Mortgage Loan Outlet

Last week, government officials warned about loan modification scams and predatory mortgage aid offers from brokers and loan relief specialists.  Homeowners should be alert and do their due diligence of companies, when considering refinancing for a loan workout from a company other than your existing mortgage lending company. Some of the reports have indicated that struggling borrowers have been paying fees of $2,000 to $5,000 in up-front fees to companies that promise foreclosure prevention. Some government officials say such operations are usually fraudulent because help is available for free from government-approved housing counselors. However, most people understand what kind of services they get for “free.” 

QUESTION- Is it possible my payments will be higher?

ANSWER- If you’re still paying a low, intro rate, it is possible your monthly mortgage loan payment will increase more under the federal refinancing program. But the idea is to avoid the surprise interest rate adjustments and negative amortization that erodes your home equity even in a healthy housing market. In the last few years, 2/1, 3/1 and 5/1 ARM’s have sent shock waves through communities across the nation, because borrowers were suddenly hitting their variable rate period with no options to refinance into a reasonable fixed rate mortgage.  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.  Read complete article > Is Mortgage Relief Melting with Loan Mod Scams

According to a report in the Wall Street Journal, the Treasury Department is considering a plan to reduce mortgage rates on loans for home financing to 4.5%. On Thursday, Federal Reserve Chairman Ben Bernanke urged the government to consider sweeping steps to prevent foreclosures, including buying risky home loans and mortgage refinancing them under more favorable terms to homeowners.  Prices on mortgage loan securities, which would most feel the impact of any such moves, barely budged on either development. Many mortgage insiders are concerned because the newly released financing plans are simply considered to be another temporary fix that likely would not be the solution to the housing and foreclosure crisis.

Last week, the Fed agreed to buy $600 billion worth of mortgage loan securities, guaranteed by Fannie Mae and Freddie Mac, and agency debt in an effort to prop up the home loan market. That helped bring mortgage rates down nearly one-half of a percentage point.  The latest plans lack crucial details on how they would actually work. For example, it’s not clear in a slowing economy if there will be enough qualified buyers who will actually risk buying a home when they are uncertain about their jobs and the value of the home they buy.  “People are confused about the plans,” said Kevin Cavin, mortgage strategist at FTN Financial. 

Another issue, he said, is that Treasury’s plan would only help new home buyers, not those who need to refinance existing home loans. That could be impractical to implement, as well as unfair, to those homeowners stuck with mortgage loans at higher rates.  “How can you separate purchase borrowers from refinance borrowers in terms of mortgage rates?” Mr. Cavin said.  If the government directly buys loans extended for home purchases, it will create a two-tier market, said Mahesh Swaminathan, mortgage strategist at Credit Suisse. Refinancings “will occur in the regular market and possibly at higher rates,” he said.  FHA mortgage refinancing has been supporting most of the loan programs designed to stem the foreclosure crisis.  Steve Park of Mortgage Brokers Network said, “FHA home loan programs have become Main Street for brokers and lenders nationally.  Park continued, “The good news is that any bit of lower rates will help everyone.”

Even though government intervention is clearly necessary, some market participants are worried that if it is prolonged it could have a disruptive impact on markets, since they would no longer be establishing fair value.  “While reducing mortgage rates is a key goal, it should not destroy the market’s ability to function on its own,” said Mr. Swaminathan. “Government purchases cannot be the permanent solution.”  Yet another twist is that it is unclear whether these proposals will be altered or even suspended when the Obama administration takes over in January.  But the urgency to address the housing situation is clear.

Mr. Bernanke, speaking earlier Thursday, cited estimates showing as many as 15% to 20% mortgage loans may be “under water,” meaning more is owed on the house than it is worth.  The chairman estimated that mortgage lenders are on track to initiate 2.25 million foreclosure proceedings this year, more than double the rate before the crisis.  Housing weakness has been a drag on the overall economy, Bernanke said, adding that “a slowing economy has in turn reduced the demand for houses, implying a further weakening in the mortgage and housing markets.”