Incent mortgage servicers to work with at-risk homeowners before delinquency starts
Let homeowners with good credit but little equity refinance to today’s low rates
Fund Fannie Mae and Freddie Mac to support mortgage markets
It’s a broad plan with many positive angles, but for now, we can’t forget that it’s just a plan. Although the White House shapes and influences housing policy, Congress, Loan Servicers, and the Federal Agencies must still implement and execute it. Until that implementation occurs, these reforms exist only on paper.
It’s a key aspect of the speech that’s not getting coverage.
One thing we learned during the stimulus package debate was that just because the President wants something to happen doesn’t mean that it will. There are always details to be worked out and that’s one reason why the Homeowner Affordability and Stability Plan couldn’t go into effect immediately. There are still loose ends to tie and details to define.
According to its website, the White House lists March 4, 2009 as the plan’s effective date. Until March 4, therefore, nothing in Wednesday’s speech is guaranteed.
Simply put, APR is a calculation of the effective interest rate on a loan taking into account the fees paid to acquire the actual loan.
For example, if you borrowed $10,000 from your parents at 5% your APR would be 5%. However, if you borrowed the same from a bank and paid $1,000 in fees, your effective rate (APR) would be HIGHER.
The entire and complete purpose of the APR calculation is to compute the actual cost of financing over the life of the loan including any fees paid. In a perfect world APR should reveal all hidden charges. For example, if you are being quoted 4.50% but the fees associated with the loan raised the APR to 4.875%, you might very well be better off taking a 4.75% loan with an APR of 4.80%. Like I said… in a perfect world. Now the rest of the story.
1. What if you only plan on keeping your 30-year mortgage for 5 years? Or you want a 15-year vs. a 30-year loan? The effective APR will be higher because the loan (and fees) are being paid off faster.
2. What if you want an Adjustable Rate Mortgage (ARM)? Will the APR be based upon a “worst case” or “best case” assumption when the rate adjusts in the future?
3. What if your lender is EXCLUDING fees from the APR calculation?
The bottom line – APR is an indication of overall cost and can be easily manipulated to read lower. Here is a partial list of the fees which SHOULD be included in the calculation of APR:
Points of any kind – Origination or Discount
Pre-paid interest: always use 15 days assuming a mid-month closing unless you know the actual closing date
Loan processing and underwriting fees
Loan document fee – this is one of the most abused areas as many unscrupulous lenders list this as a “Title Company Fee” which is NOT included in the APR calculation
Up Front and monthly mortgage insurance
One additional area of confusion is that of Prepaid Items which includes home owners insurance and property taxes. While these items are clearly a use of cash, they are NOT a closing cost AND are not included in the APR calculation. Remember – even if you own a home free and clear (no loan) you still have to pay taxes and insurance.
In summary while APR is a good representation, it is easily abused and there is NO SUBSTITUTE for comparing Good Faith Estimates AND working with a Trusted Advisor. Call Todd Abelson & Tyler Ford at Sunstreet Mortgage in Tucson, Arizona for all your mortgage questions and needs.
With Congress reaching agreement on a $789 billion stimulus package for Americans and the President expected to sign it into law, the clock may be ticking for this year’s home buyers and homeowners.
The package contains two benefits related to housing.
The first provision is fairly well-known. It gives first-time home buyers an $8,000 tax credit provided they purchase a home between January 1, 2009 and August 31, 2009.
This is a true tax credit.
To reduce misuse and abuse, however, the $8,000 credit is contingent on home buyers holding property for at least 3 years. If the home is sold in fewer than 3 years, the tax credit must be repaid to the government. It’s also worth noting that the date range applies closings and not sales agreements.
Closings must occur within these 8 months to be eligible.
A second noteworthy feature in the package is that the stimulus package gives existing homeowners incentive to “green” their homes. With available tax credits for energy-efficient windows and doors, furnaces and insulation, homeowners can claim larger tax deductions based on home improvement, up to $1,500.
But, just because the government provides housing-related tax benefits doesn’t mean you should just act on them blindly. Tax liability is a highly individual item and you may be ineligible for any number of reasons. Be sure to discuss your plans with a qualified accountant before committing to a plan.
His speech was much anticipated, but it was what Treasury Secretary Tim Geithner didn’t say Tuesday that caused mortgage markets to improve.
Mostly it was because of “safe-haven” buying.
Safe-haven buying is when investors move cash to the safest investments possible for fear of losing their money elsewhere.
This existence of the pattern is evident in looking at yesterday’s Dow Jones Index timeline. Stock markets were down some in the morning. Then, at 11:00 AM ET, in the moments immediately following the public release of Geither’s speech as text, stock market plunged by about 2 percent.
As the speech was delivered live, markets fell by 1 percent more.
It’s not that Geithner’s speech was a bad one, per se. It’s just that Wall Street was looking for a detailed plan that included remedies for banking, housing, and the economy overall. What it got instead was an outline for a plan and a frank discussion about the complexity of the economy.
Stock markets had been bid up last week in anticipation of a bailout. Yesterday’s action was the subsequent sell-off because economic uncertainty continues to linger.
It all ended up being good news for mortgage rate shoppers, though. When the dollars fled the stocks, they made their way towards safer, less-risky investments like mortgage bonds. And, because mortgage-backed bonds set the “going rate” for conforming mortgages nationwide, the added demand yesterday caused mortgage rates to fall.
For now, rates remain near the bargain levels set in early-January. As the Treasury clarifies its plan in the coming weeks, however, rates will be susceptible to big change.
It’s important to note that raising your credit scores is a bit like losing weight: It takes time and there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time.
Pay your bills on time.
Delinquent payments and collections can have a major negative impact on your score.
If you have missed payments, get current and stay current.
The longer you pay your bills on time, the better your score.
Be aware that paying off a collection account will not remove it from your credit report.
It will stay on your report for seven years.
If you are having trouble making ends meet, contact your creditors and set up payment plans.
This won’t improve your score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.
In other words, Fannie Mae is re-opening the lending spigot for real estate investors with good credit, a sizeable downpayment and ample reserves.
According to Fannie Mae, the change rationale is that experienced investors can “play a key role in the housing recovery”. Until now, foreclosure auctions have gone at less than full speed because investors unable to pay cash have been halted by the existing 4-property Fannie Mae limit.
Going forward, expect a more expedient foreclosure liquidation nationwide which should, in turn, provide further support for the housing market.
And lastly, not to be forgotten, homeowners with more than 4 properties can finally participate in the ongoing conforming mortgage Refi Boom. Until now, they’ve been stymied by the 4-property restriction, too.
Comparing July’s conforming mortgage rates to today’s average rates, there’s a 1.5 percent difference in favor of homeowners.
Rate drops like that make big differences in a household budget. Look at these before-and-after payments, based on rates from the chart:
$150,000 mortgage ($144 savings/month)
July 2008: $958 monthly
February 2009: $814 monthly
$250,000 mortgage ($240 savings/month)
July 2008: $1,597 monthly
February 2009: $1,357 monthly
$350,000 mortgage ($335 savings/month)
July 2008: $2,235 monthly
February 2009: $1,900 monthly
Of course, the other side of the story is that while mortgage rates fell in late-2008, the mandatory lender fees that accompanied them rose. That lessened some of the benefits of getting lower rates, but certainly not all of them.
Mortgage rates have declined sharply in recent months. Here’s how to take advantage
With mortgage rates dropping to record lows, it’s no surprise that more and more homeowners are looking to refinance. Earlier this month, the Mortgage Bankers Association’s refinance index–which tracks application volume–hit its highest level in more than five years. This wave of refinancing applications was sparked by record-low interest rates on 30-year fixed mortgages, which fell to an average of 4.89 percent for the week ending January 9. And although mortgage rates have increased modestly since then–hitting 5.24 percent last week– interest in refinancing remains elevated. But while some borrowers will be able to turn these compelling rates into real savings, not everyone can get in on the action. To better understand the refinancing process, here are seven things you need to know to refinance in today’s market.
1. Percentage point break: Despite the attractive rates, homeowners will have to thoroughly analyze their financial position before determining whether or not now is the time to refinance. A good rule of thumb, however, is if your mortgage rate is a full percentage point or more higher than current rates, you should consider refinancing, says Orawin Velz of the Mortgage Bankers Association. “If your rate is about 6 percent currently, then it is a good time to think about it,” Velz says. (Keep in mind that anyone trying to refinance a so-called “jumbo loan”–one that’s too large for Fannie Mae and Freddie Mac to purchase–will face sharply higher rates, says Keith Gumbinger of HSH Associates.) The transaction fees lenders charge are another major consideration. Higher fees, of course, eat into the potential savings of a reduced mortgage rate. So the lower the fees, the better. “The fees that you should be paying need to be low enough so that you can recoup your money through the break in the interest rate in a reasonable period of time–usually under four years,” Gumbinger says. (More on fees below.)