For months, thousands of homeowners have been awaiting Barrack Obama’s new administration because of the promised “Hope” and lengthy discussions regarding foreclosure prevention and mortgage relief. Of course their have been distressed homeowners who have reported better loan payments, but most are growing frustrated in a long line of borrowers awaiting a loan modification or a foreclosure. Foreclosure scams and fraudulent loan modification programs have been reported in an alarming fashion.
The new federal program to let people refinance or renegotiate their home loans is expected to help millions of Americans lower monthly payments and avoid foreclosure. So what strings are attached?Some homeowners have expressed concerns about the impact to their credit report or the tax implications from a short sale or loan modification. Other struggling borrowers who are still paying low teaser mortgage rates might fear their monthly mortgage payment skyrocketing.Here are some questions and answers on concerns homeowners might have about the Making Home Affordable program.
QUESTION- How will my credit report and score be affected?
ANSWER- According to Norm Magnuson of the Consumer Data Industry Association, a trade group based in Washington.In most cases, mortgage refinancing does not affect your score since it’s simply a rewritten mortgage, this is especially true of home refinance under a federal program like FHA since one of the terms of eligibility is that homeowners can’t have missed a payment in the past year.It is still unclear what impact a federal mortgage modification an adjustment to terms of an existing home loan, rather than a new one — will have on credit profiles, however, Magnuson said. Regulators haven’t yet determined how the loan modifications will be reported, if at all.
If you are considering submitting a new application for a loan workout or modification under Making Home Affordable, it means you’ve already missed payments and hurt your credit profile. A loan modification should improve your credit profile in the long-run since the idea is to get you on track for meeting payments.It might also free up money to pay off other debts.Credit repair has been increasing in popularity and this may be one of the factors.
QUESTION- Is it possible my payments will be higher?
ANSWER- If you’re still paying a low, introductory rate, it’s possible your monthly mortgage payment will increase slightly under the federal refinancing program. But the idea is to avoid the big interest rate spikes that typically come with variable rate mortgage loan.After submitting a request for the Making Home Affordable program, your current mortgage lender should give you a “good faith estimate” that includes your new interest rate, mortgage payment and the total cost of the loan. Compare the numbers with your current loan; you might decide that refinancing isn’t an improvement.You can also check out the payment reduction estimator on the government’s Web site at http://www.makinghomeaffordable.gov.
QUESTION- Should I wait to see if mortgage interest rates come down in a couple of months before applying?
ANSWER- Probably not, since mortgage rates are at historic lows.Last week, rates on thirty-year mortgage loans inched upward to nearly 4.9%, but that’s still close to the lowest level since the Great Depression. Ken Inadomi, director of the New York Mortgage Coalition said, “Waiting for mortgage rates to drop further would be irresponsible and could backfire.” Even low intro mortgage rates should not be that much lower than fixed interest rates these days and in some cases, they may even be higher. So it’s probably in your best interest to lock in now to a low rate refinance loan that you can afford.Remember, the Making Home Affordable program expires on June 10, 2010.
QUESTION- What are the tax implications?
ANSWER- Charges for refinancing a mortgage are tax deductible. The total cost should be evenly divided to be deducted over the life of the mortgage, Inadomi said. Other costs, such as attorney or appraisal fees, are not deductible.You will also have to adjust your mortgage interest deduction if you get a lower interest rate.
QUESTION- Can I try to refinance or renegotiate my mortgage on my own, without going through the program?
ANSWER- Working directly with a lender shouldn’t be a problem if you think you’re not eligible for the federal program. Just beware of getting a third party involved, especially if they ask for an upfront fee.
The debate continues to heat up over the future of Fannie Mae and Freddie Mac as the two government-backed mortgage companies struggle with heavy losses and investors continue to shy away from their debt even and the foreclosure crisis continues to deepen.Fannie and Freddie “are teetering on the brink” as losses increase and borrowing costs rise, Jerry Howard, chief executive of the National Association of Home Builders, said in an interview. He called for the government to explicitly guarantee their debt and for Congress to quickly come up with a new structure and better-defined role for Fannie and Freddie.
Some banks have had an uneasy relationship with Fannie and Freddie, would like to see them disappear, at least in their current form. One idea being discussed among bankers is to replace Fannie and Freddie with several lender-owned cooperatives that would package mortgage loans into securities. Under this idea, the U.S. Treasury would get fees for backing up those securities if losses reached catastrophic levels.In prepared remarks for a speech in Detroit on Tuesday, Bank of America Corp. Chief Executive Kenneth Lewis called for scrapping the business model of Fannie and Freddie. He said the U.S. should “move in the direction of a system that relies more on private-sector institutions,” without government guarantees, to channel money from investors to home mortgage lenders.
Watch Steve Forbes Video Discussing Fannie Mae, Freddie Mac & the Mortgage Meltdown.
In the short term, though, Mr. Lewis said the government should make its backing of Fannie and Freddie “more explicit” to boost investor confidence and push down mortgage interest rates.The Mortgage Bankers Association, a trade group, will host a meeting of lenders, real-estate brokers and academics in Washington on Wednesday to discuss how the two companies might be reshaped and how the U.S. could best ensure a steady flow of money into home mortgages.The meeting comes amid concern that the $11 trillion U.S. residential-mortgage market needs an overhaul rather than a few tweaks.
Bankers have accused Fannie and Freddie of grabbing more than their fair share of profits from the mortgage business, while Fannie and Freddie officials have insisted that banks wanted to gouge consumers with higher mortgage rates.Any attempt to scrap Fannie and Freddie entirely is sure to lead to a debate. The home builders and the National Association of Realtors both oppose the idea of relying totally on private institutions to provide money for mortgages.“In times of crisis, the government really needs to step in,” said Lawrence Yun, chief economist of the Realtors. Mr. Howard, of the home-builders group, opposes the idea of nationalizing them, saying that a government agency wouldn’t be nimble enough to keep up with market needs. But he said it might make sense to treat them as tightly regulated public utility companies or as cooperatives owned by mortgage lenders.
The uncertainty over how the companies will be reshaped and even whether they will continue to exist has made many investors wary of buying bonds issued by Fannie and Freddie.Treasury Secretary Henry Paulson last week said investors can “bank on” the government’s promises to ensure that Fannie and Freddie will pay their obligations. But there is no explicit federal guarantee of Fannie and Freddie debt, and investors, especially those overseas, are less willing than in the past to accept “implied” guarantees or oral promises.Because of the ambiguity over government backing for them, investors are demanding higher yields on their bonds, particularly those that mature in 12 months or more. On Tuesday, yields on two-year Fannie and Freddie bonds were 1.67 percentage points above those on comparable Treasury bonds, compared with a spread of just 0.29 point in mid-2007, according to FTN Financial Capital Markets.
On Sept. 6, federal regulators seized control of the management of Fannie and Freddie. At that time, the Treasury pledged to provide as much as $100 billion of capital to each company in exchange for preferred stock. Last week, Freddie said it needs a $13.8 billion cash injection from the Treasury, and Fannie said it may need Treasury funds by year end.FHA will be releasing a home loan modification product next month to help distressed homeowners.
For the third quarter, Fannie and Freddie reported combined losses of about $54 billion, largely due to the elimination of tax credits no longer expected to be usable.The incoming Obama administration hasn’t announced any plan for reformulating Fannie and Freddie, though President-elect Barack Obama referred to them earlier this year as a “weird blend” of the public and private sectors.
In a recent article, Barry Habib, CEO of the Mortgage Market Guide talks about the challenges mortgage lenders and brokers have with their clients after the Federal Reserve lowers key rates. Mortgage lenders in every state report similar challenges after Fed meetings. Claudio Pereida, a mortgage broker in Orange County said, “every time the Fed lowers the rates, my clients call me and expect their mortgage in process to have the rate reduced.” He continued, “locked or unlocked borrowers really believe that if the Fed lowers interest rates that their rate showed be dropped as well.” He tries to explain to them that it doesn’t work that way but the customers seem to feel that they aren’t being treated fairly. Many refinancing borrowers call their loan officer and demand a rate reduction. Many patient homeowners are perplexed as to why mortgage refinancing rates have not dropped during Fed’s last six rate cuts.
According to Bryan Dornan, a mortgage banker from California, “In most cases, the home lenders anticipate the Fed cutting the rate and actually lower the rates prior to the Federal Reserve meeting and announcing the key rate discounting.” This can be challenging to explain to borrowers who have watched a three point reduction by the Federal Reserve yet have no positive effect on mortgage rates for refinancing purposes. How many mortgage lenders and brokers out there have lost borrowers with loans in process for similar issues?
I heard an awful report about Citi Mortgage freezing home equity credit lines. A mortgage lender recently reported that one of his clients heloc was frozen without notice. Here are the facts according to mortgage banker Bryan Dornan, “The borrower was a 781, full doc borrower under 40% DTI and under 75% CLTV. The borrower lives in San Diego county and reported that they had always made their mortgage payment on time and they have even made a principal paydown on the credit line that paid off over $100,000 of the outstanding balance.”
One day they received a letter in the mail that CITI was freezing their credit line effective immdiately. The borrower had the option to appeal the decision and when they followed that path, they had to pay for a new URAR appraisal from an appraiser that Citi Mortgage selected. I don’t know about you, but when a 780 fico, full doc borrower under 75% CLTV gets their credit line frozen, I start to wonder… Is this the state of mortgage brokering and lending in 2008? With banks freezing 2nd mortgages on borrowers like this I start to believe that the mortgage crisis has just begun. Please share your recent lending stories.
