actual price of your home. The higher the LTV, the less you have to put out as down payment.
Loss Mitigation: A process that helps borrowers to avoid foreclosure and lenders to minimize their losses on delinquent borrowers. When you fall behind or apply for a loan modification, you lender's loss mitigation department will handle your case and make the decisions.
Mortgage Banker: A firm that resells loans to secondary lenders, such as Fannie Mae and Freddie Mac.
Mortgage Broker: A person or company that serves as a mediator between agents, buyers, sellers, and mortgage lenders. Brokers are paid a percentage of the amount earned by the lender or seller. Lenders are required by law to disclose all fees paid to brokers and other parties. This allows you to be sure they are not making kickbacks at your expense.
Mortgage Insurance: An insurance policy that helps minimize for your lender in case you fail to keep up with payments. This is usually required for borrowers who make a down payment lower than 20% of the purchase price.
Principal Balance Reduction: A type of loan modification in which your lender reduces your principal balance to lower your monthly payments. Lenders usually grant this only to people from heavily depreciated areas, or when the amount they write off is still lower than the cost of foreclosing on your home.
Refinancing: A process wherein you take out one loan to pay off another. this allows you to enjoy better loan terms, such as a lower interest rate or a more stable structure.
Real Estate Settlement Procedures Act (RESPA): This is a law that requires all lenders to give you a GFE of the loan and disclose all the fees involved. It also gives you the right to dispute any fees or even cancel the loan within a reasonable time frame.
Short Sale: A common alternative to foreclosure. In a short sale, you sell the home for less than its fair market value, and give the proceeds to your lender as payment for the home. Although it won't let you keep your home, it's less damaging to your credit than a foreclosure.
Teaser Rate: An introductory interest rate offered on many mortgages to draw in borrowers. After the introductory period, the interest reverts to normal rates, increasing your monthly payments for the rest of the loan.
Truth In Lending Act (TILA): Sometimes this is referred to as the National Consumer Credit Protection Act. This law requires lenders to give you complete information about the terms and total cost of the loan.
It is important for the public to understand these confusing terms. Often we have gone through the loan process never really understanding all the terminology that is thrown at us. Lenders and their agents will speak in this "foreign Language" and it goes right over our heads. When the client gets into a challenging situation financially, they really need to have an understanding of the typical terms used in the industry as they decide upon the best course of action to mitigate their problem...Knowledge is power. Knowledge is "Empowering".
You do not have to be a financial expert to make sound decisions. A working knowledge of the lending and loan modification industry can help you better understand your situation , especially knowing what your lenders are talking about. I have listed a number of terms that you will likely come across and what they mean.
Amortization: The repayment of a loan through regular installments. The payments are determined by the term of the loan, the principal balance, and the interest rate.
Annual Percentage Rate (APR): The total cost of the loan, including the interest, mortgage insurance, points, and associated fees.
Adjustable Rate Mortgage (ARM): A type of mortgage in which the interest rate changes according to market conditions. This means your payments may increase or decrease from month to month. Most ARM's have a payment cap that keeps the amount from rising beyond certain levels.
Debt-To-Income Ratio (DTI): The ratio of the amount you pay on the loan to your total income. Lenders use this to determine whether or not you can comfortably pay the loan. According to the Federal Housing Administration (FHA), the mortgage payments should not exceed 29% of your monthly income before taxes, and your total debt including credit cards and other loans should not exceed 41%.
Deed-In-Lieu: A deed that passes interest in your property to your lender as settlement for your debt. It doesn't let you keep your home, but it helps you avoid the foreclosure proceedings and associated costs.
Equity: The amount of financial interest you have in your own property. This is calculated by subtracting the amount you still owe from your home's Fair Market Value.
Fair Market Value (FMV): A theoretical price given to your home considering the current market conditions. The FMV assumes that the buyer and seller are acting freely and have all the pertinent information for the deal.
Fixed Rate Mortgage: A type of mortgage that uses a fixed interest rate throughout the term of the loan. This gives you more stability as a borrower, as your payments will remain the same regardless of the market figures.
Foreclosure: A process wherein your property is sold off and the proceeds go to your tender, allowing them to recover their losses when you default on the the loan.
Forbearance: An agreement in which your lender revises your payment plan to help you get current and avoid foreclosure. This may involve lowering your monthly payments or suspending them for a given period. Unlink loan modification, this is usually temporary and is often used as a loss mitigation option.
Good Faith Estimate (GFE): An estimate of the total cost of the loan, including all the closing fees, lender charges, and insurance costs. All lenders are required to give you a GFE within three days after you apply for a loan.
Interest: A percentage of the principal added to your monthly fees, as a way of paying your lender for the use of money.
Interest Only: A loan structure in which you only pay interest for the life of the loan, and pay the principal only after a given period.
Lien: A claim held by your lender against your property as a form of security in case you default on the loan.
Loan-To-Value Ratio (LTV): The ratio of the total amount you pay on the loan to the actual price of your home. The higher the LTV, the less you have to put out as down payment.
Loss Mitigation: A process that helps borrowers to avoid foreclosure and lenders to minimize their losses on delinquent borrowers. When you fall behind or apply for a loan modification, you lender's loss mitigation department will handle your case and make the decisions.
Mortgage Banker: A firm that resells loans to secondary lenders, such as Fannie Mae and Freddie Mac.
Mortgage Broker: A person or company that serves as a mediator between agents, buyers, sellers, and mortgage lenders. Brokers are paid a percentage of the amount earned by the lender or seller. Lenders are required by law to disclose all fees paid to brokers and other parties. This allows you to be sure they are not making kickbacks at your expense.
Mortgage Insurance: An insurance policy that helps minimize for your lender in case you fail to keep up with payments. This is usually required for borrowers who make a down payment lower than 20% of the purchase price.
Principal Balance Reduction: A type of loan modification in which your lender reduces your principal balance to lower your monthly payments. Lenders usually grant this only to people from heavily depreciated areas, or when the amount they write off is still lower than the cost of foreclosing on your home.
Refinancing: A process wherein you take out one loan to pay off another. this allows you to enjoy better loan terms, such as a lower interest rate or a more stable structure.
Real Estate Settlement Procedures Act (RESPA): This is a law that requires all lenders to give you a GFE of the loan and disclose all the fees involved. It also gives you the right to dispute any fees or even cancel the loan within a reasonable time frame.
Short Sale: A common alternative to foreclosure. In a short sale, you sell the home for less than its fair market value, and give the proceeds to your lender as payment for the home. Although it won't let you keep your home, it's less damaging to your credit than a foreclosure.
Teaser Rate: An introductory interest rate offered on many mortgages to draw in borrowers. After the introductory period, the interest reverts to normal rates, increasing your monthly payments for the rest of the loan.
Truth In Lending Act (TILA): Sometimes this is referred to as the National Consumer Credit Protection Act. This law requires lenders to give you complete information about the terms and total cost of the loan.
It is important for the public to understand these confusing terms. Often we have gone through the loan process never really understanding all the terminology that is thrown at us. Lenders and their agents will speak in this "foreign Language" and it goes right over our heads. When the client gets into a challenging situation financially, they really need to have an understanding of the typical terms used in the industry as they decide upon the best course of action to mitigate their problem...Knowledge is power. Knowledge is "Empowering".
Monday, April 27, 2009
How Long Will It Take To Complete My Loan Modification...
I hear this question all the time. When an individual contacts me about loan modification, I always get this question posed to me. Understandably so, when homeowners are going through the loan modification process, they are antsy and stressed out from financial challenges. Sometimes they are even a little hostile.
Not only do homeowners wonder "how long will it be before I hear something?", but they often wonder "what should I do while I am waiting?"
Loan modification can take anywhere from 15-90 days. We have seen certain lenders get right at it and complete the process in as little as 15 days, while others take much longer...up to 90 days. It depends on the level of efficiency of the lender as well as how many modification applications they are processing. There is no exact science to the process. It also depends on each client's situation. The more complex and involved the situation is, the longer it will take to complete. borrowers with a lot of collateral issues will take longer to process.
This is an even more important reason to retain the services of a loan modification professional to handle your case. The professional will assemble and format the application and supporting documentation in a format that the lender wants. This will decrease the time factor and increase the chances that your loan will come back with a positive modification proposal. Also, when submitting the proposal to the lender, we always ask for a lot, but do it in a manner that will make sense to the lender, thus increasing the chances that a positive loan modification proposal will be returned from the lender. The professional can find out from the lender the "best" and "worst" case scenario for a time factor, so the client will have some idea as to when they might be hearing back from the lender.
It is always a good idea to get a specific name, a number, and an extension of the lender's agent for future reference. Get their employee ID if possible, especially if specific information was divulged or promises made. If you hire a loan modification professional, be advised...the lender will still call you. When this happens, let the lender know that you have a loan modification professional representing you and that they should direct all calls and correspondence to them. Give the lender the contact information of the professional representing you.
If you are handling the case yourself, be sure to log all phone calls...date, time, and the person or persons you spoke with along with a detailed but concise account of what was discussed. Keep track of important dates. If you do not hear something back on the date provided, call the next day to find out what is going on. Lenders rarely call you back with updates. If you hire a professional to handle your case, they will call the lender and then relay the updates to you. At Credit Capital Solutions, we provide a live link that the customer, the consultant and corporate all have access to, that provides "real time" updates.
Explore other options as well. Have a Plan B & C in mind as well, for a back-up. If you are denied, short sale or foreclosure are options that you are going to explore, so doing some homework ahead of time will alleviate you of stress and time.
Consult a real estate professional for options that make sense if loan modification does not work for your situation.
Do not be surprised if you continue to get delinquent notices or late payment phone calls. Lenders rarely put a stop on the foreclosure process until a workout solution is fully in place. You should ask your lender if your attempts to negotiate a solution will stop or at least postpone other collection actions. If they do not, you should find out what that means for you. Keep track of your time lines with respect to the foreclosure process. Push to have all foreclosure proceedings stopped by the lender until a final decision is complete on the modification process.
When the final decision is in someone else's hands, 15-90 days can seem like an eternity. By remaining proactive, informed, and exploring other options, you not only improve your chances of a positive outcome, but your stress level will remain lower. By doing this you "Empower Yourself".
Not only do homeowners wonder "how long will it be before I hear something?", but they often wonder "what should I do while I am waiting?"
Loan modification can take anywhere from 15-90 days. We have seen certain lenders get right at it and complete the process in as little as 15 days, while others take much longer...up to 90 days. It depends on the level of efficiency of the lender as well as how many modification applications they are processing. There is no exact science to the process. It also depends on each client's situation. The more complex and involved the situation is, the longer it will take to complete. borrowers with a lot of collateral issues will take longer to process.
This is an even more important reason to retain the services of a loan modification professional to handle your case. The professional will assemble and format the application and supporting documentation in a format that the lender wants. This will decrease the time factor and increase the chances that your loan will come back with a positive modification proposal. Also, when submitting the proposal to the lender, we always ask for a lot, but do it in a manner that will make sense to the lender, thus increasing the chances that a positive loan modification proposal will be returned from the lender. The professional can find out from the lender the "best" and "worst" case scenario for a time factor, so the client will have some idea as to when they might be hearing back from the lender.
It is always a good idea to get a specific name, a number, and an extension of the lender's agent for future reference. Get their employee ID if possible, especially if specific information was divulged or promises made. If you hire a loan modification professional, be advised...the lender will still call you. When this happens, let the lender know that you have a loan modification professional representing you and that they should direct all calls and correspondence to them. Give the lender the contact information of the professional representing you.
If you are handling the case yourself, be sure to log all phone calls...date, time, and the person or persons you spoke with along with a detailed but concise account of what was discussed. Keep track of important dates. If you do not hear something back on the date provided, call the next day to find out what is going on. Lenders rarely call you back with updates. If you hire a professional to handle your case, they will call the lender and then relay the updates to you. At Credit Capital Solutions, we provide a live link that the customer, the consultant and corporate all have access to, that provides "real time" updates.
Explore other options as well. Have a Plan B & C in mind as well, for a back-up. If you are denied, short sale or foreclosure are options that you are going to explore, so doing some homework ahead of time will alleviate you of stress and time.
Consult a real estate professional for options that make sense if loan modification does not work for your situation.
Do not be surprised if you continue to get delinquent notices or late payment phone calls. Lenders rarely put a stop on the foreclosure process until a workout solution is fully in place. You should ask your lender if your attempts to negotiate a solution will stop or at least postpone other collection actions. If they do not, you should find out what that means for you. Keep track of your time lines with respect to the foreclosure process. Push to have all foreclosure proceedings stopped by the lender until a final decision is complete on the modification process.
When the final decision is in someone else's hands, 15-90 days can seem like an eternity. By remaining proactive, informed, and exploring other options, you not only improve your chances of a positive outcome, but your stress level will remain lower. By doing this you "Empower Yourself".
Sunday, April 26, 2009
The Young and Empowered Real Estate Investor
Today's young and Empowered real estate investor's are very internet savvy. Some refer tho them as "Internet Empowered Consumers" (IEC). This group, born no earlier than the 1980's are also known as "Generation Y". They have a different mind set than older generations. They were born and raised on computers and the internet. They do their research ahead of time. They educate themselves ahead of time. They appreciate you if you take the time to share your knowledge and expertise with them, but they do not like the "hard-sell" approach. They like to be in control.
IEC's want control, so let them have it. Due to the anonymity factor, the online customer is in control and enjoys that position. The more you attempt to control the situation, the more you will push them away.
IEC's value their privacy. Make sure that you clearly reinforce that client privacy is top priority within every member of your team.
Few IEC's are ready to buy or sell. Some have estimated that 19 our of 20 internet leads are from consumers who are in the information-gathering stage. They are not ready to clearly define their needs. You can win their trust and their business, but you must nurture them through the process to completion of the transaction.
The Generation Y group is tomorrow's home buyers. As a real estate professional, you must learn to adapt to their needs in order to reach them. If you intend to rigidly stick to your old "tried and true" marketing methods, you will attract and hang on to very few of these clients. They expect instant results. They are used to text messaging, IM's, and emails through various avenues, so they expect instant communication. They use social media networks, like MySpace, Facebook, Squidoo, and Twitter. They use Blackberry's, IPHONE's, and various other similar communication devices that provide real time connections. They read blogs, they research homes online, they are always connected and do not want to hear "pitches".
To entice and deal with this type of customer, you must think outside the box. Stop being so concerned with the immediate "sale" This is your long term play. They will also communicate to all their friends how good or how poor your service is...they can build you a network of business referrals and clients that will bring your business residual income for years to come...Empowering Your Life.
IEC's want control, so let them have it. Due to the anonymity factor, the online customer is in control and enjoys that position. The more you attempt to control the situation, the more you will push them away.
IEC's value their privacy. Make sure that you clearly reinforce that client privacy is top priority within every member of your team.
Few IEC's are ready to buy or sell. Some have estimated that 19 our of 20 internet leads are from consumers who are in the information-gathering stage. They are not ready to clearly define their needs. You can win their trust and their business, but you must nurture them through the process to completion of the transaction.
The Generation Y group is tomorrow's home buyers. As a real estate professional, you must learn to adapt to their needs in order to reach them. If you intend to rigidly stick to your old "tried and true" marketing methods, you will attract and hang on to very few of these clients. They expect instant results. They are used to text messaging, IM's, and emails through various avenues, so they expect instant communication. They use social media networks, like MySpace, Facebook, Squidoo, and Twitter. They use Blackberry's, IPHONE's, and various other similar communication devices that provide real time connections. They read blogs, they research homes online, they are always connected and do not want to hear "pitches".
To entice and deal with this type of customer, you must think outside the box. Stop being so concerned with the immediate "sale" This is your long term play. They will also communicate to all their friends how good or how poor your service is...they can build you a network of business referrals and clients that will bring your business residual income for years to come...Empowering Your Life.
Thursday, April 23, 2009
Sub-Prime Mortgages...The Good, The Bad, The Ugly...
Sub-prime lending is a type of credit given to a homeowner who do not meet the criteria for regular or "prime" type loans. A typical sub-prime borrower has a poor or limited credit history and a FICO score below 620. These factors make them a risky investment for regular lenders, which keeps them from taking out loans. To compensate for the risk, sub-prime lenders impose higher cost on their contracts. For credit cards, this is usually a higher fee for over-the-limit spending or late fees. Sub-prime mortgages usually have higher interest rates and stricter terms.
Historically, sub-prime lending has not always been a perfectly legal business. From 2003-2007, sub-prime lending was subject to predatory lending practices by various shady lenders who turned up offering terms ranging from unfair to downright illegal. This along with the economic slowdown has contributed a great deal to the real estate crisis that forced many homeowners into foreclosure.
Not all sub-prime loans and lenders are bad. There are many who give you good value for your money. If you find a good lender and stay current, sub-prime lending can have its benefits. An example would be that some people use sub-prime lending to repair their credit and improve their FICO score. By keeping a good track record with sub-prime lending, it gives you the chance to eventually refinance to better terms.
Sub-prime loans have...higher costs,interest rates, origination fees, and closing fees, compared with prime type loans. Although the basic formula is the same, the higher costs are directly related to an increase in risk. Sub-prime loans also are noted for prepayment penalties. The prepenalty is usually associated with paying extra each month or paying off the loan early. This makes up for the lost interest on the lender's part. The lender will get heir fees one way or another.
Many sub-prime lenders follow the 2/28 structure. This means that you pay a fixed interest rate for the first two years, after which the loan switches to an adjustable rate where your payments are determined by market indicators. Often the introductory rate is higher than the current index and margin is applied once the loan shifts. For example, a lender can give you an intro rate of 8% while the index is currently at 4%, with the margins set at 6%. Assuming the index stays the same, your rate can jump to 10% when your two year is over.
There are laws in place to protect homeowners from predatory lending practices. Theses laws apply to any type of mortgage. The Real Estate Settlement Procedures Act (RESPA) requires all lender to give you a good faith estimate of the total cost of the loan before closing any deal. All mortgages are also covered under the Truth In Lending Act (TILA). This law gives you the right to know the full lending terms and loan costs in any credit transaction, including credit cards. TILA allows you to opt out of a transaction within a reasonable time period if you do not agree with some of the terms.
If a sub-prime mortgage has put you in financial difficulty, another option is loan modification. We have previously discussed loan modification in detail, but thee is one thing to add with relation to sub-prime that is an important thing to consider. As I mentioned earlier, sub-prime lending has been subject to numerous predatory lending practices over the years. If you are in financial trouble with your sub-prime mortgage, you would be wise to consider loan modification. At the same time, have your loan modification professional look at your original loan documents to see if there is any evidence of previous wrongdoing. Although a loan modification professional is not a legal person nor is authorized to give legal advice, often they can tell if something looks suspicious. If they see something unusual, they can refer that you contact and consult with an attorney that specializes in RESPA & TILA, who will review your case and advise you on the best course of action, whether to consider litigation against the lender or just to continue with the modification process...
Historically, sub-prime lending has not always been a perfectly legal business. From 2003-2007, sub-prime lending was subject to predatory lending practices by various shady lenders who turned up offering terms ranging from unfair to downright illegal. This along with the economic slowdown has contributed a great deal to the real estate crisis that forced many homeowners into foreclosure.
Not all sub-prime loans and lenders are bad. There are many who give you good value for your money. If you find a good lender and stay current, sub-prime lending can have its benefits. An example would be that some people use sub-prime lending to repair their credit and improve their FICO score. By keeping a good track record with sub-prime lending, it gives you the chance to eventually refinance to better terms.
Sub-prime loans have...higher costs,interest rates, origination fees, and closing fees, compared with prime type loans. Although the basic formula is the same, the higher costs are directly related to an increase in risk. Sub-prime loans also are noted for prepayment penalties. The prepenalty is usually associated with paying extra each month or paying off the loan early. This makes up for the lost interest on the lender's part. The lender will get heir fees one way or another.
Many sub-prime lenders follow the 2/28 structure. This means that you pay a fixed interest rate for the first two years, after which the loan switches to an adjustable rate where your payments are determined by market indicators. Often the introductory rate is higher than the current index and margin is applied once the loan shifts. For example, a lender can give you an intro rate of 8% while the index is currently at 4%, with the margins set at 6%. Assuming the index stays the same, your rate can jump to 10% when your two year is over.
There are laws in place to protect homeowners from predatory lending practices. Theses laws apply to any type of mortgage. The Real Estate Settlement Procedures Act (RESPA) requires all lender to give you a good faith estimate of the total cost of the loan before closing any deal. All mortgages are also covered under the Truth In Lending Act (TILA). This law gives you the right to know the full lending terms and loan costs in any credit transaction, including credit cards. TILA allows you to opt out of a transaction within a reasonable time period if you do not agree with some of the terms.
If a sub-prime mortgage has put you in financial difficulty, another option is loan modification. We have previously discussed loan modification in detail, but thee is one thing to add with relation to sub-prime that is an important thing to consider. As I mentioned earlier, sub-prime lending has been subject to numerous predatory lending practices over the years. If you are in financial trouble with your sub-prime mortgage, you would be wise to consider loan modification. At the same time, have your loan modification professional look at your original loan documents to see if there is any evidence of previous wrongdoing. Although a loan modification professional is not a legal person nor is authorized to give legal advice, often they can tell if something looks suspicious. If they see something unusual, they can refer that you contact and consult with an attorney that specializes in RESPA & TILA, who will review your case and advise you on the best course of action, whether to consider litigation against the lender or just to continue with the modification process...
Wednesday, April 22, 2009
Time to Buy...Housing Market at Historic Lows...
With the current contraction in our global economy spurned by the housing bubble, housing prices are at 10 year lows. Mortgage rates have fallen to rates we have not seen in over a decade. Currently, there is an incentive plan for first time buyers (individuals who have not owned a house within last three years) that if you purchase a home before October of 2009, you can appreciate an $8000 tax credit.
SalesTraq has reported that the median price of an existing home in March of 2009, in Las Vegas, was $134,900...a 41.3% decline from the same month a year ago. Sales of existing homes increased by 85.6% during the at month to 3626 recorded closings. However, 66% of these closings were foreclosed properties.
Most insiders feel that in Las Vegas, we will hit the bottom toward the end of 4th quarter of this year. Then we may see some positive growth toward second quarter of next year. Short sales will become a prominent factor as bank-owned properties are taken off the market. The Mortgage Bankers Association forecasts a steady increase in home sales beginning in the second quarter.
If you are a first time buyer...now is the time. Interest rates are between 4-5% fixed. FHA down payment requirement is at 3%. Conventional mortgage down payment requirement is 5%. Those coupled with low interest rates, and first time home buyer tax credit...make for an amazing opportunity to own your own home.
If you are in need of a new home, home mortgage, or loan modification, contact me directly...our teams of professionals can help..."Empower You Life".
SalesTraq has reported that the median price of an existing home in March of 2009, in Las Vegas, was $134,900...a 41.3% decline from the same month a year ago. Sales of existing homes increased by 85.6% during the at month to 3626 recorded closings. However, 66% of these closings were foreclosed properties.
Most insiders feel that in Las Vegas, we will hit the bottom toward the end of 4th quarter of this year. Then we may see some positive growth toward second quarter of next year. Short sales will become a prominent factor as bank-owned properties are taken off the market. The Mortgage Bankers Association forecasts a steady increase in home sales beginning in the second quarter.
If you are a first time buyer...now is the time. Interest rates are between 4-5% fixed. FHA down payment requirement is at 3%. Conventional mortgage down payment requirement is 5%. Those coupled with low interest rates, and first time home buyer tax credit...make for an amazing opportunity to own your own home.
If you are in need of a new home, home mortgage, or loan modification, contact me directly...our teams of professionals can help..."Empower You Life".
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