REAL Help for Struggling Homeowners On The Horizon?

Although the Making Home Affordable Program is to be made available to struggling homeowners April 4, 2009, and official announcement went out March 4th from the Federal Housing Finance Agency, the banks and mortgage companies have not yet figured out the details of the Home Affordable Modification or Home Affordable Refinance programs. A call made to Countrywide Home Loans today to inquire about Note Modification through the "Making Home Affordable" program resulted in being directed to call back at the end of March. I hope they get on this soon, as some of the people I've been talking to have been teetering on the edge trying to hang on for quite a while now.

I'm getting calls from existing customers who are hearing reports on the recent housing stimulus package released March 4th, so I figured it was time to call in and find out for myself what homeowners are facing when they initiate the process of obtaining a note modification. I was happy to discover that one of the questions asked by Countrywide's automated system was to inquire if the call was being made by the individual or by a "third party", which hopefully means the banks and mortgage companies are cracking down on the many note modification transactions that homeowners have the ability to (and should!) take care of themselves.

CBS Marketwatch. Com published an article that gave more detail than has been available up to this point. Highlights are:

For Note Modifications-
-There are incentives now for removing second liens on loans modified under this program
-There is a refinance option for homeowners who have an existing mortgage owned by Fannie Mae or Freddie Mac if their current loan-to-value ratio is above 80%
-Mortgages with an unpaid principal balance of up to $729,750 may be eligible for the program
investor-owned properties may not participate (I've read a contradiction to the investor owned criteria, today)
-This program is scheduled to expire by the end of 2012
-Servicers will receive an up-front fee of $1,000 for each modification, which in turn may be passed through the program participants as "pay for success" fees paid for still-performing loans of $1,000 per year going to homeowners who make their payments on time int he form of principal reduction payments of $1,000 each year for up to five years
-Lenders receive bonus fees if modifications are made while a homeowner is still current on their mortgage payments

For refinances-
-Lenders must reduce monthly payments on mortgages so that the borrower's payment is no greater than 38% of income
-The government shares the burden of reducing payments to 31% of the homeowner's income
-To reach the 31% target, interest payments will first be reduced down to as low as 2%
-If the rate is still above 31%, then the life of the loan can be extended up to 40 years. Only then would the plan forbear principal at no interest to meet the target.

More details need to be ironed out, and I know I have many questions still, like does the 31% include tax and insurance payments? How is income calculated for homeowners whose income is self-employed/commissioned/bonus income? My guess is it will be the same automated underwriting system criteria we've had in Desktop Underwriter for Fannie Mae loans.

So, as unpalatable as all the stimulus bills and bailout programs have been, SOMETHING needs to be done to stem this fast descent we're seeing with our economic downturn. Do you think these programs will help? If not, do you have better ideas?

See you at the closing table!
Karen Cooper - OR/CA Mortgage Consultant - www.Quality4Loans.com

Here Today, Gone on Friday? How Is YOUR Bank Doing?

There’s a lot of talk these days about the nationalization of U.S. banks, how good credit unions may be a safer place to park our money these days, and the “Texas Ratio” which calculates the likelihood of a bank’s failure. The Texas Ratio is a ratio that was developed by Gerald Cassidy and many other analysts now at RDC Capital Markets that they formulated during the Texas Savings and Loan crises back in the early1990s. It takes a bank’s non-performing assets and loans which include loans that are delinquent for more than 90 days, then divides this number by the bank’s “tangible equity plus its loan loss reserve”. If this calculation equates to a ratio of 1:1 – a number of 100 or great – it is considered a warning sign. The higher that number, the better the chances of that bank’s failure.

As much as I like to crunch numbers, I also like to use my time wisely! So rather than dig around and collect the data to calculate these numbers for banks we have relationships with both personally and through business dealings, I’d much rather have a list to check that someone else already did, although I probably will calculate these ratios for banks we have accounts with. I came across this link in a comment on an article on CBSMarketwatch that not only provides the names and Texas Ratios for several banks, but their locations are mapped, too. But, being the type who likes to check and double-check my data sources, I like having another information resource. http://www.click2map.com/maps/kwaldman/High_Risk_(Texas_Ratio)_Banks
http://bankimplode.com/list/troubledbanks.htm

So, now we can pay attention to banks who have accepted T.A.R.P. funds AND keep an eye on this Texas Ratio results list to see if we need to do any other “readjusting” so that: a) we aren’t supporting organizations whose business philosophies do not coincide with our own, and b) we don’t get thrown under the bus by the fast demise of a bank. For example, Silver Falls Bank was one the most recent Oregon Bank failures, having been taken over by the F.D.I.C. on Friday, and their Texas Ratio is reported at 176 on this list, but in January 2008 they were putting out positive reports on their stability! The FDIC will not publish their internal list that they keep, and as much as I would hate to see any “run on a bank”, nor do I want to find I can’t get to my money if I want to! Yeah, our deposits are insured, but who wants to deal with this?

Is this Texas Ratio an infallible predictor? Obviously not, since WaMu and Wachovia did not have Texas ratios that sent up caution signs, yet they have both failed for various reasons. So, how healthy is YOUR bank? Maybe you should check it out. http://bankimplode.com/list/troubledbanks.htm

See you out there!

Karen Cooper – OR/CA Mortgage Consultant – www.Quality4Loans.com

Ready...Set...GO! Get Your $8000 Tax Credit for Your Down Payment!

There is some good news on the horizon for home buyers who are ready, willing and able to enter the world of homeownership!

There are several provisions in the overall stimulus package that President Obama's approved Tuesday. One of the most beneficial provision for home buyers is an $8,000 home buyer tax credit for new home buyers - buyers who have not owned a home in the past three years. For qualified home purchases in 2009, the legislation:

· Stipulates that the $8,000 tax credit does not have to be repaid, unlike the tax credit passed last summer (has a recapture provision if the home is sold in the first 36 months, though);
· Keeps the tax credit refundable, or claimable regardless of tax liability;
· Extends the "sunset" date from July 1, 2009 until Dec. 1, 2009 so that consumers can utilize it during the critical summer and fall buying months;
· Allows tax credit home buyers to participate in the mortgage revenue bond programs, such as Oregon Bond's RateAdvantage program; and
· Permits state housing finance agencies to help buyers at closing by advancing the credit amount as a loan using tax-exempt bond proceeds - this is even better than the Oregon Bond CashAdvantage program, as you may still take the really great rate on the RateAdvantage program.

While much of the focus has been on the home buyer tax credit, there are several other important components in the legislation that will help small businesses and bolster the housing market. Additional provisions that relate to housing in H.R. 1, the American Recovery and Reinvestment Act of 2009, will:

· Help home borrowers wanting to purchase or refinance homes in the high-cost markets by extending the 2008 FHA, Fannie Mae and Freddie Mac loan limits of $729,750 through the end of 2009;
· Temporarily allow exchange of Low-Income Housing Tax Credit allocating authority for tax-exempt grants and appropriates $2 billion in HOME funding for affordable housing projects (this should make housing developers trying to keep their construction crews busy happy!)

Think $8,000 would help you get the home you want to buy? Want to find out if you meet the criteria? Call me at (541)608-6003 or e-mail me for your free consultation, and I'll gladly share my 25 years of experience with you.

See you at the closing table!

Karen Cooper - OR/CA Mortgage Consultant - www.Quality4Loans.com

Don’t Forget The Taxes and Insurance And Maintenance Expense!

Something I’ve always made a point of emphasizing with first time home buyers – and with long time homeowners and move up buyers as well - are the “other costs” associated with homeownership. Many first time homebuyers are focused on the principal and interest part of the mortgage payment, and when they use an online loan calculator (or often times when speaking to their loan officer), the attention remains on the principal and interest portion of the payment only. And it recently came to my attention that homeowners seeking note modification may also be focused only on the mortgage portion of their monthly payment.

But, what about the other expenses that will be used when a buyer or homeowner is being qualified for their home loan:

Property Taxes
Homeowner’s Insurance
Mortgage Insurance
Homeowners Association Dues

And how about utility expenses - electricity, natural gas, heating oil, wood/pellets, water, sewer, trash pickup- are these expenses being included in your budget? Or maintenance costs, landscape maintenance, roof repair, paint/stain, septic system maintenance…have you seen the movie “The Money Pit”? This can be a lengthy list! Have you incorporated these other expenses associated with the home you are purchasing in to your budget?

So, my tips for today…

First time homebuyers – make sure you are budgeting for all the costs associated with homeownership AND that you have the cash available to make the repairs and/or do the updating you plan to do to your new-to-you home. One of the tools you may use to accomplish this goal is a loan program that will assist you with meeting your objective to purchase a home AND do repairs/updating, like the USDA Guaranteed Rural Housing loan or a Remodel/Renovation loan.

Existing Homeowners seeking Note Modification – consider all your monthly housing expenses when looking at the terms your lender is offering you. Don’t you want to turn the majority in favor of the homeowners who successfully accomplished their goal of remaining in their home through note modification?

See you at the closing table!

Karen Cooper – OR/CA Mortgage Consultant – www.Quality4Loans.com

When Is It Time To Refinance? (Part 1 of 6)

A long-time, good client of mine recently asked “how do I know when it makes sense for us to refinance? Is there a set rule of thumb we should follow?”.

Well, there really is no set in stone rule, as there are so many variables involved in determining this. I know a lot of people use a very rough rule of needing to reduce your interest rate by at least 1%, but there is so much more that needs to be considered than just the interest savings alone.

One of the most important determinations my clients and I make together is what their main objective is and which loan program offers the pricing that best helps them meet that objective. For example, not all that long ago, for the person holding a property for a short time whose monies may have been tied up in the stock market making a nice return for them, the Option ARM (adjustable rate mortgage) may have been the best choice for many of them, as while they were paying the initial low interest rate they could leave their investments where they were at, bringing them great income.

But, this situation only fits a small segment of those seeking financing. More often, people are looking to refinance in order to:

• Exchange an existing adjustable rate and/or interest only mortgage for a low fixed interest rate
• Consolidate mortgage(s) and/or other bills
• Exchange an existing fixed rate mortgage for a lower fixed rate mortgage
• Take a substantial amount of cash out from equity in order to do long overdue updating or purchase a retirement home while prices are low
  

As with all your major financial decisions, you should include your tax professional in the loop during the decision making process. The professional services of your tax expert could help you avoid serious tax consequences. Don’t you think the fee they charge you might be small in comparison to the tax liability a mistake could bring you?

To keep these articles manageable in size, I’ll be addressing each case in its own post, as well as some common hurdles being faced in today’s lending environment. Until then,

See you at the closing table!
Karen Cooper – OR/CA Mortgage Consultant – www.Quality4Loans.com

When Is It Time To Refinance An Adjustable Rate or Interest Only Mortgage? (Part 2 of 6)

Does it sound crazy that someone would give up an interest rate in the low 4’s to take an interest rate of 5-5.25% - AND spend thousand of dollars to do it? Many people today are doing just that. “Why?!?!?” you might ask. Well let’s look at some history and basic Econ 101.

What eventually happens after a government prints trillions of dollars and pours it in to its economy? INFLATION! What is the evil nemesis that triggers interest rates on mortgages to shoot up? INFLATION! Forget the effects of shouting “Fire!” in a crowded theater, as this will be nothing like the stampede many believe will be storming through the gates when INFLATION becomes the common call we all hear in the news.

Don’t get me wrong, I’m happily paying the extraordinarily low interest rates we have on our home equity lines of credit, grinning from ear to ear at such “cheap money”. But, folks, these interest rates are NOT NORMAL, and like the high housing prices many thought might go on forever they are UNSUSTAINABLE. I’m just grateful that our home equity lines of credit have terms that allow us to make a simple phone call to lock in a fixed interest rate on it when the tide turns, which it inevitably will do. I’m expecting to be on hold for quite a while the day I make that call while our bank sorts through the many other people frantically trying to so the same thing.

So, what if you have a nice low adjustable interest rate? Why would you want to pay the closing costs associated with refinancing AND/OR take a higher interest rate than you are presently paying? Well, I don’t know about you, but MY crystal ball seems to be a bit foggy. There is no clear projection on WHEN the interest rates will rise, nor HOW FAR or HOW FAST they will rise. What happens if you have a projected interest rate target, and you miss it? If you end up with a higher rate for the long term fixed rate mortgage you refinance in to, did hanging on to the lower adjustable rate a while end up costing you much more in the long run? So, maybe you give up 3/8% in annual interest savings for a year, but then you end up with ½% higher on the fixed interest rate for the long haul.

Gauging this exactly is as easy as gauging “the bottom” in the real estate values…we’ll only know it was there when we’re looking back. So, taking in to consideration that we presently have interest rates we haven’t seen in many decades, do you think it’s a pretty good gamble to take to lock in a fixed rate now?

See you at the closing table!
Karen Cooper – OR/CA Mortgage Consultant – www.Quality4Loans.com

When Is It Time To Refinance to Consolidate Mortgage(s) and Other Bills? (Part 3 of 6)

Would you believe there are many people out there with 20-30-40-50% equity in their homes, even based on today’s current market values? Even people who own their homes free & clear of any loan? Some people look at their long term financial objectives, which may include paying their home loan off within a certain period of time, look at their budget, and steadily chip away at their loan balance. I realize we don’t hear nearly as much about these folks in the media, but trust me – they DO exist – and there are quite a few of them in the U.S.!

I have heard from such people who are looking at their future plans which include putting their kids through college, finding their retirement home or updating the home they’ve decided they’ll be staying in for the long term after all. Some of them had unexpected expenses they incurred debt for, and are looking to shuffle things around with mortgage interest rates so low. Dealing with that four letter word l*i*f*e, there are always unforeseen events cropping up, including those that affect us financially that we may or may not have been able to set aside the reserves to cover.

So, maybe it is time to shift that $50,000-70,000 worth of student loans in to a more tax advantages form of debt. Maybe it is time to buy that retirement home while values are so low, renting it out until the market turns around or the last child is launched, and it’s time to sell an existing primary residence. Maybe a young person/couple whose income has increased dramatically is looking for a second home and/or restructuring of their financing for tax purposes. Maybe your tax professional has done some year-end consulting with you and recommended a debt load be shifted around.

These are the types of scenarios which come with very specific individualized goals where a set rule of thumb cannot be used to gauge if interest rates are “low enough” to refinance. So many questions need to be answered, like:

• How much is the interest being paid on each debt being consolidated?
• What would the retirement home rent for, and how much needs to be put down to have it “hit break even” until it is moved in to as a primary residence?
• How long will the home being financed be held?
• What eligible tax benefits are available?
  

There really is no set rule of thumb that may be applied in these scenarios. An individual’s plan needs to be looked at and its variables taken in to consideration. Maybe other savings need to be applied to the transaction, or partial debt rolled in with the monthly savings applied to paying off the balance not paid off.

This is where bringing in the professionals to help analyze your individual plan becomes crucial. And this is also where I am reminded to thank those people who have shown the confidence to include me in their decision making processes. It is with great satisfaction I see so many people succeeding with their real estate ownership, and I’m grateful to be a part of their success.

See you at the closing table!
Karen Cooper – OR/CA Mortgage Consultant – http://www.quality4loans.com/