Since the start of the housing downturn, the number of Web sites and foreclosure-prevention companies claiming to offer help to struggling borrowers has greatly increased.  While some of the businesses are legitimate, others are fraudulent and offer services that consumers may be eligible to receive free of charge.

• This month, Fannie Mae – the government-sponsored entity that helps set lending standards for most mortgages—started a Web site, KnowYourOptions.com. The site contains elements distinguishing it from those aiming to prevent foreclosure.  All of the information on the site is available in Spanish or English.
• KnowYourOptions.com provides video explanations of what users might accomplish in each of the tabbed section of the site.  In the “Take Action” section, for example,” struggling homeowners are advised that the first step to take in seeking help with their mortgage is to contact their mortgage company.
• Other features of the site include contact information for mortgage companies and loan counselors, calculators to determine if the borrower is eligible for assistance, and information on commencing short sales or deeds-in-lieu of foreclosure.
• Another helpful Web site for consumers is Hope LoanPort, which allows struggling homeowners and housing counselors to submit financial documents to mortgage companies and track the status of their efforts to avoid foreclosure. Hope LoanPort was created by Hope Now, a consortium of 12 mortgage companies and 250 counseling agencies.

To read the full story, please click here.

The Senate passed the financial regulation bill today, which will impact home buyers and lending guidelines.  Chief among the changes impacting consumers is the creation a consumer bureau at the Federal Reserve and the requirement that lenders ensure a borrower is able to repay a home loan by verifying income, employment, and credit history.

• Under the financial regulation bill, at least two categories of mortgages likely will see a dramatic decrease in their availability: interest-only loans and stated-income loans.  Both loan types likely would fall short of the government’s definition of “qualified” mortgages and therefore be avoided by many in the lending community.
• Many real estate analysts credit interest-only loans and stated-income loans as contributing factors to the decline of the housing market.  With interest-only loans, borrowers pay none of the loan principal for a fixed period, typically 10 years, after which time they must make higher payments for the remaining 20 years of the loan.  Unlike other loan products, stated-income loans do not require borrowers to verify their actual income.  Only a few lenders continue to offer these loans, and typically only to borrowers with deep cash reserves and large down payments.
• The bill also severely limits the industry practice known as “yield spread premiums,” which in many cases incentivized mortgage brokers and loan officers to sell higher-interest loans to borrowers.  The reform bill will no longer allow commissions earned by mortgage brokers and loan officers to be linked to the interest rate, but rather the loan amount. (a great change )  Once the bill takes effect, the total commission and additional fees charged by lenders and others in the mortgage process will be limited to a maximum of 3 percent of the loan amount, not including the real estate commission.  My comments on this change is good. Some mortgage brokers received a greater commission by playing the consumer against the interest rate.

Read the full story New York Times

As the housing downturn has shown, homeownership is about more than buying a home – you have to make sure you can keep the home over the long term. If you’re thinking about buying a home, these five steps can help ensure you get the right house for you and the affordable financing that helps make homeownership a long-term success:

1.  Get Educated. A little mortgage know-how goes a long way toward ensuring you get an affordable mortgage

Before you hire an agent or find a lender, get educated on the loan process and key factors that make a loan affordable.  You’ll  want to know about loan types – fixed-rate mortgages, adjustable-rate mortgages, FHA and VA loans – and the full range of line items that contribute to the total cost of securing the loan, including discount points, appraisals, and real estate agent commissions.

If you would like more in-depth information, the Department of Housing and Urban Development (HUD) can put you in touch with the nearest housing counseling professional in your area. Visit www.HUD.gov for more information. You can also check with local government, neighborhood associations and neighborhood bank branch offices for information sessions on home buying as well as homebuyer-education programs.

2.  Get Your Finances in Order. Given today’s stronger lending guidelines, it’s more important than ever to get your finances in order

First, get a copy of your credit report, which usually includes your credit score. If your credit score is low (anything below 620), take the time to improve it.  If you find errors on the report, take the time to correct them.  This may put your home buying plans on hold (creditors typically look for a two-year history of consistent, on-time bill payment to establish good credit), but it could result in a better loan and more affordable rates.

3.  Establish a Budget. Before you start searching for your home, make sure you know how much home you can afford

Lenders will evaluate all your debts and take into account your full financial situation when qualifying you for a mortgage.  A key factor is how much income you bring in versus how much you will pay out each month.  Here’s a good guideline to check where you are:

• Your housing expense (the mortgage payments on the house you are buying) should generally not exceed 28 to 33 percent of your total monthly gross income.
• All revolving debt (including car payments, credit cards payments, and your mortgage payment) should not exceed 36 to 40 percent of your total monthly gross income.

It’s always helpful to create a monthly budget, itemizing all your recurring expenses, including estimated maintenance costs, taxes, utility bills, and condo or homeowners’ association dues.  Then, test your budget.  If you can pay all these debts and continue to add to savings, you may be ready to buy a home.  If not, you may have to revise your plans.

4. Start Saving. Having savings in reserve helps ensure you can afford the upfront costs of homeownership

Upfront costs of homeownership include:

• Down Payment – Five to twenty percent of the purchase price. Keep in mind, a lower down payment means you’ll have to qualify for a higher loan amount and pay for mortgage insurance – adding to your monthly mortgage payment.
• Deposit – Two percent of the purchase price, typically. Sometimes called earnest money, a deposit shows the seller you’re serious about buying the home. If your offer is accepted, the deposit or earnest money will be applied towards the down payment. If your offer is rejected, the down payment will be returned to you.
• Closing Costs – Three to five percent of the purchase price, on average.  These costs include all fees required to execute the sale, including, title insurance, appraisals, and points.

5. Get Pre-Approved. In today’s competitive market, home buyers should get pre-approved for a mortgage before they begin their house hunt

To be pre-approved for a loan, your lender will gather information about your job, assets, income, and debts and then determine how much financing you’re qualified to receive. If you are pre-approved, you will receive a pre-approval letter from the lender.  When you’re ready to make an offer on a home, this pre-approval letter will tell the seller you’re a serious and qualified buyer.  It will also give you an edge over competing buyers who are not pre-approved.

Keep in mind, pre-qualification doesn’t mean you have an approved loan.   You’ll still need to apply for a loan if your offer is accepted.

Source: Fannie Mae

Need help in finding or selling your new home?
Call John O’Dell
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General Contractor
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The Federal Reserve has been purchasing mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac since early last year.  The purchase program has helped maintain low interest rates for borrowers.  As planned, the Fed this week announced it will stop purchasing these securities at the end of this month.  Many analysts anticipate this will result in a slight rise in rates by year’s end.

Making sense of the story for consumers

• Interest rates have hovered at or near historic lows for much of the past 18 months, resulting in lower payments for many borrowers.  With the Fed discontinuing its purchase program, some analysts believe a rise in interest rates could range from 0.25 percent to as much as 1 percent by the end of 2010.
• The federal tax credit for home buyers also is scheduled to end April 30.  The tax credit combined with the expectation interest rates will increase has created a sense of urgency for many home buyers.  In fact, 23 percent of California home buyers purchased a home in 2009 due to the perception that interest rates will rise and they would be priced out of the market, according to C.A.R.’s 2009 Survey of California Home Buyers.
• Rising interest rates will have an effect on home buyers.  For example, a qualified couple with a combined pretax income of $100,000 per year and debt obligations (excluding mortgage) of $500 who receive a mortgage rate of 5 percent could qualify for a loan of up to $590,000, assuming a 20 percent down payment.  If the interest rate were to rise to 6 percent, as analysts at Barclays Capital predict, the same couple could only qualify for a mortgage of $540,000.

So in short, now is the time to buy real estate while home prices and interest rates are low.

John J. O’Dell
Real Estate Broker

Looking for Real Estate in Nevada County?

Find it at JohnOdellRealty.com

Do you have a question that’s holding you back
from buying or selling now? Call me, I can help
you!  530-263-1091

Bank of America Nevada City, CA

A contractor for Bank of America went into the home of a borrower which was not vacant nor in default with the mortgage. While Angela Iannelli was away, under instructions from Bank of America, the contractor cut off utilities, padlocked the door and confiscated her pet parrot, Luke.  Maybe the contractor was thinking the woman was in default with her mortgage, would make her payments current if he took the parrot for ransom.

According to the Wall Street Journal:

“Angela Iannelli, 46 years old, alleged in a lawsuit Monday that the October incident—which separated her from her 11-year-old parrot for more than a week—caused so much “emotional distress” that she needed a prescription medication for anxiety.

A Bank of America spokesman said Wednesday a bank employee erroneously believed the house was vacant and sent the contractor there with instructions to install a new lock and otherwise “secure” the property. The bank spokesman said those instructions were inappropriate because Ms. Iannelli wasn’t in default and the house wasn’t vacant.

Mortgage lenders have struggled in the past three years to hire and train enough people to deal with the biggest wave of foreclosures since the 1930s. Nearly eight million households, or 15% of those with mortgages, are behind on their payments or in the foreclosure process.

Many borrowers complain they get the runaround when they call their lenders for help, receive contradictory information from different employees and are required to repeatedly fax the same documents.”

You can say that again. Dealing with banks, you can expect multiple answers to your mortgage problems and repetition of them asking for the same paper work over and over.  You are also transferred to a different person each and every time you call them, so that it appears that they are in complete chaos. In the final analysis, it seems that the last thing they want to do is modify your mortgage or help you in any way.

You can read the full story by clicking here: Wall Street Journal

John J. O’Dell
Real Estate Broker
Do you know one thing about a short sale
that could haunt you for many years to come?
Call  me and find out 530-263-1091

I wrote earlier that we should not walk away from your house if you are upside down on your mortgage. I’ve changed my mind. If you lost your job or had a great reduction in income for whatever reason, the banks don’t seem to care. I’ve read and seen were they’ll stall until you have used up your savings, made the very last payment you can and than foreclose on your home. 

 Here’s a portion of a great article on the subject of walking away from your home that appeared in the SF Chronicle:

“Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don’t feel guilty about it. Don’t think you’re doing something morally wrong.

That’s the incendiary core message of a new academic paper by Brent T. White, a University of Arizona law school professor, titled “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.”

White argues that far more of the estimated 15 million American homeowners who are underwater on their mortgages should stiff their lenders and take a hike.

Doing so, he suggests, could save some of them hundreds of thousands of dollars that they “have no reasonable prospect of recouping” in the years ahead. Plus the penalties are nowhere near as painful or long-lasting as they might assume.

“Homeowners should be walking away in droves,” according to White. “But they aren’t. And it’s not because the financial costs of foreclosure outweigh the benefits.” Sure, credit scores get whacked when you walk away, he acknowledges. But as long as you stay current with other creditors, “one can have a good credit rating again – meaning above 660 – within two years after a foreclosure.” 

*************************

“How does White’s 52-page manifesto go over with mortgage lenders? Predictably, not well. Officials at Fannie Mae and Freddie Mac – investors who fund the bulk of all new mortgages in the country – disputed White’s characterization of how quickly after foreclosure a walkaway borrower can obtain a new loan. It’s not three years, they said, it’s a minimum of five years, absent extenuating circumstances such as medical or employment problems that caused the foreclosure.”

Remember, before you walk away from your home, check with your accountant and or a tax attorney.

This is a great article, read the rest at San Francisco Gate

So what do you think readers?

You would think that putting more money down when buying a home would entitle you to a lower interest rate. Not so according to an article in the New York Times.

Take, for instance, borrowers who want to buy a $400,000 home, and who have a credit score of 720, which is considered very good.
In late August, such borrowers who had $80,000 saved for a 20 percent down payment would have qualified for a 4.875 percent rate on a 30-year fixed-rate loan, according to Regina Mincey-Garlin, an owner of RCG Mortgage in Montclair, N.J.

But that was also the rate offered to borrowers putting down only 5 percent, and therefore required to have private mortgage insurance.
Oddly, those who put down 25 percent, or $100,000, were saddled with a higher interest rate, 5.375 percent, Ms. Mincey-Garlin said.
The underwriting rules from Fannie Mae and Freddie Mac consider borrowers in the 20 to 25 percent down payment category to be the riskiest, in part because they are not required to carry private mortgage insurance. At higher down payments, however, rates begin to fall.

Amy Bonitatibus, a spokeswoman for Fannie Mae, said that the policy wasn’t meant to encourage lower down payments, which some have seen as the main culprit in the home foreclosure crisis.    

“It’s just a less risky loan from our point of view,” Ms. Bonitatibus said, because the lender’s exposure to foreclosure losses is largely eliminated by mortgage insurance.

While borrowers who take out mortgage insurance can indeed enjoy lower interest rates, their monthly payments will be larger than those who made the larger down payments, because the loan itself is bigger
.
A borrower who put down 25 percent for a $400,000 home would make a monthly mortgage payment of $1,680, while the borrower who put 15 percent down would pay $1,906 — or $1,799 in principal and interest, plus another $107 monthly in mortgage insurance. (The mortgage insurance is tax deductible, however, so depending on a borrower’s financial circumstances, the net mortgage liability would probably be less.)

Ms. Mincey-Garlin of RCG Mortgage says she still advises borrowers to make a down payment as large as they can, because the increased equity will help them in the long term.

Read the entire article in the New York Times
This article was posted for educational purposes.

The White House has asked mortgage executives to come up with the manpower to stop precarious loans from becoming foreclosures, but a New York Times story says finance experts say a lack of bodies isn’t the problem. It’s greed.

Mortgage companies collect fees for appraisals, insurance, legal services and other administrative busywork when homes go into foreclosure, and many make more on delinquent loans than they do on those in good standing. So unless homeowners’ loans are through businesses that values their ability to keep roofs over their heads above the bottom line, they’re out of luck:

“It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen,” said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. “I don’t think they’re motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It’s a license to do whatever they want.”

Until legislators give mortgage servicers a reason to help those in trouble, expect the foreclosures to keep piling up.

Source, Lets Stop Foreclosure.com, Sarah O’Neal

Thinking of walking away from your home because your property values have dropped to below what your mortgage is? You might consider that if you do walk away, what are you going to do? You’ll have to rent, your credit score will be ruined for seven years and you will have lost the home that you call your own. A home in which you could gain a profit from in the future. A case in point is the story of David Bach.

“In an interview with the AOL.com personal finance Web site, Walletpop.com, Bach said about 50 percent of homes in foreclosure are there because their owners walked away from underwater real estate. He calls that “stupid, short-term thinking” and recalls a condo he bought in New York City in 2003. He put down $600,000, then property values dropped and he lost all his equity. “I was bummed,” he said.

But the loss wasn’t permanent. Four years later he sold the condo for $3.65 million – and made a $1.5 million profit, after commissions and taxes.

Some people might have thought it was “logical” to walk away, he said. “But it would have cost me $1.5 million.”

We are not going to be in a recession forever, and real estate values will increase again. You always have “experts” who predict the world is going to end and bad times will last for an eternity. Don’t listen to them; look at the economic history of this Country, the economy cycles up and down. We are in a down cycle now, but we’ll soon be out of this downturn and property values will go up.

Since the days of the Wild West in doing home mortgages, more and more tightening of appraising and mortgage lending is occurring. I think the changes are for the good, since you can blame the banks, wall street and some large mortgage companies who are no longer in business for the meltdown we had in the housing market.

There is so much double talk in some mortgage companies, such as advertising low teaser rates to lure you into doing business with them. Once you start working with these companies, the true cost of the loan becomes apparent. I always advise my clients to work with their local bank or mortgage company, rather then an online mortgage company. My experience with them is that they tell you the rate for your mortgage upfront and that’s what you get.

The locals know the market better, and in Nevada County and other Gold Country Counties that is very important. These counties tend to have a variety of homes, and there are few if any major subdivisions. Getting a comparable home to the one you may buy is sometimes quite difficult. Unlike a large city, where you may have a thousand homes that are similar, here you are lucky to find another home similar to yours.

Anyhow, the new rules that revise the disclosure requirements for mortgage loans under Regulation Z (Truth in Lending) went into effect July 30, 2009. The revisions implement the Mortgage Disclosure Improvement Act (MDIA), which was enacted in July 2008 as an amendment to the Truth in Lending Act (TILA). It is possible that these new requirements may cause delays in getting loans, and if you are purchasing a home, it may delay your closing date.

The MDIA requires creditors to give good faith estimates of mortgage loan costs (“early disclosures”) within three business days after receiving a consumer’s application for a mortgage loan and before any fees are collected from the consumer, other than a reasonable fee for obtaining the consumer’s credit history, according to information from the Federal Reserve. The MDIA also requires early disclosures for loans secured by dwellings other than the consumer’s principal dwelling, such as a second home.

In addition, the rules would implement the MDIA’s requirements that creditors wait seven business days after they provide the early disclosures before closing the loan; and that creditors provide new disclosures with a revised annual percentage rate (APR), and wait an additional three business days before closing the loan, if a change occurs that makes the APR in the early disclosures inaccurate beyond a specified tolerance, according to the Federal Reserve. The rules also would permit a consumer to expedite the closing to address a personal financial emergency, such as a foreclosure.