1. Over the past year there has been a big push from the U.S Government and organizations like Hope Now to slow down the amount of foreclosures going on. The goal is to help people stay in their homes and continue making payments to mortgage companies so they don’t go completely broke which most of them are doing.

2. The Detroit News ran an article today talking about how over 50% of the people who had their loans modified this year are again 30 days late on their mortgage payment. John Dugan, head of the Treasury Department’s Office of the Comptroller of the Currency (Really, is such a long title necessary? Sounds like a made up position) said “The results, I confess, were somewhat surprising, and I say that not in a good way.” Why were you surprised John?

3. It does not surprise me at all. When I worked at Quicken Loans I saw a ton of people who should never of been approved on a loan to begin with. It was all of those sub-prime loans they had in the first place which I could not even work with. Many were behind on their payments already or owed over 100% of the value of the home. This was when the market started going down or as I like to say back to what it should have been.

4. The people whose loans are being modified are probably the people who should have NEVER BEEN APPROVED ON A LOAN IN THE FIRST PLACE!!!!

5. The banks are trying to keep the people in those homes paying some sort of payment. Its better to accept half of what the mortgage payment use to be then to foreclose on the home and let it sit vacant for a year because homes are just not selling. It costs the mortgage company more to maintain a foreclosed home then it does to keep the people in there.

6. One of the problems with the way mortgages are done is the mortgage companies only look at what they see on your credit report. I can remember just barely approving people on 30 year mortgages and their debt to income ratio (DTI) was at 57%. That’s right 57% of their income was going to what I saw on the credit report. This was usually the mortgage, car payment, and maybe a credit card. This does not account for car insurance, food, cell phone bills, gym memberships, or any other monthly obligations. You know that if mortgages were to take those into consideration nobody would get approved on any mortgage. You know what, maybe they shouldn’t be.

7. These same people are not changing any of those things they do on a monthly basis because they do not have to. If we really wanted to protect the housing industry the banking community should come together and make people send in receipts of all of their purchases every month to determine what their true DTI is. Unfortunately it will probably be at 90% every month. Before the refi boom happened you had to have a DTI under 38% to get approved.

8. Let’s say that these people are doing their best to make the payments but its all of those what ifs that are happening. Lay offs, less hours at work, car repairs, or maybe the cost of operating the house went up. Electricity rates are going up by 10% in Michigan alone this year. Maybe you live in the city of Detroit and the Water and Sewage Departments plan to raise water rates by 10% and sewer rates by 17% . I can’t believe they are doing that. Their reasoning is because demand went down because of a wet summer. I’m no economist but don’t prices go down when demand goes down. Probably not since its a government thing. They need to protect their jobs so its easy to raise peoples rates instead of being happy that their fellow neighbors didn’t pay as much this past year. With all of these increases in things needed to keep the house livable its no wonder why people are still defaulting on their modified mortgages.  Don’t even get me started on the cost of food. The only thing we can be happy about is the sharp decrease in the cost of gas.

9. With all of these outside factors that a mortgage company does not take into consideration when approving somebody on a loan we can probably bet on seeing another article in 6 months about how 75% of modified mortgages are now 3 months late. I think its admirable what the banks are doing but its going to be a lose/lose situation. People need to understand that owning a home is the biggest liability you could ever take on. A home is not an asset until it is paid off. The people who are having their loans modified probably do not deserve to be a home owner. Sometimes its better to rent and know if something goes wrong (leaky roof, furnace, etc.) you can call the landlord and they have to fix it, not you.

10. You know there is no way that the bank is going to forgive a large portion of the debts because it hurts their bottom line. Not even a 4.5% interest rate on the same balance of loan is going to make enough difference to help them out. Expect to see more of the same troubling news in the housing market even with this so called help.

The Top 10 Reasons

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The Top 10 Reasons Why We Knew Modified Mortgages Were Not Going To Work

1. In a article written at CNN today it talked about how the treasury is throwing around the idea of lowering 30 year mortgage rates down to 4.5%. If the Treasury Department steps in and does this it does nothing to fix the down turn in the housing market. The amount of homes on the market are not going to decrease.

2. The old saying of “Good Ain’t Cheap And Cheap Ain’t Good” could describe what will happen if this goes through. Remember last time interest rates were lowered. Wasn’t it in 2002 after 9/11? Didn’t Alan Greenspan and the rest of the ass clowns at the Federal Reserve lower rates on things like home equity lines of credit to historical lows to spur the economy. It worked, right? Well it did for about 5 years and look at where we are at now. Is going back to low mortgage rates the answer? No!!

3. I understand their thinking. They think that if their were lower rates it will get people off of the fence who are ready to buy but are waiting for rates to come down. Some people may have been declined on a loan because their debt to income ratio was too high. By lowering the 30 year mortgage rate to 4.5% this will be all the motivation one needs to write up a purchase agreement and get moving. Umm, no. The amount of homes sitting vacant is going to grow because of all the layoffs going in the economy. Foreclosures are still popping up and probably will continue to do so. So who is going to buy all these homes again?

4. The reason people are not buying homes has nothing to do with interest rates. People are not buying homes because real estate values have been dropping by double digit figures every 6 months since late 2007. So what sounds better to the person sitting on the fence. Save 1% on your mortgage rate or 10% off the price of the house? Both do of course but what’s better? Is that a trick question?

5. As an example. Let’s say a couple is planning on buying a $175,000 home. They plan on putting 20% down payment for a loan of $140k. Let’s assume that 30 year interest rates as of 12/5/2008 are at 5.5%. This would give them a payment of $794 principal and interest a month. If they could get the 4.5% interest rate their payment would be $709 a month. That’s $85 less a month in interest. Not that much. To somebody looking at buying that much of a house is not going to slow down their decision. It might (and I mean might) sway them but that’s like not going out to the bar one night a month. If they want that house they are going to buy it regardless of the rate. Let’s take that same couple who is waiting until home prices start averaging home value drops of 2%. Its smart to wait until that time period because nobody offers full price in a down market. You always offer 10% less than what they are asking. For the examples sake let’s say they wait another 6 months and the value of the home drops another 10% like what’s happening here in Michigan. The same home of $175k is now worth $157,500. Putting the 20% down the loan is now $126k. Let’s say 30 year mortgage rates are at 5.5% in 6 months. Their monthly payment would be $715. Only $6 more a month in interest. Some may argue that it makes sense to get off the fence and buy with those numbers. What you don’t think about is where the money’s coming from. Its coming from the Government who just decided to print up a bunch of money and flood the markets again with cheap coin. This causes inflation and a decline in the value of our dollar. Both are a lose/lose scenario. You might say that on paper it makes sense but you will be paying for it in the long run in your taxes and your purchasing power. 

6. The problem is not the interest rates, its getting people approved on the loans. Mortgage rates are near historical lows. Mortgage lenders have had to tighten lending restrictions to people without a good credit history or enough income to make their mortgage payment. Nobody deserves to be a home owner. You have to earn it.

7. More mortgage companies will go bankrupt. Sure, in the short run it will be like the good old days of the refi boom where people were calling left and right and begging to do a loan. Most of the housing boom was called the “refi boom” for a reason. People were refinancing because rates were low, not buying. All of the people who have stuck it out at mortgage companies will get rewarded with this quick burst of refi applications, or will they? I can remember before I was shown the door at Quicken Loans that over 90% of my clients had a loan to value over 85% and a 30 year interest rate around 6%. From what I hear from my friends that still work at mortgage companies they don’t allow cash out refinances over 90% LTV anymore. I assume that most of my past clients are around 95% LTV which disqualifies them before you can even get into the mortgage application. Too bad for them.

8. What about the people who can get approved? Now they have a 4.5% interest rate. Do you think they will ever refinance again? They better not. If they do, then their dumb. So now the mortgage company has lost a past client it could do a loan for. So much of the business mortgage companies do is refinances, not purchases. It was just like when I did a second mortgage for one of my favorite clients in Washington. We did 4 loans for her in a matter of a year and a half. She kept taking money out of the equity in her home and then on the last one I told her that we would probably never be able to do a loan for her again because she was (over a year ago) at 100% LTV. She’s probably at 110% LTV now. On to the next client.

9. So with everybody jumping in to get lower interest rates now the margins the banks make on the loan is going to be less. I wonder if it will be enough to cover their losses from the past or be able to hit their estimates on Wall Street.

10. The biggest reason why it won’t help is because the Government is running the show. They want to show all of us that Fannie Mae and Freddie Mac still work. The market clearly shows they make it worse. Its not that I don’t want the economy to get back on track but every time I hear the Directors at the Federal Reserve talk I wonder how such intelligent people could ever think of such idiotic ideas. They should let the market take its own course, lock the doors at the Fed and get out of the way.

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The Top 10 Reasons Why 4.5% 30 Year Mortage Rates Will Not Fix The Housing Crisis

1. People trying to refinance their home after having it listed for sale are about to run into a big road block. Refinancing a home after being listed is one of the biggest underwriting guidelines that has to be passed. This is not about you, its about the mortgage company.

2. Most mortgage companies like Quicken Loans for instance have very particular guidelines when it comes to this. With all of the homes listed for sale around the country this is one that can become a real deal breaker. Depending on the company, many have a 12 month delisting period. Some will have a 6 month but for the most part its 12.

3. What does this mean? You need to be able to show the mortgage company that you have taken your house off of the market. You can do this by getting a de-listing ticket from your realtor. On the “De-Listing Ticket” it will show how long the home was listed for sale and the exact date it was taken off of the market. The mortgage company needs this information and must follow all of the guidelines set forth by Fannie Mae. This is one of them.

4. So why does the mortgage lender care when your home was listed and de-listed? It really comes down to you, the home owner. The mortgage companies know that you are just trying to consolidate all of your debts to give you some breathing room while you try to sell the home. The mortgage company wants you to stay in that home and pay them the interest on that loan.

5. You are probably going to find this out the hard way first. I remember being a mortgage banker and getting that phone call from people desperate to refinance their home. I would go through all of the normal application questions and ask them if their home was listed for sale. For the most part people would tell me whether or not it was. If they did not we would find out. Unfortunately, it would be when the appraisal gets back. The appraiser has a database of all of the homes that were listed for sale. The home owner is the one that is affected the most because they just spent $350 on a appraisal and are not going to be able to close the home loan.

6. So what are you to do? The best bet would be to call the mortgage company who holds the note, i.e, Countrywide, Chase, Bank Of America. Ask them if there is anything that they can do. More than likely all that they will do for you now is a “rate/term refinance.” This is for people who are in a adjustable rate mortgage. The mortgage company will not let you do a “cash out refinance” because they do not want you rolling more debt into the equity of the home. You will have to wait the time needed to refinance. Its probably not worth your time to call up a mortgage broker. They have to follow the guidelines set forth by the lender who actually funds the loan.

7. No need to call the original mortgage company that did the loan for you if its different than the one who holds you mortgage note now. You probably noticed after your loan closed your mortgage was sold to another company. The deal is the first company gets paid by the next company a premium for your loan. They keep this money as long as you do not refinance or sell the home within 120 days. The 120 days is known in the mortgage business as the “recapture period.” Its more like 140 days because its not from the day the loan was closed, its from when the mortgage was bought the first time. So you have to look at this from the lenders point of view. Here is somebody who is trying to sell their home, then can’t, and now is trying to roll more debt in to the equity of the home. The company knows you are going to put that house right back up for sale the second after the loan closes. So why waste time on somebody who is going to stick it back to them within 4 months if they can? No need to do that. Move onto the next client.

8. A real big reason why mortgage companies are not letting people refinance after the home was listed for sale was now it gives you the chance to foreclose on the property with all of your debts in the new loan (that is if you are rolling in debts). Now the loan to value (LTV) is way high. You are not going to be able to sell the home now because any wiggle room in the equity of the home is gone. Now the bank is stuck with a mortgage note on a property that is not going to sell for what is needed to cover the mortgage note. The bank will have to write off some of the balance and take a loss just to move the property off their books. You in the mean time have all of your debts paid by the new mortgage and those are included in the house you just foreclosed on. Your credit cards, car loans, past collections, everything. Who cares if you need to rent for two years. At least all of your bills are paid so you can start fresh with just a minor (big) blemish on your credit report.

9. So how can you not get caught? There is only one way to get around this underwriting guideline. It is to list your home “For Sale By Owner.” When you do a “FSBO” (fancy term for “For Sale By Owner) your property never goes in the database called “Multiple Listing Service” or “MLS”. Wikipedia has a great definiton of what it does. As long as you do not contact a Real Estate Agent than you are in the clear. When people told me their house was “FSBO” I told them to walk out into the front yard and take down the sign. Then after we closed the loan they could put it back up if they wanted. Does that sound shady?

10. The most common response I heard from people that I denied on a mortgage was that “you get the house if I foreclose.” Mortgage companies do not want you to foreclose. They do not want your house. They want you in the house paying a mortgage note they earn interest on. The scenario of why mortgage companies will not refinance a home that has been listed for sale is really a lose – lose one. The mortgage company cannot make new loans. The home owner cannot get into a better loan or even roll in some bills to help them keep the house. If you are thinking about putting your house up for sale I suggest you do it “FSBO.”

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The Top 10 Reasons Why You Cant Refinance Your Mortgage After The Home Was Listed For Sale On The Market

1. Buying a home with a home equity line of credit might be tricky nowadays but if you can do it I would suggest to look into it. It is probably not the first home loan that you are going to look at buying a piece of property with, but it is very advantageous in many financial kind of ways.

2. Most people start the mortgage shopping process by comparing different mortgage companies interest rates on the 30 year fixed rate mortgage. This is a safe bet and 9 out 10 times should be the way that most people go about picking the right mortgage for them. Its a way that people will know exactly what their payment will be until the day they pay it off. No surprises with that one. It usually comes down to picking the right bank or getting referred to somebody that your friends went with.

3. What makes the home equity loan so appealing is first off, the closing costs are very low. The average closing costs on a 30 year fixed mortgage not including state tax fees or lawyer fees is in the $2k-$3k range. This usually covers the appraisal, title insurance, and any underwriting costs. This will usually be the same across the board regardless of what mortgage company you go with. These are all third party fees and its hard to get around those.

4. The normal closing costs on a home equity line of credit are usually less than $1k. There is something about the wording that is involved in the paperwork when doing a home equity loan that considers it more of a lien on the property than an actual mortgage. I will say though that it differs from state to state but I saw times when I was a mortgage banker that we had a system called an “automatic value module” that searched a database of recent home prices in the area you were looking to buy or refinance. If the value of the home came back at what we needed to make the loan work, we would not even have to do an appraisal on the home. This would save the cost of an appraisal (about $350) plus the week it took for the appraisal to go out and get it back. This did not happen all of the time, but since it was considered a second lien on the property it was considered a little bit riskier. Whatever mortgage company held the mortgage note on that property would get paid second in the case of a foreclosure on the property. There was less title work that had to be done since the property was already under the property owners name.

5. With closing costs being about $1k-$2k less than a normal fixed rate mortgage you are already starting to save money. The only trick to this scenario is trying to find a mortgage company that will do a first lien home equity loan. ( Find some at:) Most mortgage companies stopped doing second mortgages all together because they are losing their butts of trying to sell these loans on the secondary market. This is because of falling real estate values across the country and with people owing more than what their house is worth.

6. Let’s say that you can find a mortgage company that will do a home equity loan as a first lien for you. You are going to save money on the closing costs already. The only downside that I can think of is that a HELOC is considered a adjustable rate mortgage. The interest rate is never fixed on the loan. While this might make some people nervous a bout the whole concept of not knowing what your mortgage payment will be from month to month it is no need to get anxious.

7. As of September 2008, interest rates on Home Equity Loans are around 5.25%. Interest rates on 30 year fixed rate mortgages are around 6.25% with no points. Its easy to see that you are already saving about 1% on the rate alone.

8. What is a neat feature of the home equity loan is that it gives you a lot of flexibility with your monthly payments. Your HELOC’s payment would be based off of a interest only payment. Let’s say you took a 30 year mortgage of $100k at 6.25%. Your payment would be $615.72. A HELOC at 6.25% on $100k would be $520. The difference between the two is about $95. This means that only $95 of your fixed payment would be going to the mortgage every month for probably the first 3 years of the loan. You might as well just consider it a interest only loan in the first place. This extra $95 could come in handy for extra bills, rising fuel prices, or to start a savings account. If you do not need the extra money then put it back towards the loan and pay it down.

9. What also is cool about a HELOC is that if you do put extra money towards the loan your payment the very next month will go down accordingly. Many people think that if they make a one time larger payment towards their 30 year mortgage that their payment will go down. This is not true. Your payment stays the same until the day its paid off with a 30 year fixed loan. On a HELOC your payment will go lower even if you put $1 more towards your interest only payment. This is great because you can see you hard work and determination going to paying off your mortgage. By doing this you also leave your self an option to borrow back against the loan in the future. On a 30 year fixed you can never re-borrow witout having to go through the whole refinance process again. You will have to pay closing costs all over again. The HELOC will let you borrow up to whatever space you have available with a quick call to your bank saving you thousands of dollars in closing costs all over again.

10. The benefits of buying a home with a Home Equity Loan are lower closing costs. Lower interest rates. Greater flexibility with your monthly payments. The option to pay more towards the loan and see you monthly payment slowly go down. If you pay down some of the balance you can always borrow it back saving your self a lot of money in future closing costs. It might be hard finding this first lien home equity line of  credit. Many mortgage companies stopped doing second mortgage type loans because they are hard to sell on the secondary mortgage market. If you can find one you will probably have to put down at least a 10% down payment and have credit scores over 720. You will not have to pay any PMI (private mortgage insurance) which will also save you more money on your mortgage payment if you cannot come up with a 20% down payment.

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The Top 10 Reasons You Should Buy A Home With A Home Equity Line Of Credit (HELOC)

1. Being self employed is a lot of people’s dream. Being able to call your own hours, be your own boss, take vacations when you want, earn as much money as you want to earn, write offs on your taxes, etc. For most people though this is hardly the case. Most people that are self employed do not mind working more because they usually like what they are doing. Most self employed people struggle to get their businesses off of the ground and most do fail either because of poor planning, under funding, or lack of will power to keep on pushing.

2. Besides all of the issues to get your small business going where it really hurts self employed people the most is trying to get financing for anything. If you just quit your day job and are going to go at your small business 100% than you better be ready for some tough love from the banks.

3. Banks do not like self employed people. It is really hard to get somebody approved on any kind of financing because there are so many loopholes involved with running a small business. The biggest loop hole is the one that self employed people enjoy the most, the tax write off. Small business owners write off everything and anything that they can so they hopefully can pay less taxes at the end of the year. I do not blame them, I hate paying income taxes too and wish the income tax would be removed from our way of life. It would just make things simpler. Unfortunately, the U.S Government does not like simple and this screws everybody.

4. The biggest reason most self employed people get shot down when applying for a new mortgage is that they had been self employed for less than two years. The banks and lending institutions know that most small businesses fail in their first two to three years and want to see that you have a history of bringing money into your business to cover your expenses. If you can prove that you have been in business for over two years with a license or certificate than you pass the first test.

5. Here comes the nail in the coffin. You prove you have been in business for two years or more, now you need to prove on your income taxes (1040s) that you can qualify for the mortgage. Your mortgage banker or mortgage broker will ask to see those. Let’s assume that you run a landscaping business and the business brought in $100k in revenue each of the last two years. After paying employees salaries, rents, health care, 401k, gas, maintenance, food, and any other small bills it says that your taxable income is around $17k. The $17k number is what the mortgage company is going to use to qualify you on the loan. As we all know, $17k is not going to qualify you on anything. I hope you are married and your spouse has a job where they get a W2 every year because that is going to be the only way you can maybe get approved. I think it kind of sucks that the small business owner is doing everything they can to break away from Corporate America to live their wn life, but the tax man is still going to stick it to them one way or another.

6. So your loan application gets denied in underwriting, now what do you do? At this point you only have two other options that will hopefully get you qualified on the mortgage. You need to have a credit score over 720 and be bringing a lot of money to the table to close. I have even hear now that some mortgage companies are making self employed people escrow their property taxes and home owners insurance. I think this is a sham and the reason they do it is because it makes the home owners stay current on all of their bills. Most self employed people know that all that they are good for on paper is their credit score. Lose your high credit score rating and say good bye to getting any kind of financing in the future. It is impossible for a self employed person to get a mortgage with bad credit scores.

7. Some mortgage companies have loans designed for people that are self employed. These loans are by far the hardest to get approved on now and more than likely have been removed from all mortgage lenders list of products. If you do some searching you might be able to find one that does it but when the U.S Government stepped in and said that everybody needs to show proof of income it killed this loan. How the loan works is that you qualify based on your credit score over 720 and a loan to value under 90%. So if you were a small business owner looking to buy a home you would have to put down 10% and have great credit. All that the mortgage company would ask for is a proof of ownership from your business like a license or even a letter from your accountant saying that you have been self employed for over two years.

8. I remember that the loan we had at the time was called a “Quick And Easy” and it was common place to say that every time somebody got on the phone and said they were self employed. The rates on these loans are comparable to a conventional 30 year fixed mortgage but maybe .25% higher. It was worth it for the self employed people to take this loan because it got rid of any hassle that might come up during the underwriting process. Mortgage bankers and brokers knew ahead of time to go over what the client told them before sending those documents to an underwriter. How it works at major companies like Quicken Loans, Countrywide, Chase, and Bank Of America is that whatever you send down to the underwriter is what they have to go off of. If you send them 1040s that disqualify them with their debt to income ratio (DTI) the loan is dead and you have unhappy clients. Best bet would be to sell your clients on the fact that this is their best option because they do not have to prove anything. As long as the appraisal came back in at what the client said then those loans closed in less than two weeks.

9. Self employed people, small business owners, and anybody that makes a living earning tips like servers or bartenders better know how to save money. This is going to be the only way most of them are going to get approved on a mortgage. They need to have a lot of money saved up for a down payment and about 6 months worth of liquid assets as reserves. Mortgage companies like seeing that you have lots of money laying around to make your mortgage payments in case you come across hard times.

10. Right now it is harder than ever for self employed people to get a mortgage. The lenders a tightening up their guidelines every day. I think this is great for the economy because it takes people that should not own a home out of the picture and will teach us a great lesson about responsible lending practices. If you are self employed you should probably call up your local bank or credit union and see what they can do for you. If not, a larger mortgage lender like Countrywide, Quicken Loans, Or Chase will tell you what or if anything they can do. More than likely they will not have the loan available like I discussed above left anymore but at least they will tell you if you need to bring more money to close, pay off some bills to bring your credit score up, or something else.

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The Top 10 Reasons Self Employed People Can Not Get Approved On A Mortgage

1. Well, it actually is kind of official today that Fannie Mae and Freddie Mac are bankrupt. CNN has the low down on why it happened. The unfortunate part is that they really are not bankrupt. I think its interesting how two organizations that were started by the U.S Government are now being bailed out by the U.S Government. It really makes me want to say “WTF?”

2. Fannie Mae and Freddie Mac were set in place to help free up more money for banks to lend too. In the good old days, banks could only lend in mortgages what they had in their own accounts. As an example, the money they could lend would come from the money you deposited with them for your checking or savings account. The bank would pay you a small rate of return on your money and would lend it out. This is a very sound business model and in my eyes should be the only business model. Well, what happens is that interest rates rise and fall and banks did not want to give out all of the money they had invested in a 30 year fixed mortgage. They instead would not mind giving you a 30 year mortgage but it had to be at an adjustable rate to weather any fluctuations with interest rates. Of course people taking out mortgages do not like the idea of their monthly mortgage payment going up at any given time. So what happened was Fannie Mae and Freddie Mac were created to help sell these loans as bonds on the secondary market. They would essentially insure the loans as bonds and take a percentage of the loan amounts as payment and put it into a reserve fund to make payments on loans in case home buyers defaulted on their mortgage. What this did do was free up money for the banks to lend to go out and make more loans.

3. This system worked well for a number of years and Fannie Mae and Freddie Mac were pretty close to becoming monopolies. They control almost half of the U.S $12 trillion of mortgage debt. Pretty sick when you see that two companies control half of anything. Even though Fannie Mae and Freddie Mac do not receive any U.S Government funding they are still considered a “Government Sponsored Enterprise” or “GSE.” And anything with the word “Government” in it should bring suspicion up that something behind the scenes is going on.

4. With Fannie Mae and Freddie Mac being taken over again by the U.S Government it means that both of these companies have come full circle. Its interesting that if you look at a chart of Fannie Mae over the past 10 years you will see that it was a pretty good stock to own. It was always going up and down in the $50-$90 range with very good dividends for its shareholders. That is until the hosing crisis. I think its funny how something like the refi boom should have been great for companies like Fannie Mae and Freddie Mac and which all it really did was lead to their demise. Their stock price alone today has dropped over 80%.

5. Anybody who owns Fannie Mae or Freddie Mac shares is probably the maddest they have ever been today. Losing 80% of anything is not good. I guess the reason behind this is that when the U.S Government steps in to bail anybody out it causes stock prices to drop immediately because the company has proven it is not going to be doing any new business and the rules to which it is being run have changed. I do not think I own any shares of those two companies in any of my mutual funds but I better check.

6. I was reading that this is going to be a good thing for interest rates on mortgages. I guess it is supposed to lower rates and maybe by up to 1% on a 30 year home loan. That’s great news…or is it? The theory behind this is that since the U.S Government is running both of the major players in the mortgage industry now that insure the bonds that are sold it makes owning these less of a risk to investors. Investors like seeing that the U.S Government is backing these bonds because if somebody defaults on the loan guess who is there to bail them out? If you guessed “The Man,” you are right. Now the investors can limit their losses because the insurer can just print up more money. Fannie Mae and Freddie Mac cannot print up money. Geez, I wish I had a printing press in my basement that I could just print up $100 dollar bills and head out to the bar when I so pleased.

7. This does not really do anything for the credit markets though. Banks are going to realize that they still assume a lot of the risk when making mortgages. There should be no reason to bring back sub-prime mortgages or home equity loans over 100% of the value of ones home. Even with lower interest rates for mortgages it still really is not going to make a difference for people looking to refinace their mortgage. Most of them are not going to be able to get approved on a mortgage anyway. I remember when I was working for a mortgage company I think that around 80% of my past clients owed around 90% of the value of their homes. This was over a year and a half ago. With home prices dropping all over the country I know that all of those people probably owe near 100% of the value of their home. Most mortgage companies will not even look at refinancing a home unless it is below 90% loan to value.

8. The only bright spot I can see from this in the short term is if interest rates do go down and it looks like they will (got a friend at a mortgage company that said 30 year fixed mortgage rates for Sept 9, 2008 dropped .5%) it could help some first time home buyers get approved on a mortgage now. A lot of times their DTI (debt to income ratio) would be just too high to get approved and that could of been the determining factor. If you are a first time home buyer and that is all that was stopping you I would call up your mortgage company and see if you can get approved now. Who knows how long this dip in interest rates will go.

9. I am a big supporter of less government. I think that the U.S Government has proven time and time again that it usually messes more things up than fixing things. This whole refi boom and then mortgage mess was created when the Federal Reserve lowered interest rates to historically low levels to try and spark some new business to get the country to stop thinking about 9/11. It did and everybody was jumping on the cheap interest rate train. Homes were going up at record paces and the economy was booming…or was it? It really wasn’t. Cheap happened and it backfired on all of us in a short period of time. I am reminded of the analogy of “Good ain’t cheap and cheap ain’t good.” It turns out that we knew this was going to happen before this even happened.

10. I do not like the way the mortgage markets are created and even though I understand why Fannie Mae and Freddie Mac were created it does nothing but set people up for failure. I get that banks do not want to lend all of the money they have in their accounts to anybody over a 30 year period because then it takes the money away from them. I’m sure they like the new system where they essentially own the note but a bond is created by Fannie Mae to insure the loan in case of default. Banks get that money back and pay a small premium to them to insure the loan. Its a safe bet…right? Obviously no as from what was proven today. Even with interest rates dropping how does this affect the person that has done everything correctly by not buying a house that was too big for themselves or living with in their means? You get hosed. The U.S Government is opening up their wallet (might as well be your wallet) and producing more money (which weakens the U.S currency) which makes us go more into debt because that money is going to have to be paid back by taxes or selling of more bonds. It would have been better if Fannie Mae and Freddie Mac would have just been left to fail and close their doors just like every other major company. Let the people that pay their bills on time pay them and the ones that go into foreclosure go into foreclosure. This mortgage and real estate mess is not going away any time soon and with the government stepping in is not going to help anything. We need to change our policies to have even tighter credit standards. Make banks lend their own money from their deposits and not have the U.S Government get in the way. Let banks fail. Otherwise, nobody learns.

Post from: The Top 10 Reasons

The Top 10 Reasons Why I Want Fannie Mae And Freddie Mac To Go Bankrupt

1. Since 2006 some 270 major lending institutions have failed and gone bankrupt. This does not include the other hundreds or thousands of other people who got their mortgage brokers license hoping to make a quick buck only to fail when the housing bubble burst. What is really crazy to think is how many people lost their jobs within those 270 companies. Estimates right now are in the 100,000 range. This includes everybody from the loan processor, the mortgage banker, IT people, and leadership with the company.

2. When the new housing bill came out it came out with a bunch of new standards that the mortgage industry is going to have to follow. All of the major mortgage companies that are left and still surviving have already gotten rid of sub-prime loans such as the negative amortization mortgage. Good luck even finding a a mortgage company to do a home equity line of credit for you. Many have decided to wait it out before writing second mortgages all together. All that they have left to do for people is normal conventional loans like the 30 year fixed rate mortgage.

3. Many lenders saw their investors leaving them because the mortgage market was just way too risky to stay apart of. Many major hedge funds and investment firms like Bear Stearns were bought out or taken over by the government (good job government, save a loser and put us more in debt!).

4. So the FHA decided to change some of its practices to try to help this mortgage crisis out. They increased the loan limits for people trying to refinance their mortgage or buy a home. While many major mortgage companies like Quicken Loans did not do FHA loans during the height of the refi boom, they realized they better start doing them now.

5. Many mortgage companies did not do FHA loans because they were twice as much work as a normal loan to do. The paperwork was ridiculous and getting all of the inspections and certifications on top of the appraisal was just not worth it when the mortgage companies could do the one that was already in their product lineup instead of dealing with the FHA.

6. When the investors started bailing on them the FHA became a great option. Most mortgage companies could only do refinances up to 90% LTV (loan to value) or home purchases up to 95% LTV. The FHA allowed purchases up to 100% LTV and refinances up to 95%. This was short lives also when the FHA lowered it down to 97% purchase because with all of the values dropping around the country they did not want to hold onto mortgage notes that were higher than what the value of the house was in less than 6 months.

7. Now the mortgage company could not do their own loans and had a max up to 90% LTV. FHA was their only option with purchases and refinances. FHA loans comes with some weird guidelines. In most cases you could buy a home without a credit score as long as you could show some sort of documentation that you have paid a cable bill, rent, water bill, or other ford of payments. This was perfect for people who have never had a credit card or a car payment and was especially good for first time home buyers. The mortgage companies could either start doing FHA loans or go bankrupt. Tough decision huh?

8. All of the mortgage companies jumped on the bandwagon mainly because they had to. They could not qualify anybody on their own guidelines because pretty much everybody who owns a home has seen 20%-30% of the equity of their home go bye-bye. You know that hardly anybody ever saves up any money to put as a down payment on a house so the FHA 100% financing was their only option. After all of the major mortgage companies let a lot of their employees go they started training their mortgage bankers about the FHA loan. The employees started understanding how it worked and many mortgage companies started closing a lot of FHA loans to the point where it was now 50% of their business. Things looked like they were going to level out and the FHA was going to be the life saver it was meant to be.

9. Many mortgage companies thought they were doing well enough again to hire people so they started doing it. I even started getting a few phone calls and e-mails from a couple of resumes I have floating around the internet. Since I did use to work at a mortgage company in the past for a couple years it would look like on paper that I would love to go back to it. All of these mortgage companies (especially mortgage brokers) were telling me how much money they are making now with the FHA loan. This sounded like the same speech I heard when I started working for my previous employer. They kept telling me that I could be making $20k a month. Sounds pretty good, but there is one thing they were not telling me. The $20k is revenue, not profit (take home). After expenses it was more like $3700. The thing with mortgage bankers is that they do not make a lot of money, their Regional Vice-Presidents do. Sure, there are some mortgage bankers that made around $100k a year but most of them had been there for 3 years or longer and did not mind working 80 hours a week. If you broke it down to what they would make in a 40 hour work week it was more like $45k a year. Anyways, I enjoy more talking about mortgages and finances more than working for them anymore. I respectfully declined all offers because I knew this short burst of business was not going to last. And it didn’t. This short burst of new business from the FHA started around January 2008. The FHA October 2008 guidelines will be getting rid of down payment assistance. Down payment assistance is a joke to begin with. All it is is a way to get a business to lend you money to help you close on the house and the seller would have to take the profits out to pay for it in the closing costs. This is really a bad practice because it does not promote anybody taking an initiative in saving up any money to buy a house. The FHA realized this and recognized that what they were doing was enabling people to get into a house and instead of mortgage companies continuing the mortgage mess, it was them doing it. One of the other guidelines that will be changing with the FHA on October 1, 2008 is that everybody buying a home must put down 3.5% plus their closing costs. This eliminates a lot of people looking to buy homes right then and there. So what does this mean for all of these mortgage companies?

10. It means that there are going to be less home owners that can get help to refinance their home and less potential home buyers that can get a loan. A friend of mine that still works at a large mortgage company told me that a lot of the people are nervous for the month of October because at that point they are going to lose a lot of business due to the new guidelines implemented by the FHA. I was told by this person that around 90% of their new home purchases already use the old FHA guidelines and if the new ones were to get into effect tomorrow, 60% of that 90% could not qualify for a loan. With less business for mortgage companies to write, expect to have more mortgage companies, mortgage brokers, and banks go into bankruptcy. This means more job losses and more time that our country will spend in this mortgage debacle.

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The Top 10 Reasons More Mortgage Companies Will Go Bankrupt When The FHA Changes Its Guidelines October 2008

1. If you are thinking about buying a home soon you better be putting offers in very fast. On October 1, 2008 there will be new guidelines coming in to play that are administered by the Housing and Economic Recovery Act of 2008. This new housing bill is going to put a major squeeze on people looking to buy a home after that date so you better get a move on. 

2. Under the new guidelines set forth by the FHA the minimum amount down payment will go up to 3.5%. It is currently at 3%. Not so much of a big deal but it does account for more money that you will have to come up with. On a $100k mortgage that is another $500 plus your closing costs.

3. FHA loan limits will decrease which will mean fewer people will be able to get approved on a jumbo loan. The current maximum loan limit is set at $729,750. This went into affect March 6, 2008. The FHA did this so they could help out people with bad loans that were in high cost areas. Hopefully you heard about this and have tried to refinance your mortgage over the past 5 months if you fall into that category. Now the FHA is taking a percentage of what the highest and lowest price sales of homes are for a particular area and using that number to determine what the max limits will be. This goes for people looking to buy a home or refinance with a FHA loan.

4. You can still receive a tax credit up to $7500 for a first time home buyer. This is to help you with things like closing costs when purchasing the home. It is not free money though. If you take the credit you will have to pay it back over the next 15 years or when you plan on selling the home. It is a no interest loan so it makes sense to use it, jsut remember its not free.

5. My favorite one is the Down Payment Assistance programs will be eliminated. You might be asking yourself what is Down Payment Assistance? Could it be another term for getting money from your parents or the company you work for? Nope. How it works is that if you want to buy a home you have to negotiate with the sellers for them to lower the price on the home first. If agreed, you would call up a mortgage company, get approved on the FHA loan, then send your application to another company that gives you the money for the sale of the home. Weird huh? This means another company is giving you the down payment, and at closing they are getting paid back the money from the proceeds of the sale. You wonder where they make any money because at the same time they are technically giving you money and receiving it back. More than likely they are getting a percentage of the revenue or a referral fee from the mortgage company the loan originated with. If I did not know how this worked I would think it would be some kind of scam. Seems like the FHA wants to put the kibosh on it too.

6. With the Down Payment Assistance programs being terminated it means that people looking to buy homes will actually have to (if you can believe this) save up money for a down payment and their closing costs. They can still negotiate with the sellers for “sellers concessions” if they want to which is okay. I do not get why people negotiate seller concessions to begin with. Its not like they are giving you money. The home buyer is just rolling the costs into the loan with the lowering of the price of the house which means you have financed your closing costs.

7. With this going into effect in a couple months the people that need the Down Payment Assistance Programs better be hoping they can get a house. The remaining Down Payment Assistance companies out there require you to have a 620 credit score or higher. No ifs, ands, or buts about it. You will probably see a lot of these companies going out of business or having to try another way to lend money.

8. This is actually good news for the people sitting around wondering if now is the time to buy a house. This gives more reason to wait until 2010 to buy a home. When the mortgage companies stopped doing 80/20 loans, second mortgages, and home equity loans it forced a lot of companies to do one normal conventional loan like a 30 year fixed rate mortgage. Things are going to start getting back to where they were before the housing boom because of this.

9. With no more 100% financing around it means that you will have to have money to get approved on a loan. With no down payment assistance this removes all of the buyers out there that are going to use it. Right now some of the big mortgage companies like Quicken Loans, Chase, Countrywide, and Bank Of America are using these programs to close loans. The FHA loan is a large portion of these companies business and once the guidelines are tightened you will probably see more people lose their jobs because there is not enough revenue coming in. They will still be able to refinance homes but the FHA is not allowing help anymore. I say good for them.

10. This is the last straw for mortgage companies and want to be home owners to get some sort of 100% financing when buying a home. When all of the options are removed there is going to be a time period of less people buying houses. Most people in this economy can afford a monthly payment but do not have the money for any kind of a down payment. With no people buying homes it is going to lower home prices even more. Its simple supply and demand. This will probably cause mortgage rates to go up a little more because now the banks need more revenue to make up for the lower amounts of homes being bought. All in all this really is a step in the right direction for the American population because now we are being held accountable for our financial actions. If you must buy a home and need the FHA loan to do it, you better be putting offers in and hope they close by October 1, 2008 or you will have to have 3.5% down payment coming out of your pocket.

Post from: The Top 10 Reasons

The Top 10 Reasons You Better Buy A House With Your FHA Loan By October 2008

1. First off there should only be one or two reasons why you would even want to refinance a home after closing on a home. The only time it makes sense to refinance in such a short time period after closing would be to take cash out of the home. Good luck doing it though. You will only be able to get approved on a new home loan is if the home was given to you in a will or a gift of equity (which is when a parent or relative gives you the house for 50% of what the value is).

2. Many parents will have paid off the house or owe little on it and decide to give the house to their kids to help them get started with their lives. Instead of charging the kids full price them give them a deal. Most will just sell them the house for what the parents owe on the mortgage. The kids will call up the mortgage company and tell them that they are getting a gift of equity from their parents. The mortgage company knows the house is worth more but when you get qualified on the loan you are getting qualified at 100% LTV (loan to value) of the house. When this happens the kids will be charged PMI (private mortgage insurance) on top of their mortgage payment.

3. Let’s say that the kids are getting the home with 50% equity in the home. What they want to do is take some cash out to pay off some credit cards, a car loan, and get enough cash out to help remodel their home. They already know what the home is going to be appraised at and they decide to take enough money to go up to 80% of the value of the home.

4. They call up the new mortgage company and tell them about their plan. The new mortgage company does not care that they just closed on the loan the day before. By doing the new home loan at 80% LTV (loan to value) it will eliminate the PMI from their monthly payment. They will probably see their overall payments drop by doing this and will now have more money month to month than they did before.

5. The one thing you do not want to do is tell whatever mortgage company you are going through that you plan to do this. Mortgage companies get paid two different ways. They get paid by collecting your interest that you pay or by selling your home loan on the secondary market. When banks sell your loan to another bank for a quick profit there is an agreement between the two that if the home owner sells or refinances their home four months after the loan is funded (usually three weeks after closing) than the mortgage company that originated the home loan must pay back the proceeds to the larger bank that bought the loan. This is called the “recapture period.”

6. If you tell the bank that you plan on doing this there is a chance that they will not even want to do the home loan for you in the first place because they know they are wasting time on you since you are going to use them to get the loan and more than likely go to another place to get the next mortgage soon. They will be forced to give the money back and their commission. Be expecting a call from an angry loan officer wondering why you are doing this. They will find out because once you get in process with the next company a pay off letter is sent to whoever holds the mortgage note.

7. Most loans done nowadays do not have what is called “seasoning” issues anymore. Most large mortgage companies like Quicken Loans, Countrywide, Chase, Bank Of America, and Wells Fargo have a normal conventional loan program that does not care when you bought the home. So if you were to have closed a loan with another company and call one of these guys you will be able to get your new loan using the true value of the home instead of what it was sold to you for from your parents. Seasoning is a term used by mortgage companies to determine when you bought the home. Some loan programs in the past had underwriting guidelines that required home owners trying to get approved on a loan that they had to be in their home for at least 6 months to a year.

8. The only home loans that you might have some trouble doing right after you closed on a home are jumbo loans and home equity lines of credit. Jumbo loans are riskier than conventional loans and are not backed by Fannie Mae. This makes mortgage companies a little more uneasy about refinancing them so quickly. With home equity loans there is mostly a 6 month waiting period before you can take one out. What the mortgage companies do is use what you bought the home for during that six months. So if you bought the home for $200k and put 20% down on it you could borrow up to 20% back from a line of credit (assuming you find a mortgage company doing second mortgages up to 100% LTV). Let’s say you got a deal on that home and its really worth $250k, to get the value you want you would still have to wait 6 months before the mortgage company recognizes that value. The only downside to having to refinance your home again is that you will ahve to pay closing costs again (there is no such thing as a no closing cost mortgage). Of course the mortgage company will roll the closing costs into your loan so you do not have to come out of pocket with any cash. Be careful with FHA loans. Some of them have a early termination clause where if you sell or refinance your home within a certain time period you have to pay them a fee.  

9. For the most part you should not be calling up a mortgage company right after closing because you think you got a bad deal. All of the sub-prime mortgage companies have gone bankrupt and the companies left doing home loans do not do sub-prime loans at all anymore. Pre-payment penalties have been outlawed by the U.S Government and are illegal to do. No worry about that anymore. What you are going to find is that you are probably going to be offered a 30 year fixed interest rate mortgage from every place you call that has a best of market interest rate. 

10. Be smart when you are trying to play this refinance game. If you know you are buying a fixer upper than do not put a large down payment on the home. Instead, keep the money and put down as little as possible to fix it up so hopefully the value of the home goes back up. When your done remodeling then try to refinance it so this way you do not get caught using credit cards to pay for things and find out you cannot refinance. Right now in the real estate market you are probably not going to be able to refinance at any time in the near future. The only people that will be able to refinance the day after closing their loan or within 6 months of closing are people that inherited a home through a will or were given a gift of equity from family members. Home prices are dropping around the country by 12% a year so do not think that you can refinance your home loan. More than likely if you only have a little bit of equity now it will be gone in a year and the mortgage companies will not be able to refinance you because you owe more than what your house is worth.

Post from: The Top 10 Reasons

The Top 10 Reasons You Do Not Have To Wait To Refinance Your Mortgage After Buying A Home

1. In most instances homes usually can have two mortgages placed as a lien against a property. Under normal conditions you can have a first mortgage and a second mortgage. Some companies during the refi boom were putting a third lien against the property. Local banks and credit unions were the ones that did the third lien.

2. When people are trying to refinance their home the mortgage company will look at their credit report and will contact the local city or county government office to pull up who is on the title of the home and any outstanding liens against the property. If you default against anything including credit cards or if you are behind with taxes these can be put as a lien against the property.

3. What these companies do is register the lien with the county and it is recorded. If you ever plan to refinance the home or sell it, those liens must be paid. In the event of a sale, when the title of the home is transferred it can only be switched with a clean title. No person will ever take a home with a bunch of back taxes and liens (unless they want to and see they are still getting a deal with the purchase).

4. Mortgage companies always want to be in the first or second lien position. The government is technically always in first lien position then the mortgage companies. The county will not let you refinance the home until the property taxes are paid up. Your property taxes are vital in funding the services your city provides like the Police and Fire Departments.

5. If the home was to go into foreclosure and the mortgage company let you refinance without paying off liens or collections than they would be last in line to get paid in the event of a short sale or sherriff auction. It goes by who registered the liens first. No mortgage company will take a risk on you if when everything is added up and you owe more than what the house is worth with all of the debts not being paid.

6. When your loan application documents start coming into the mortgage companies office and they see these outstanding liens it can deny your mortgage right then and there. If you do not have enough equity in your home to pay off all of your outstanding liens than no mortgage company will look at you. You are too risky to lend too.

7. Collections will follow you around forever if you do not take care of them. Lets say that you are a first time home buyer and you know that you have some outstanding bills you refuse to pay. You make good money and have enough money in the bank account to put a 20% down payment on the house. You just do not want to pay off those old debts because of a misunderstanding about the bill or you just hate that company. Unfortunately those debts are still on your credit report ruining your credit score. You call up a couple mortgage companies and they all tell you the same thing in that you have to pay the collections off before they can approve you on a loan. Of course this gets you mad because now with interest and late fees your old debts have gone up some 25% and you have to take the money out of your down payment to pay the debt off. The reason is because that collection account will follow you onto the house you are going to buy putting the mortgage company in second lien position.

8. Self employed people always have a tricky time when it comes to income taxes. Some defer their taxes for a couple years at a time because they do not have the money to pay them. One of the first things a mortgage company will ask a self employed person is if they can show how much money they make on your income taxes. If you tell them that you have not paid them but have an extension filed with the IRS it does not matter. You must file your taxes because the mortgage company does not know for sure if you have paid them or not and will not take the risk on you.

9. If you cannot pay all of these debts off when trying to refinance your home you might be better off not doing anything. As long as it is not property taxes because that is house the government can step in and foreclose on your home. Maybe you will have to look at other ways to get the money you need. If you can still afford your mortgage payment then maybe doing nothing at all is the best way to go. In some cases the credit card companies or other debtors will call you and negotiate a debt that is half of what you owe just so they can get money back in their doors.

10. Do your best to stay up to date on all of your bills and to never get caught with collections or liens on your credit report. Not only will you not be able to buy a home or refinance your mortgage it will also ruin your credit score. The IRS makes sure you are always up to date on your income taxes and your local government just wants you to pay your property taxes. Stay on top of your bills and debts and when you do you will then be able to find a mortgage company that will close on your mortgage.

Post from: The Top 10 Reasons

The Top 10 Reasons Collections, Property Taxes, Income Taxes, And Liens Must Be Paid Before A Mortgage Can Close