Thanks to relaxed lending standards, in recent years borrowers with bad credit - such as a bankruptcy or a delinquent loan on their record - found it relatively easy to get home mortgages. Such “subprime” borrowers generally have to fork over higher interest payments to compensate the lender for the added risk of default they represent. So lots of subprime borrowers kept their house payments lower by taking out exotic mortgages such as adjustable-rate, interest-only or negative-amortization mortgages.

During the housing boom, borrowers and lenders took comfort in the fact that home prices rose and rose, with no signs of slowing. Even if a borrower had an interest-only loan, the rising value of the home would build equity for the owner. But with home prices falling in many parts of the country, that safety net has been eliminated. And with interest rates rising, borrowers with adjustable-rate mortgages are facing higher monthly payments and, increasingly, foreclosure. (more…)

search for : bankruptcy, delinquent loan, adjustable-rate, interest-only, negative-amortization mortgage

As interest rates rise, more homeowners are falling into foreclosure. That is what is prompting the wave of bargain-hunting investors now descending on courthouse auctions across the country. “It’s just crazy. We have 100 houses [at auction] each week, when we used to have 10 or so,” says Elaine Began, a deed clerk in Macomb County, Mich. Three years ago, the Montgomery County (Ohio) Sheriff’s Office was “lucky to get 50 people to an auction,” says Laura Wright, a foreclosure clerk there. Today, 120 often show up. Some may be sorry they did. Novices face a host of risks.

The process usually begins when mortgagees fall three months behind on payments. The lender sends a default notice to the homeowner and to the county. If the homeowner can’t pay up, a foreclosure date is set. County officials handle the auction and use the proceeds to pay off the mortgage and any other debts secured by the house. Leftover money goes to the foreclosed homeowner; leftover debt, in some cases, is the new owner’s responsibility. The mortgage lenders typically bid up to the remaining principal amount plus any foreclosure fees. Their goal is to recoup what they are owed, either from investors bidding more or by buying the home and reselling it. Foreclosed homeowners sometimes join the bidding and win the auction, even though they don’t have the money, effectively delaying their eviction until another auction is held. Investors can get in the game before or after auctions, too. They can try to buy directly from homeowners beforehand or from lenders who win the auction. (more…)

search for : interest rate, foreclosure, Foreclosed homeowner

For some reason, I have received a number of letters recently that criticized some articles I had written back in 1998-99 on lender junk fees. These articles are on my Web site, and since nothing about junk fees has changed since they were written, I have never had occasion to revise them. In response to the criticism, however, I took a fresh look at the articles and realized that something had changed since they were written: me. My take on junk fees is a little different now than it was eight years ago, I hope because I’m smarter but perhaps only because I’m older.

Mortgage junk fees are all upfront lender charges other than points. They include all lender charges expressed in dollars, such as “processing fee,” “lender attorney fee,” “endorsement fee” — the list goes on and on. Junk fees also include one charge expressed as a percent of the loan, called “origination fee.” I don’t like the term “junk fees” and wish it had never been coined. The reason is that borrowers tend to interpret it to mean that the lender is performing no real service and/or that a particular fee is too large. This mindset causes borrowers to look for information about how large a particular fee ought to be, and to bargain with the lender to get one or more fees reduced. (more…)

search for : lender junk fees, Mortgage junk fees

Mortgage rates have enjoyed a modest rally, the 10-year T-note’s decline from 4.88 percent to 4.77 percent leading mortgages from 6.375 percent to 6.25 percent. Do not expect more improvement, not with an economy as strong as this, and zero chance of a rate cut from the Fed. On the other hand, don’t expect the blow-up in rates that would normally follow dashed bond-market hopes for a recession, long yields soaring above the Fed’s 5.25 percent cost of money.

This unnaturally “inverted yield curve” is just one of several effects of the recycling of the American trade deficit, now in the previously inconceivable range of $750 billion per year, some 6 percent of GDP. For exporters to us to continue to export, they must keep the dollar strong enough to buy their junk (and oil), and the only way to do that is to re-invest their dollar winnings here. There has never been anything like this before, neither magnitude nor duration, but the effects are coming clear: there is a constant bid in every financial market (commercial real estate, too), which has caused prices to rise, limited downside damage, suppressed volatility in general, compressed spreads for risk in time and credit, held long-term interest rates artificially low, and stimulated the economy. (more…)

search for : Mortgage rates, 10-year T-note, inverted yield curve, commercial real estate, long-term interest rates

Probably the biggest advantage that comes from having a good credit score is being able to get lower interest rates on loans. The reason you have a good credit score is because you know how to manage your credit wisely. You pay back your loans and make payments on a timely basis. Lenders know by your credit score that you’re less of a credit risk–you’re less likely to default on your loan, so they’re more willing to give you a cheaper interest rate. And the lower your interest rate, the lower your monthly payment. In essence, having good credit saves you money.

As a result of your good credit score, the more freedom you have to shop around–for loans and for lenders. You can shop around for more types of loans since you qualify for more. You don’t have to go with the first one you find. It’s better to shop around for the loan that best suits your financial goals and your individual situation. For example, let’s say you just accepted a new permanent position and were moving with your family. You want your kids to grow up there and didn’t plan on moving. You might go with a 30-year fixed-rate mortgage. But, in contrast, let’s say you wanted to invest in a rental property and needed some flexibility in payment. You might then go with an option ARM that allows you to make different types of payments at different times. (more…)

search for : manage your credit, default on your loan, good credit score, 30-year fixed-rate mortgage

Bitter cold and bone-chilling winds across the Northern Plains and the eastern United States have left many homeowners wondering how they can protect their homes - and their families - from the big freeze. In today’s top tips we’ll give you the tools you need to keep your home nice and toasty. Heavy snow and ice can do a lot of damage to your roof - as it builds up and as it melts. Ice dams are an area of concern. Ice dams are when ice on your eaves blocks water from draining and the water is forced under the roof and into your attic or down the sides of your walls.

Frozen pipes are one of your home’s major vulnerabilities. First, you should know where your main water shut-off valve is located so you can turn it off in case a pipe freezes or bursts. It’s usually located along a basement wall next to the water meter. To keep your pipes from freezing, wrap them in insulation. In a bind, you can also use newspaper or fabric temporarily. You’ll want to open hot and cold faucets enough to let them drip slowly. By keeping water moving through the pipes, you’ll prevent freezing. You can also improve the circulation of heated air near pipes by opening the kitchen cabinet doors beneath the kitchen sink. (more…)

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A reverse mortgage is a loan that enables homeowners 62 or older to borrow against the equity in their home without having to sell the home, give up title or take on new monthly mortgage payments. Loan proceeds can be used for any purpose. They can be taken out as a lump sum, fixed monthly payments, a line of credit or a combination.

When you take out a reverse mortgage, your debt is increasing, while your equity is decreasing. If you plan to leave your home to your children when you die, this may be an issue.

Fees and costs associated with your reverse mortgage can be financed.

A rising number of private lenders are offering their own versions of nonfederally insured reverse mortgages, some with lower fees than federally insured programs, Hicks says. (more…)

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