New homeowners’ fees to increase

Let’s start with the good news first.  If you are in a home, paying a regular mortgage, nothing’s changed, you don’t have to worry.  No added fees for you.  

However, those that are purchasing a new home at the beginning of this year or planning to refinance, you’ll be paying an additional fee in your mortgage to help fund the payroll tax cut bill that the Senate passed over the weekend.

A quick review.  Originally planning to expire on January 1 (Sunday), a payroll tax cut and long-term unemployment benefits were extended two months when the Senate voted this weekend.  It should go through the House this week.  With this extension comes a $33 billion price tag.  So who pays for it?  Yep, you guessed it.  New homeowners and those refinancing.  That fee rises about a tenth of 1 percentage point and, therefore, increases the fee that Freddie Mac and Fannie Mae charge to insure home mortgages.  It will also increase if your loan is backed by the Federal Housing Administration.

So on a $200,000 mortgage, your rate will increase approximately $17 a month.  Nothing huge but still considerable in the scheme of things.  Obviously, for a higher mortgage it goes up and a lower mortgage will have a smaller fee.  About 9 in 10 mortgages are backed by Freddie Mac, Fannie Mae, or the Federal Housing Administration.

So my question is, is this fair?  Is it the homeowners’ responsibility to pay for this?  Looking at the large picture, I’m sure many people are thrilled that these benefits have been extended, given the state of the current economy.  And if it’s not covered this way, I would think Congress would tax us higher on something else, such as gasoline, income tax, or property tax.  They’ll get their money some way.  I’m curious to hear if you think this is right or if you have a better solution.  Please leave me a comment!  You can also reach me via my Web site.

Refinance mistakes to avoid

Last week I blogged about the new HARP guidelines and how they can help homeowners refinance when they owe more on the home than it’s worth.  I talked about how the loan has to be owned by Freddie Mac or Fannie Mae and that you have to be current with your mortgage.  Since rates are very low, I do encourage you to try to refinance your home to a lower rate if it’s possible for you and to take advantage of the HARP program if you can.  That said, this week I want to talk about several mistakes people make when refinancing and how to avoid them.

1. Not getting the best rate.  It seems obvious.  One lender offers you 5% and another 4.75%.  You go with the lowest one.  You really have to look at the entire cost of a loan, not just the quoted interest rate.  The APR (annual percentage rate) is what matters most.  Your house can be worth less than you think, especially after an appraisal.  The benefit of the HARP program is that it often doesn’t require an appraisal, which can really affect your refinance.  So make sure you do your research.

2. Think of the objective you want with refinancing.  Is it a lower monthly payment?  Is it that you want your home paid off in 10 years?  Know this before you sign any papers.  A lot of borrowers don’t realize that if you refinance to another 30-year loan and you’ve been paying yours down for 10 years, you just went to 20 more years on your loan to another 30.  So if your plan was to have your home paid off in 20 years, that’s most likely not going to happen anymore.  And let’s say you know your job is going to relocate you in a few years.  A 5-year or 3-year adjustable rate mortgage could be most beneficial and offer you the lowest monthly payment.

3. Don’t refinance when you shouldn’t.  In Number 2 I just talked about the potential of your company relocating you.  So let’s say you decide you’re going to keep your home as a rental.  You have to be careful about refinancing now because your home would no longer be your principal residence.  This could shoot your monthly payments way up.  Discuss with your lender any potentials for not staying in the home long-term so they can help choose the best option for you.  Refinancing may not be it.

4. Be aware of your responsibilities.  Know in advance that lenders will often check your credit again right before closing.  So if you refinance, now is not the time to buy a new car on credit or make a major purchase.  Know when your interest rate lock expires so you get everything completed before that time so you don’t lose the rate you want.

More great advice can be found in this Bankrate article.   And I can be reached via my Web site.

New HARP guidelines will help

I love hearing good news for homeowners having trouble paying their mortgage.  I keep having to remind my friends and clients that “You’re not the only one dealing with this.”  For those of you who don’t know, HARP (Homeowner Affordability Refinance Program) is a government program that was designed to help homeowners refinance.  Great news just announced last week:  Even if you’re underwater on your mortgage, you can still refinance!

Here’s the status on what you need to know.  Below is a list of those eligible to possibly refinance with HARP funds under this program:

1. Your loan must be owned by Freddie Mac or Fannie Mae.  You can contact your lender to find out.  Or you can look this up online by clicking here for Freddie Mac and here for Fannie Mae.

2. You currently owe more than the house is worth.  For those of you that this doesn’t apply to, you’ll be able to regularly refinance by contacting a mortgage lender.

3. Currently have an interest rate higher than prevailing rates.  However, if your interest rate is 4.5% right now, you wouldn’t qualify because rates aren’t that low.  Be thankful that your rate is so low. 🙂

4. Would have to pay mortgage insurance by refinancing.  There is no PMI or mortgage insurance through the HARP program.

5. Have a decreased monthly income due to job loss or job change and couldn’t refinance.  You will still need to show that you can afford the new monthly payments.

As a reminder, you do not need to meet all five of the above criteria.  Just one is acceptable.  The only thing  that is required is that the loan is currently owned by Freddie Mac or Fannie Mae.  Lenders through HARP are currently refinancing for up to 105% of the home’s current value.  

Aside from having no mortgage insurance with these HARP loans, oftentimes it’s not required that an appraisal be done on the home.  Plus closing costs are generally lower with more lenient underwriting.

If you want to find out if you qualify to take advantage of this program and need the name of a great lender, please e-mail me at noah.seidenberg@cbexchange.com or visit me online.

Foreclosures down, backlogs up

Well, I’ve got good news and bad news.  And the bad news can even be interpreted as good news for some.  Good news: foreclosure rates across the country are at a 3-year low, according to MSN Real Estate.  Bad news: Courts are so backlogged by the foreclosure filings that it’s taking a year or more for foreclosures to be processed on some homes.  And that can be good news for those underwater on their mortgages, as they can live in their home for even 2 years in some states without being evicted and without a mortgage payment.

RealtyTrac Senior Vice President Rick Sharga says that “This is really all part of the robo-signing paperwork issue.  Almost none of this is related to a decline in distressed properties. ”  It’s just that Courts can’t keep up with all the paperwork.  And Sharga is unsure whether we’ve reached our peak of foreclosures or more filings will occur once the banks and Courts start catching up.  Even new hirings aren’t helping the banks move the process along any quicker.  And that’s also bad news for buyers interested in foreclosure or bank-owned properties.  The waiting process can still take a while for someone to review all the paperwork.

I just mentioned how some homeowners can live in homes for 2 years prior to being evicted.  In some states, like New York and New Jersey, it’s taking the bank an average of 800 days to finalize a foreclosure once the process has started.  And now the government is going to charge lenders for handling foreclosures improperly.  They’ve also passed regulation requiring 14 mortgage servicers to hire more staff and have a single point of contact for a homeowner dealing with a foreclosure or loan modification.

Nevada leads the country with the highest foreclosure rate.  1 in every 35 homes has received a foreclosure filing.  Arizona and California round out the top 3.  And, unfortunately, Illinois also is included in the top 10, along with Colorado, Idaho, Utah, Georgia, Michigan, and Florida.

And analysts say it can take years for all these foreclosed homes to clear the market brining home values up again.  But it could take even longer because of the backlogs in the courts.  Fannie Mae and Freddie Mac even said they’re going to slowly trickle foreclosures into the market instead of releasing them all at once.  While this is beneficial to home values now, it just means it will take even longer for the housing market to stabilize.

What do you think?  Should banks be allowed to control when foreclosures hit the housing market?  Please leave me a comment or visit me online.

Early 2011 housing trends

I know we’re already into our third month of 2011.  But it’s going to be interesting to see how the year plays out in terms of the housing market.  Will we expect to see many changes?  Or will things stay relatively similar to what we’re experiencing now with sagging prices and high housing inventory? Bankrate.com has come up with a list of some of the most common trends we’ll see in 2011, at least through summer.

1. We’ll see less refinancing of current mortgages.  Some experts say that it’s the higher interest rates that is causing this dip.  But the other side of it is that those homeowners who have equity in their home already took advantage of a refinance within the last two years, as rates steadily dropped.  So there won’t be as many who refinance in 2011.

2. It will still be hard to obtain a mortgage.  And this is just because requirements to get one are tightening up.  Lenders are being very cautious in loaning money.  With Freddie Mac and Fannie Mae requiring some lenders to repurchase sold-off loans and causing them to lose money, they’re less likely to be as easygoing in lending new money unless you have very little risk, such as a high FICO score, solid appraisals on the home, and good income.

3. New homeowners are still unsure about taking that leap and buying that first home.  Yes, interest rates are low.  However, as just stated before, it’s harder and harder to obtain a good rate.  And even though home prices are low, with so much inventory available, buyers are wary about purchasing if they’ll have to sell in the near future and have so much to choose from they often just decide to rent instead.

4. Home sellers will deal with the current economy and we won’t see any change anytime soon.  The market time will continue to stay where it’s at, higher than in the past, because of high inventory and low prices.  Best way to get your home sold is to keep it in showing condition and listen to your Realtor on a realistic selling prices.  Homes do continue to sell.  But don’t expect to get any bites by listing it above market value.

What do you think of these trends?  Are you in agreement or disagreement?  Please leave me a comment with your thoughts below or visit me online.

Fannie Mae raises fees

In an interesting move, Fannie Mae announced they are raising their fees this spring.  What’s even more interesting is that it will affect buyers who have higher credit scores.  This will make mortgages more expensive for a lot of people.

These fees are called “add-on” fees.  They’re basing the cost on your credit score and the amount you’re going to put down for a down payment.  And the cost could be anywhere from a quarter of a percentage of the loan amount to 2.75%.

An example of how this works from this Washington Post article: If you want to buy a $300,000 home and have a great credit score of over 800 with just under 25% down, you’ll be charged .25% or $750.  Previously your cost would have been $0.  Now if you have a credit score of 679 and a down payment of less than 20%, you’ll be charged 2.75% or $8,250.  And it matters what you purchase.  A condo will cost you more than a single-family residence.  You can choose to pay these fees up front or tack them on to your mortgage.  Do know that by adding it to the cost of your mortgage that you’ll be paying interest on it for the length of your loan.  So if you can find a way to pay it up front, you’ll save more money in the long run.

Fannie Mae never specifically stated the exact reason for the rate hikes.  But it’s been speculated that it softens their risks on the loan (hence the lower fees for those with better credit scores and higher down payments) as well as the money they’ve lost because of the current housing market and unpaid mortgages.

So will this prevent some people from purchasing a home?  I doubt it will have any adverse reaction on the already declining mortgage market because you’re stuck paying it no matter what.  And it’s not significant enough to make a difference, especially when buyers can purchase homes for a lot less than they could have years ago.

What’s your take on the fee increase?  Do you think it will affect the housing market?  I’d love to hear your opinions.  Please leave a comment or visit me online.

New appraisal rules can hurt borrowers

houseNew rules have been developed by the Federal Housing Finance Authority, Fannie Mae, Freddie Mac, and the New York State Attorney General to ensure there’s a solid boundary between the mortgage industry and the home appraisal process.  It’s called the HVCC, or Home Valuation Code of Conduct.  The new rules apply to all conventional single-family loans that began after May 1st and were sold to either Fannie Mae or Freddie Mac.  It does not apply to VA or FHA loans.

Here is some more of what’s covered under this new policy:

1. It forbids anyone from the lender’s staff choosing an appraiser or heavily communicating with an appraiser about the home valuation.  The lender can now get a middleman to order an appraisal from a management company which will then choose an individual appraiser. 

2. Real estate agents and mortgage brokers can not order or pay directly for an appraisal.

3. Lenders can not conduct value checks prior to an appraisal being ordered.  This is where they pulled comps to see if the numbers would work.  Many were doing this prior to appraisals being ordered.

4. Borrowers will receive a copy of their appraisal at least 3 days prior to closing and it will be free of charge.  This gives them some time to fight the number if they believe the appraisal was incorrect for any reason. 

So what are the negatives?  Realtors and mortgage brokers can no longer “recommend” an appraiser they’ve worked with in the past to conduct the appraisal.  Obviously, this prevents anyone from pressuring appraisers to determine a certain value, but it comes at a cost to everyone else. 

More appraisers are going to earn less money by working directly with the management companies instead of on their own. 

Appraisals will begin to cost a little more money.  And, now the whole process is almost guaranteed to take longer.  This means that borrowers will have to lock in rates for a longer period of time which could cost them more money. 

At least this will prevent some more foreclosures by allowing people who aren’t qualified to pay for a house to obtain it.  And appraisals should be much more straightforward and not influenced by any particular individual.  This Chicago Tribune article does a really good job of explaining more of the positives and negatives.

If you do have more questions, please be sure to visit me online.