Home Loan Focus

Archive for the ‘home loan’ Category

We mentioned in a former article that one of the largest mortgage companies in the US collapsed this week.  That’s a sign that the mortgage crisis is turning into a banking crisis.  At the same time that happened Freddie Mac and Fannie Mae’s saw a massive devaluation and are threatened with failure as well.

If banks lose the ability to sell off your mortgage to Freddie Mac and Fannie Mae that will leave them with no other choice but to negotiate a better deal with you in several areas whether you are trying to refinance a mortgage or even buy a foreclosure property from them.

Today, for the most part, banks do not have to deal with you very much when you are in trouble nor even when they are in trouble.  They have a get out of jail card from Freddie and Fannie, but if that option goes away sometime soon, they might have to make a deal and work with their customers to stay afloat and that could be just the lifeline you need to save your house or even to get a great deal.

That is the perception by some recent surveys.  Home prices declines could accelerate just like stock price declines accelerate during a crisis.

Prices in areas such as Las Vegas and Miami dropped more than 20 percent, while Charlotte, NC alone stood out with an increase in the top 20 US cities in the survey.  But living here in Charlotte, it would appear to me that even the Charlotte hold out is a bit of a fluke.  The numbers for Charlotte a month after the survey seemed to indicate that Charlottes hold out increase was more about a delay in change and a slower moving bubble.

That said, this survey and the new idea that home prices could drop this fast is bad news for mortgages.  If a property considered ‘real property’ does not have ‘real stable’ value, then as an asset it can not necessarily back itself.  That means that the risks that banks take on real estate is actually higher.  Higher risk always translates into higher interest rates.  That means higher buying prices, slower sales rates and slower demand, which also drives down home prices even more. We are looking at a situations that is almost like hyperdeflation.  In the past the Federal Reserve has always tried to put a corset on inflation, but in this situation we almost need a tourniquet on deflation.

Freddie Mac is working to buy up mortgages totaling about the same amount as were foreclosed in California last year, $15 billion.

Freddie Mac is lending a jumbo hand to a group of major U.S. banks, offering to buy as much as $15 billion in mortgages that used to be too big for its program.

On Thursday, Freddie Mac (nyse: FRE – news - people ) said it would purchase home loans of up to $729,000 from lenders including Wells Fargo, JPMorgan Chase, Citigroup, and Washington Mutual.
Freddie Mac Super-Sizes Its Program

This has been expected for a couple months now since the government cleared the way for Freddie Mac to take on these jumbo sized loans a process that mirrors a plan also allowing VA loan amounts to go higher as well.

In the past, a borrower that wanted to borrow more than $417,000 would have to get a primary mortgage for the first part of the mortgage up to that old max and then another for the amount over that paying a substantially higher interest rate.  Potentially, now Freddie Mac can make it easier for people to take out a loan or more importantly refinance with a federally backed loan as Freddie Mac now starts to purchase loans off the books of banks, enabling them theoretically to re-extend new credit to new borrowers.  That said, don’t run the printers out of ink yet, the big ‘if’ in this equation is the concept of re-extending the credit once the banks are bailed out by Freddie Mac.  It could be possible that Freddie Mac and the US government are just taking on bad loans from banks that could write good loans in the first place.

We are going to be working to build out our website with some new services.  We will be adding sections to our site to cover available mortgage offerings, credit counseling services and reviews, credit card refinancing options, and information on realtors from the perspective of the home buyer and the home seller.

As we add these services we will gladly accept the input, feedback, suggestions, experiences or reviews from our readers.  If you have direct experience with any of the companies or services that we cover, please feel free to share them with us.  We may even publish your insights online to share with our readers.  Our readers especially treasure information that helps them navigate the process or achieve a particular result.  It does help sometimes to know if a company provided great services or if they dropped the ball, but it can be much more useful to know how to achieve a positive result regardless of which service you worked with.

Example of a less helpful comment – Some Super Bank.com gives out free coffee makers to the first 100 people that apply for a mortgage refinance.

Example of a very helpful comment – Bank XYZ may offer to provide you a paperless financing option, but do not take it.  This will slot you into an interest rate option that is 0.5 – 3.5% higher than their best rates. 

In the meantime, if you have any suggestions, requests or topical suggestions please feel free to submit your input here as a comment at any time.

As a financial writer, I know that there are times when it makes sense to consider a reverse mortgage as an option to help solve an issue or a problem in your finances.  If you are cash poor and house rich, meaning you have very little money in the bank or available, yet you have a great deal of equity in your house, a reverse mortgage may be something that you might want to consider.

A reverse mortgage is a tool, and as a tool it can be used to good or to bad purposes.  There are a few mortgage providers out there that probably provides safe reverse mortgage offerings.  I do not know who they are, but I’m sure there’s an honest one out there somewhere.

Do not necessarily blindly trust the latest commercial you see on TV. Anyone can put a commercial on TV, and hire a semi-retired actor, Like Robert Wagner or James Garner(one of my favorite actors) that do not want to take out a reverse mortgage themselves to cover their snappy retirement expenses. Not all actors (that you might like) take work for ‘good’ or ‘nice’ companies. Plus, some companies that are possibly ‘good’ or ‘nice’ may have a few bad apples working for them that are working very hard in a particular month to make more in commissions and they may cut a corner right through your house on the way to their new swimming pool.

There are many more companies out there offering reverse mortgages that are dangerous and could hurt your finances significantly.

About seven years ago there was a fad and car sales, all of the major car companies started offering up their own financing to people that would buy cars.  The financing that very creative and eventually people were buying cars with major balloon payments at the end of the car, they were not buying cars when they thought they were buying cars as the financing was structured as a lease and not a loan which enabled them to get the payment they wanted, but at the end of the lease term they didn’t have the car that they wanted and the car wasn’t worth half as much as they owed!

The car cubbies were providing a service that the customers seem to want, but the financing that so creative and so complex that ultimately consumers got ripped off.  The car companies made at great deal of profits off of this, but ultimately it was like a paramedic scheme and most of the car companies suffered losses at the end of the program.  They had to shut the programs down typically taking that loss in a particular quarter.  For example they might take a loss for a half billion dollars, Mitsubishi, when they had received a great deal more profits in the years before they took that loss.  Don’t feel too sorry for the car companies.

Mortgage companies offering reverse mortgages are doing some of the same tricks that the car companies did a few years ago, and they are doing some of the same tricks that they did was sub prime loans over the last few years.  They are working the numbers behind the scenes to make them a great deal of money in fees and commissions and a number of other items that don’t necessarily help the consumer actually taking out the loan.  You mortgage broker is not your Buddy, they’re not that your friend, they’re not your business partner or your financial advisor.  A mortgage broker is a salesperson trying to sell you a house loan, treat them as a salesperson and protect yourself.  You will need to work with them whether it’s on the phone or in person, but that doesn’t mean you shouldn’t check up on their work and make sure all their numbers make sense and that goes double if not triple for reverse mortgages.

With a reverse mortgage if you have $100,000 in equity in your house, you could essentially take out a $100,000 loan on your house.  This is a home equity loan in essence and you have to pay closing costs and a number of other fees for this particular loan.  Those fees could easily and legitimately add up to anywhere from $1000-$10000 depending on who you go with.  If you go with an unscrupulous mortgage advisor, these fees could add up to $50,000 or $80,000 and at the end of the day you’ll end up with $50,000 or $20,000 in cash and the bank will own your house in a few years.

So make sure you shop around for a good deal on a reverse mortgage if this turns out to be its tool that you really need.  If you do not shop around, then you are engaging in a very dangerous behavior that could cost you your home, your finances and maybe your health.  The thing about a reverse mortgage is, it can impact your income.  This can play a role in whether or not you qualify for Medicaid or Medicare if you’re retired.  So don’t just go take out a reverse mortgage to get some cash to make your retirement easier, take a look year or entire financial situation and make sure that you’re not harming something else that could be more important than having an extra bit of cash to take a cruise or buy a car.

Quicken Loans offers up a short and somewhat useful article detailing how the recent Federal Reserve’s Rate Cut might impact your mortgage.

Now, I personally do not trust Quicken Loans as they once promised me a rate on my own home refinance.  I locked in at the rate and 2 weeks before the close they called to tell me that it was no longer possible unless I paid a higher interest rate.  They offered up excuses that were unprovable, but the reality was that it was either their way or the highway. 

I chose the highway and refinanced with Wells Fargo instead!

Regardless, their short article Does the Fed rate cut affect your mortgage rate? offers up the examples necessary to understand how the Federal Reserve Rate Cut a can impact your finances ( a little ) both positively and negatively.  The article is not likely to save you a fortune this year or even save your house from foreclosure if you are in trouble, but understand the situation might save you enough money to buy a truck rack on clearance from an after christmas sale.

The key concept to understand is that the Federal Reserve has the ability to impact short term interest rates.  Here are some loans that may be impacted in the short term:

Credit Cards
Adjustable Rate Mortgages (ARMs) – under 7 years, even more if 3 or under
Home Equity Lines
Some (but not all) Student Loans
Your Savings Account rates
New Vehicle Loans – Ergo new loans that you take out as opposed to the loans that you already have.
Other Lines of Credit – such as Overdraft Protection

We are kicking off a new site to to focus on home loans. The real estate market in the mortgage market are in a slight state of turmoil, and it’s even more important now to pay extra attention to that market, what’s going on in the industry, and what is right for you when you purchase a home and take out a loan or mortgage.

We are going to walk through this process, a look at best practices and new trends and figure out the best way to navigate the real estate and mortgage markets today. I will be walking you through my attempts to finance a home and sell my current home. In addition to my firsthand experience, I have a double major in finance and accounting and a Masters in international tax law. I have also completed required courses to sit for the real estate exam in multiple states even though I don’t work in that industry and have not sat for the exams.

My family has worked in real estate for close to a 60 years and through indirect experience from the family business I have additional perspective. I sold my first home was 10 years old, and I financed my first home I was 24. neither of those achievements are extra impressive today in the age of the Internet and the real estate booms, however the industry is tightening and starting to revert back to controls and mechanisms that have been ignored for the last 10 to 15 years. Current homebuyers need to be aware of the change in the industry, and the practices and policies of the industry if they are to navigate their way through the markets and make the best deals on their own behalf and avoid the pitfalls that come with being overextended and a mortgage or a home in a market where credit is contracting.

We’re hoping to gather your insights and questions and share our experiences along the way!