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It’s no secret that the housing sector is struggling.  Low fixed rates and aggressive mortgage relief from the government has not put an end to the U.S. housing crisis.

Yesterday, the Federal Reserve committed to keeping the key rates at nearly zero for another two years.  In an effort to keep borrowing attractive, the Fed has extended additional measures buy committing to buy mortgage bad credit bundles from the big banks like Bank of America, Chase and Citibank. As the stock market goes up and down like a roller-coaster and foreclosures continue to pile up, there are very few reasons to be bullish about the real estate market in any of the 50 states. There are measures that could be taken if we were serious about putting the  housing crisis to rest.

Below are 11 Bold Suggestions for Overcoming this Housing Mess

  1. Obama and the Republican Presidential Candidate should commit to eliminating the capital gains tax. This will spur investing and stimulate the job market and reduce the unemployment rate nationally.
  2. The Federal Reserve needs to stop printing money.  Devaluing the dollar is not enhancing consumer confidence that ultimately affects home sales.
  3. Mortgage lenders need to loosen guidelines for home refinance and purchase loans. This doesn’t mean we should go back to 2005 guidelines that promoted no money down loans for people with marginal credit. Nor am I suggesting stated income loans for borrowers that can’t afford a mortgage payment. Somewhere between 2005 and 2011 guidelines will help a lot.  Borrowers who are interested in fixed mortgage refinancing and have demonstrated the ability to make their mortgage payment even if they have an underwater mortgage makes sense.
  4. U.S. government should extend a $10,000 tax credit for first time home buyers.  This will spur home buying and a $7,500 tax credit should be offered to existing and former homeowners as well.
  5. Obama should commit to rebuilding Fannie Mae and Freddie Mac. Wall street and investors will respond more favorably if the Obama administration will lay out a real plan that calls for rebuilding government mortgage giants like Fannie Freddie rather than spreading rumors that you plan to dismantle and eliminate these finance agencies that the home finance sector has been relying on the last forty years.
  6. HUD should call for FHA to reduce mortgage insurance premiums for the next few years. By reducing the mortgage insurance FHA will reduce borrower’s monthly housing expenses. FHA loans have seen their popularity fall recently as they have increased the insurance premium three times in two years.  Yes FHA rates are low but people are not attracted to hefty mortgage insurance monthly that washes out their savings.
  7. Private money lenders should roll out new low rate home purchase loans with a reduced 5% down-payment requirement.
  8. The government should expand the Home Affordable Refinance Program to help more struggling homeowners that are struggling with an underwater mortgage.  By expanding the 125% loan program, more homeowners will be able to avoid foreclosures and lenders will see the delinquency rates fall as well.
  9. The Fannie Mae and Freddie Mac conforming loan limits should be extended. They are on track to be lowered any day and this does not stimulate home sales.
  10. Congress should increase 2012 FHA loan limits rather than decrease them. FHA mortgage limits are scheduled to fall any day.  This significantly high cost regions like California, Connecticut, Colorado, Florida, New York, New Jersey, Washington DC, and Virginia. Many homeowners in these states own second properties in other states, so raising the loan limits will indirectly help these other states as well.
  11. Repeal the Dodd-Frank financial reform bill.   This is a poorly written piece of legislation was created so Chris Dodd, Barney Frank and their friends could grand-stand and pretend like they were part of the solution.
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There has been a lot of talk about how the recent debt crisis would impact our economy and specifically home mortgage rates. I kept hearing Senators say that if we didn’t raise the debt limit that mortgage rates would increase and we would spin into a recession. The politicians on both sides of the aisle concurred that if the debt ceiling wasn’t lifted that the stock market, home loan rates and credit ratings would be impacted significantly. On August 2, President Obama signed the bill debt ceiling that passed Congress and the Senate and the U.S. stock market fell almost 300 points. It was the largest drop of the year on a day that politicians had heralded as the day the markets would rebound. Just two days later, the Dow Jones fell 515 points on fears of a global debt crisis and all of the other indicators pointing to another recession in the United States. Am I the only one that thinks that we never got out of the recession? The Obama administration talked a lot about an economic recovery last summer, but with high unemployment, rising debt and virtually flat growth there is no data to support Obama’s claims.

With the unemployment rate at 9.2%, the Federal Reserve has been able to key home loan rates at record lows, but with inflation creeping in, you can see higher interest rates on the horizon. According to Bank Rate, fixed 30-year mortgage rates fell 20 basis points this week, to 4.54%. This is the lowest fixed 30-year rates have been in over eight months. The Mortgage Bankers Association reported that fixed 15-year mortgage rates dropped 15 basis points, to 3.68%. The popular 5/1 ARM decreased 11 basis points, to 3.23%.

Several of the credit agencies came out and said that the American credit ratings were still in jeopardy because the market did not believe that the US government had passed a bill that would eliminate the spending problem that drove us to this “self-created” debt crisis. I think it is funny that the debt bill was passed that forecasted a 2 trillion dollar reduction on a 10 trillion dollar deficit. There were no specific spending cuts in the bill and the super-committee that will come together in a few months will likely target tax increases and defense cuts.

Rumor has it the mortgage interest tax deduction is one of the “loop-holes” they are considering eliminating in an effort to increase tax revenues. Most economists living in the“real world” would agree that this would be another devastating move by our government to hinder and already sluggish housing market. It’s no secret that Obama favors eliminating the mortgage interest deduction for the wealthiest Americans. His administration has thrown out getting rid of the mortgage tax deductions for people with loan mortgage balances that exceed $500,000, as well as the write-off for interest on vacation homes and investment properties. This would really under-cut the housing market recovery efforts in high cost regions in states like California, Colorado, Connecticut, Hawaii, New York, New Jersey, Virginia, Maryland and Washington DC. For example where I live in Southern California, a $500,000 is very common and not really much above the median average. This is a typical class-warfare tactic that Democrats like to use, but unacceptable in the middle of a major housing crisis.

Eliminating the mortgage interest deduction at any level will have a negative impact on property values that will ultimately affect the entire country. As nearly a third of American homeowners find themselves stuck with an underwater mortgage, now is the time to extend incentives for a home purchase loan on owner and non-owner occupied properties. I recommend that contact your local congressman and let him or her know how important that tax deductions for interest on home equity credit lines, refinance and purchase mortgages regardless of the mortgage balance.

John Crudele of the New York Post had an interesting take on the mortgage deduction, “Are They Nuts!? One more time, This Is The Craziest Thing I’ve Ever Heard!” Crudele reiterated that suddenly changing the rules on home loan interest deductions would make homeownership less enticing and he also concurs that it would lower the value of everyone’s home even more than has already occurred. Crudele continued, “Clearly this would cause an increase in home forecloses that will build up on the books of banks and government agencies and would certainly set back any economic recovery by years.”

Last week a forum, Rethinking the Mortgage Interest Deduction, National Association of Realtors’ Chief Economist Lawrence Yun joined a panel of experts to debate the future of the mortgage interest deduction. Yun said, “As the leading advocate for housing and homeownership, NAR firmly believes that the mortgage loan deduction is critical to the stability of the American housing market and economy.” The NAR President continued, “The mortgage interest deduction facilitates homeownership by lowering the carrying costs of owning a house, and it makes a real difference to middle-class families.” Yun maintains that now would be worst possible time to modify the tax laws, which would further hinder the housing sector’s fragile recovery. Reducing or eliminating the interest deduction on home loans  is a de facto tax increase on homeowners, who already pay 80 to 90% of U.S. federal income tax. Yun said, “Doing away with the mortgage interest deduction should not be thought of as removing a tax break for homeowners, but rather increasing taxes on the middle class,” he said. “Furthermore, home equity has been a major source of financing for small businesses and start-ups and any change to the mortgage interest deductibility will significantly hinder their ability to create jobs.”

Yun also asserted that it’s a misconception that only the wealthy benefit from the mortgage interest deduction, when in reality it benefits primarily middle and lower income families. Almost two-thirds of those who take advantage of home loan tax deduction are middle income earners and 91% of people who claim the deduction earn less than $200,000 per year.

There is absolutely no justification for penalizing homeowners that have higher loan amounts. One thing for sure, when you consider how irrational the discussion is with people trying to justify wiping out the tax advantages of a mortgage you realize that these politicians are desperate and they will lie and steal freedom if it gets in the way of their agenda.

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As millions of homeowners contemplate refinancing their mortgage, it is important to consider potential factors for home refinancing loans going forward in 2012.  In many ways, the loan refinance has helped assist homeowners with affordable housing solutions by extending opportunities for increased cash flows and offering the ability for people to get quick and cost effective access to money.

1. When will the Federal Reserve begin raising key interest rates? Economists all seem to agree that it is just a matter of time before the Fed starts hiking rates to curb inflation. Consumers in the U.S. have grown accustomed to record low rates.  Millions of homeowners will be astonished when the refinance rate climb to 5% and 6% on the 30-year terms.  Presently, qualified borrowers can get a thirty-year mortgage refinance at 3.5% (APR 3.5%)  with no closing costs.  When the Fed begins raising rates it will have a negative impact on affordability and likely the housing recovery because consumers will be less motivated to invest in higher cost housing..

2. Will FHA continue to raise insurance premiums for FHA home loans? Every time HUD increases the insurance premium it has a profound impact on the monthly payment for borrowers refinancing or purchasing a new home.  This could have a negative impact on homeowners who do not have equity, because FHA is the most aggressive loan programs for non-military borrowers seeking mortgage refinancing assistance.

3. Do lenders continue to tighten refinance guidelines in 2012? If we examine the trend over the last 5 years it would be hard to argue against tighter loan guidelines for mortgage refinancing in 2012. Each of the last five years we have seen underwriting guidelines get more restrictive for government and traditional refinance mortgages.

4. Will private money reappear and replenish the mortgage industry in 2012? Rumors have been swirling the home financing sector this year that private money investors are poised to return as a viable option for mortgage lenders.  Loan companies have relied heavily on government loan programs like FHA and VA for mortgage refinancing programs. The fact that private lenders like Cash Call have reintroduced 125% loans recently is a good sign that investors should be reviving the private money portals soon. The fact remains that consumers in the U.S. want fixed refinancing loans because at the end of the day they know what to budget for their housing expenses.

5. When will the housing crisis end?  It’s no secret that he housing sector has been battered over the last six years. Nearly a quarter of the country is strapped with an underwater mortgage. That rivals the housing woes of the Great Depression. If foreclosures and short sales continue to drive the house market then it is unlikely we will see any rebound in the housing sector in 2012.  Realtors and politicians can dress it up however they want, but with millions of homeowners behind on their mortgage, growing fears of a double dip global recession and tight lending guidelines, the housing sector will get worse before it gets better.

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Refinancing your mortgage is an excellent way to save money, get access to cash and to increase your cash flow.  Next time you are in the market for a home refinance, we recommend taking a few moments to evaluate the proposed refinance loans from several perspectives. It is wise to consider several refinancing options and really do the math before committing to another home loan for thirty years.

1.    How much will mortgage refinancing cost you?

When you first begin the home refinancing process, we recommend that you get quotes from a few credible mortgage lenders.  When you get the Good faith Estimate from the lenders you need to do a thorough, side by side analysis. Compare the refinance rates, closing costs, types of interest and the terms of the refinance loan.  Make sure you are comparing apples to apples. You will want to compare the total costs for refinancing including title insurance, escrow, appraisals, origination, notary, underwriting, processing, etc. Negotiate with the loan companies and see who is going to reduce and eliminate lender fees without raising the fixed mortgage refinance rates.  Compare the total cost with interest of a no cost mortgage loan and a loan that has lender fees.

2. How much are you really saving with a refinance loan today?

Unfortunately homeowners often just assume that getting a refinance mortgage will automatically save them money. Ok, your monthly mortgage payment is reduced but how many more years will you be paying this new mortgage?  A simple solution is to take your current monthly payment and multiply that by the number of months you have left on the loan. Then you multiply the new mortgage refinance payment by the number of months in the term. (ie. 30-years would be 360, 15-years would be 180, etc.) If your current mortgage payments equate to a less when you multiply the term, then you know this refinance loan you are considering is not actually saving you money in the long run.  If you recently purchased the home and you don’t plan on staying there for very long, then lowering the monthly payment and increasing your cash flow may meet your needs and accomplish your goals for the best mortgage refinancing.  Another factor to consider is mortgage insurance. Sometimes homeowners will refinance into a new loan that has monthly mortgage insurance. It is imperative that you add the monthly insurance payment to the new monthly payment for the refinance loan if you want to do a fair, side by side analysis. Recently I have seen borrowers who are so happy to be able to refinance and lower their mortgage an entire percentage point (ie. From 5.75% to 4.75%), but when the borrowers factors in the monthly insurance to the refinance payment the suddenly the monthly savings vanished.  FHA has raised the monthly insurance premiums several times in the last few years, so sadly in some cases borrowers are not saving money when refinancing with FHA.

3. Are there risks with increasing a mortgage balance if you are saving money?

There are times when consolidating debt and 2nd mortgages make sense financially.  However, when you increase your mortgage balance you often lose future leverage because by decreasing your home’s equity you potentially could be hindering your ability to refinance in the near future.  When housing markets are robust and property values go up in value annually it’s easy to lose sight of potential pitfalls because at the time the risks may appear minimal.

Let’s consider a borrower who bought their home in 2003 for $300,000 at 6.25% and in 2006 his home is appraised for $400,000 and he or she decides to finance some home improvements and consolidate a few credit cards, so they take out a tax deductible home equity mortgage, because they are happy with their existing rate on their first mortgage. At this point the borrowers appear to be making wise decisions financially and taking advantage of homeownership. In 2008 interest rates fall to record lows and these borrowers decide they want to refinance a first and second loan together for a lower monthly payment with a fixed rate.  The borrowers are excited because refinancing $375,000 at 4.875% would save them thousands of dollars a year. When these borrowers get their house appraised for the refinance they learn their home value has declined from $400,000 to $310,000 and their loan application is rejected from the lender because their mortgage is underwater.  Does this situation sound familiar?  According to Core Logic currently nearly 11 million homeowners are strapped with an underwater mortgage. In this case, these borrowers had great credit and solid income but because of the lack of home equity they were unable to qualify for refinancing because of the depreciated home value. When refinance rates fall to record lows it may look like the best time to refinance, but there are factors involved in home financing that are beyond the borrower’s control.  Things like property value, there is very little a homeowner can do to impact when the real estate market is on a downward trend.  Don’t misunderstand me though, in most cases, consolidating revolving debts by refinancing it into a tax deductible simple interest mortgage is a wise move. However if you are going to leverage your mortgage to the value of your home make sure that you are committed to the mortgage for the long term.

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VA home loans are designed to help veterans buy a house after their active service has ended, and if you are a veteran looking for a home then you can take advantage of several different types of no money down loans. One such type of home loan for veterans is the no money down loan. This 100% home loan requires no down-payment and they were designed to allow veterans to purchase homes without having to put down a deposit on the home. Here, we’ll go over some benefits of no money down loans, as well as some of their drawbacks. We will also touch on VA loan requirements.  Lenders across the country would agree that VA loan options are the most flexible in the mortgage industry.

Military Borrowers Can Buy a Home with No Down-Payment

The major benefit of no money down loans is that they do not require any starting capital. This means that a veteran can purchase a home directly after getting out of the service, regardless of whether they have any money saved up. Obviously, having a regular source of income is important, as there are monthly payments that need to be made in order to work towards paying off the loan. No money down home loans cover a varying amount, and depending on the particular lender and the type of home you want to buy, there are a few factors that come into play to determine how the loan will work.  The VA dept. has really automated the purchase loan process, making it easier for Veterans.

No money down home loans also varies by county, and the veteran’s current level of entitlement. A veteran with full entitlement will be eligible to have a full twenty-five percent of the loan guaranteed by the VA, while having less than full entitlement will reduce this percentage accordingly. This percentage is based on the maximum loan, which in turn varies by county and state. Knowing your level of entitlement is important when looking for a VA lender. The VA does not offer mobile home loans but they do allow private lenders to offer 2nd mortgages.

Get Approved for a No Money Down Loan Below 5%

VA rates remain at record levels, but most economists believe that interest rates will only go higher this year, so get locked into a mortgage today.  VA loan qualifications apply to a fair range of servicemen and servicewomen. Those eligible for a VA backed loan include veterans, active servicemen and servicewomen, reservists and members of the National Guard, and in some cases, the spouse of a surviving serviceman or servicewoman. To prove that you are eligible for a VA home loan, you can apply online, through a lender, or by mail. Surviving spouses must apply for a certificate by mail. A VA no money down home loan is the perfect solution for veterans who are looking to enter the housing market and purchase a home for themselves.

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After the President gave the State of the Union Address last night, I thought it was only fitting to deliver the “state of the home mortgage market” address.  There are a lot of changes looming in the home loan industry in the next few months which is making borrowers reconsider their financial moves.  Home mortgage rates are beginning to see an upward trend and many homeowners are kicking themselves for not moving forward with a refinance loan in November or December when rate had fallen to 50-year lows.

In April there will be significant changes as the Dodd-Frank mortgage reform bill will finally go into motion.  There are many short-sided issues in this bill designed to protect consumers, but in the end most industry insiders believe that it will increase the cost for home loans and a refinancing mortgage.  In is inevitable that we will see a consolidation in the home financing market as many smaller brokers will close their shops, because they can’t compete with the new rules.

The mortgage reform bill will change the way brokers and loan officers are paid and many lending companies have already started down-sizing their loan originators.  In the end it is likely there will be less loan officers which mean that borrowers will get what the banks are offering.  With a competitive mortgage market, consumers benefit with more choices, diverse lending niches and competitive pricing.

Hopefully the Federal Reserve and the U.S. government will wake up and realize that a competitive mortgage market is good for the consumer and good for the economy.  The VA mortgage loan is still a great financing vehicle, but not many borrowers qualify.  FHA home loans remain somewhat aggressive, but even HUD is requiring more equity, better credit scores and the insurance premiums continue to rise.

Home values will need to rebound and home loan guidelines need to loosen up so that the average borrower who can afford a home can qualify for a home loan.  Right now it seems like only the “best of the best” qualify for new home financing or mortgage refinancing.  We need more private money back in the marketplace, but the foreclosure crisis needs to be solved before most of the non-government mortgage lenders will jump back into the game.  Until then — Make the most with what you have and remember that the United States of America is still the best country in the world.

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Jan
20

Timing the Lowest Mortgage Rates

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American consumers are notorious for wanting the best deal, so when borrowers tell you they are waiting to get the lowest mortgage rates we should not be surprised. With 30 year fixed rates falling below 4% last month, we may have found the bottom of the mortgage rate graph.  Since then, home loan rates have teetered back and forth, but all signals point towards a trend of rising rates in 2011 and beyond.  Of course if the economy continues to sputter you could expect low mortgage rates, but it is doubtful we will see the 30 year fixed rate mortgage below 4% anytime soon.  The fact remains that the lowest home loan interest rates can be attributed to the Federal Reserve and the U.S. Treasury buying the bad credit mortgage portfolios from banks and lenders even as the default rates were rising.

Will Mortgage Rates Get Lower?

A few mortgage lenders are offering the fixed 10 year mortgage in the 3.5% range, but how many Americans have the ability to afford the higher payment that comes with a ten year amortization schedule?  The 15-year fixed mortgage is a bit more realistic and great choice for those borrowers that can see retirement in the near future. Still with the writing on the wall, why are do so many Americans continue to wait for mortgage rates to get lower?

According to BofA’s, Jeff Moran, “A lot of people have been rejected from loan refinancing or home buying in the last few years, so many of these people may be a little tentative about facing the scrutiny of a mortgage lender.  Moran continued, “Many consumers were taken back by the tighter guidelines for home loans and many applicants simply do not meet the new requirements for refinance or home purchase loans.”

The bottom line is that waiting for rates to fall again is very risky.  When you look at a thirty year graph highlighting the trends of mortgage rates you can see that it is far more likely that rates will rise than they will fall.  Borrowers waiting on the sidelines for lower rates for home financing could be waiting for decades. Still many consumers appear to be just fine sitting on the sidelines, waiting for lower mortgage rates to appear.  Nobody knows for sure, but if you have the ability, I suggest locking into a mortgage that you are comfortable sooner rather than later.

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