Is a Reverse Mortgage Right For You?

(Money Magazine) — On the face of it, a reverse mortgage sounds like a no-lose deal for older homeowners. A lender gives you what amounts to a cash advance on your home equity — no minimum income or credit score required. And you don’t have to pay it back until you move or die, when the proceeds from the house sale typically will be used to close out the loan. But in fact, reverse mortgages have some serious drawbacks. Here’s what you need to know.

You may not be able to borrow that much. A provision in the economic stimulus package raised the maximum home value that could be counted for reverse mortgages from $417,000 to $625,500. But you won’t be able to tap your home up to its full price. The formula for determining loan amounts takes into account your age (the older you are, the more you can borrow) and current interest rates, as well as your home’s value. Anything you owe on your home is subtracted from that amount, as are the loan fees you’ll pay. To see how much you might qualify for, use the calculator at revmort.com/nrmla.

Expect to pay some pretty hefty fees. A reverse mortgage is an expensive loan. In addition to regular closing costs, you’ll pay an origination fee of 2% on the first $200,000 of the loan balance and 1% thereafter, plus a mortgage insurance premium of about 2% and a monthly service charge as well. Though recent legislation has capped the origination fees at $6,000, by the time you add all the other fees you’ll have to pay, the total generally reaches $10,000 to $15,000. So a reverse mortgage doesn’t make sense if you expect to move anytime soon, says Dallas financial planner Michael Anderson.

There’s more risk than you think. Reverse mortgages are particularly appealing to retirees looking to supplement dwindling income from a battered investment portfolio — that’s one reason these loans are up nearly 50% over the past two years. The big risk, especially for younger borrowers (you have to be at least 62 to get the loan): You’ll live longer than you anticipate, run out of money, and won’t have any home equity that you can fall back on. Over the past decade the average age of reverse-mortgage borrowers has fallen from 76 to 72. “One of the first questions to ask yourself is whether you can make the money last,” says reverse-mortgage counselor Brenda Grauer.

Other options may suit you better. Before you can get a reverse mortgage, you’ll be required to attend a session with a counselor who is not affiliated with a lender. This person is supposed to clearly explain the loan’s terms and its drawbacks. But a recent study by the Government Accountability Office found that counseling sessions often fail to warn seniors of all the risks. So before you or your folks sign up, make sure you’ve looked into all the alternatives, such as cutting expenses, taking out a home-equity line of credit, or downsizing your home. Says Grauer: “It’s best to put off taking this loan for as long as you can, so that when you really need it, the money is there.”

Recovery in Site?

The roller coaster of economic news continues. (I guess it would be too easy if everything pointed to one outcome.) Last week rates improved, as they did again yesterday morning after Asian stocks fell significantly. Oil, gold, and other commodities were down (although sugar is at a 28 year high, which doesn’t help people who make jam at home and kids who eat Captain Crunch).

How far can rates drop? I haven’t heard too many agents complain about rates in general, as mortgage rates remain near their lows but the government’s borrowing needs are at historical highs. This limits the amount that rates will be able to fall so as to attract buyers of our debt, and most analysts believe that soon the buyers of our debt will be demanding higher yields. Last week the Fed left overnight rates unchanged. So what? If anything, what the last year or two has taught us is that mortgage rates have little or no correlation with Fed Funds, so even though CNBC and the media make a big deal out of the Fed’s decision, mortgage rates are not impacted. Granted, any changes in rates can impact the Prime Rate (currently 3.25%), but that obviously is not the same as a 30-yr mortgage rate. So how do mortgage rates change? Mortgage rates are the result of supply and demand forces, just like any other security that is bought and sold in the open market. Securities that are backed by mortgages trade in the market, just like other fixed-income debt, and just like stocks which garner the headlines, with the prices in turn determining rates.

Get your approval today before the $8000 expires on November 30, 2009.

5 steps to a quick home sale

By Beth Braverman, Money Magazine staff reporter
Last Updated: June 30, 2009: 9:10 AM ET

(Money Magazine) –1. You have to seriously undercut the competition

Selling a home in a down market almost inevitably means settling for a disappointing price. But to unload your home fast, you’re going to have to dip 10% to 15% below what comparable homes in your neighborhood recently sold for. You still may not be able to compete with foreclosures and short sales, but at least you stand a chance of getting buyers to notice your listing.

To prevent yourself from becoming overly attached to your asking price, try to determine the lowest possible offer you’d accept before your listing hits the market. That will help remove your emotions from the negotiating process later on, says Palm Beach realtor Heidi Cole.

2. Outside fixes have the biggest impact

Since your house won’t be cheaper than the distressed property down the block, it has to look far better. But you may not have the time or money to redo the kitchen, so focus on cosmetic improvements that will bring the most buyers to your door.

Spending a grand can go a long way toward improving your home’s exterior, says staging expert Sandy Hare of Eugene, Ore. Get the outside of your house power-washed, paint the door, replace the knocker, and hire a gardener to give your yard some TLC.

3. First-timers are your friend

The most efficient way to market your home is to target the most likely buyers. First-timers bought over half the homes purchased so far this year, thanks to a new federal tax credit and the flexibility to buy without the burden of selling another property (super-low mortgage rates don’t hurt either).

The average age of the first-time buyer: 30. To boost your chances of reaching the Gen-Y crowd, get yourself a snazzy online presence (see No. 4) and spread the word about your next open house through social networks like Facebook and Twitter, says Warwick, R.I., realtor Ron Phipps.

4. Online tricks will make your home pop

Buyers are faced with thousands of listings. Help them find yours by peppering your description with amenity keywords like “deck,” “pool,” and “granite counters,” says Heather Fernandez of real estate search site Trulia.com. Then make sure they like what they see by using a wide-angle lens to make your rooms look bigger in pictures. And set your home at the lowest end of its price range; a $299,000 home will seem expensive to a buyer in the $250,000 to $300,000 range, but a $301,000 home is a deal to someone looking between $300,000 and $350,000.

5. Your secret weapon is a speedy deal

It can take months for banks to approve a deal for a short sale or a foreclosed property. Make sure your agent lets potential buyers know that you can close the deal within a few weeks.

Another advantage you hold over distressed sellers: the ability to be creative in negotiations. If a potential buyer is wavering, offer to pay part or all of the closing costs or cover a year’s worth of association fees. At the very least, consider throwing in some new appliances or a paint job. After all, in this market no one is going to want a home that doesn’t seem like a bargain.

First Published: June 30, 2009: 4:53 AM ET

Rates Risen AGAIN Lock in Now or Wait?

Floaters got sunk this week. Anyone who is in the market for a new mortgage, be it a straight-up purchase or refinance, and was letting their rate float in hopes of locking in at a lower rate instead got smacked with a near quarter point rise in the 30-year fixed rate. According to Bankrate’s latest weekly survey (conducted Wednesday morning) the 30-year fixed average was at 5.45%, up from 5.23% That’s the highest level since February, and more than a half point above the 4.9% borrowers in early April could snag.

So what’s a floater to do now? Well, if you’ve lost your betting mojo, lock in and be happy. Yes, happy. Let’s remember that 5.45% is still seriously good. It was only one year ago that the average 30-year fixed rate was 6.1%. And long term, it is all but assured that a 5.45% fixed rate is going to look darn nice. It may take some time before the Fed gives up the fight and has to let rates rise to attract buyers for all the debt we now have to pay off, but it will happen. So while today’s 5.45% is high relative to a month or two ago, it is likely to be one you will boast about in the coming years.

Okay, enough of the long-term perspective. What if you’re still in betting mode and wondering about the next few weeks and months? Well, that’s one big crap shoot. The recent spike has been caused by action in the 10-year Treasury market (the 30-year fixed rate tends to follow movements in the 10-year note.) Late last week the bond market started worrying about inflation and servicing the federal deficit, and one thing led to another and the 10-year Treasury yield shot from 3.4% last Thursday to above 3.7% during trading yesterday (Thursday) before closing lower at 3.67%. Plenty of market watchers are expecting the trend line on the 10-year Treasury to keep moving up. But here’s where it gets interesting: there’s not as clear a picture if a continued rise in the Treasury will automatically cause the 30-year fixed to also rise.

The big wildcard is Ben Bernanke and his merry band at the Federal Reserve. The Fed has been actively buying up long-term Treasuries and mortgage backed securities in an effort to help keep yields low. When rates started rising the past few weeks the Fed signaled it wasn’t too concerned; in fact it seemed to be cheered by the notion that those slightly rising rates were a sign the economy was gaining a bit of strength. But now there’s a sense that the continued rise-capped by the big spike this past Wednesday-could refocus the Fed’s effort to push yields down; it has yet to use up even half the money it has allotted for the buyback programs, so it’s got plenty of gunpowder ready.

That could be good news for rate floaters; assuming the Fed is still worried that rates rising too quickly and too far will put the kibosh on the already anemic credit market recovery, it’s a decent argument to assume the Fed will soon ramp up its repurchases in an effort to push yields back down after their recent spike.

As David Rosenberg, the former Merrill Lynch economist now at Gluskin Sheff noted on Thursday morning:

“It’s one thing to have a Treasury yield backup when mortgage rates are still declining, but that is no longer the case. The yield on the 30-year fixed-rate is already up 20 basis points from the lows; 1-year ARMs have jumped 17bps. This is not what the Fed wants to see.”

Indeed, the recent rate uptick has sent a chill through the still frigid housing markets. According to the Mortgage Bankers Association, mortgage applications dropped 14.2% this week compared to a week prior.

The bet’s yours, floaters: lock in now at what still qualifies as a terrific interest rate, or put your money on the Federal Reserve pushing yields down in the coming weeks. Which way are you leaning?

What are rates doing?

What a GREAT way to start the week. After a horrible Thursday and Friday last week, the FNAM 30 YR 4.0% regained majority of its losses in today. The MBS closed higher by 50bp, translating into .25%-.375% depending on which rate sheets you or your lender was pricing off.

Oil prices have been rising steadily since January and are up roughly 30 percent year-to-date. Because of this, Thursday and Friday’s Producer Price Index and Consumer Price Index, respectively, will be closely watched. Both are a sort of “Cost of Living” measurement and are, therefore, susceptible to spiraling energy costs.

If either reading comes in higher-than-expected, look for inflation fears to ignite on Wall Street and mortgage rates to rise.

Similarly, if Friday’s Consumer Sentiment Index reveals a more confident American consumer, mortgage rates are likely to rise in that scenario, too. This is because a confident consumer tends to spend more, thereby hastening the recession’s end.

And, lastly, it’s worth noting that six members of the Federal Reserve will be delivering prepared speeches this week, including Chairman Bernanke. When Fed officials speak, the markets can move quickly.

If you’re still shopping for a mortgage rate, consider locking one in soon. Rates have been trending higher and there’s little reason for them to fall.

History of Rates……8% looks good right now!

How ‘bout this market? Yesterday rates moved higher, and prices lower, after Factory Orders increased 1.8% in February, following a downwardly revised 3.5% drop in January, and six consecutive monthly decreases. So why wouldn’t rates come down? US stock markets continued their rally, and in fact most overseas stock markets improved. (Japan’s was helped by Toyota’s stock rallying after a bank agreed to help finance US car sales.) And it would appear that there is a change in mood about the economy: in spite of the continued bad news, investors appear to feel that the worst is behind us. Just tell that to some Detroit or Sacramento home owner! Maybe investors are just tired of sitting on piles of cash…

This morning the unemployment data came out pretty close to expected: U.S. employers cut 663,000 jobs in March, and the unemployment rate hit 8.5%, the highest since 1983 when Reagan was in office. And although February’s numbers were unrevised, January’s were changed to a loss of 741,000, the biggest decline since October 1949. Since December 2007, the U.S. economy has dropped 5.1 million jobs, with about two thirds of the losses occurring in the last five months. After the news, bond prices are down slightly, with the 10-yr yield currently sitting around 2.69% and mortgage prices a shade worse than yesterday afternoon. (Interestingly, with the high profit margins now built into mortgage pricing, in spite of the MBS market worsening yesterday, many originators decided to absorb the price hit instead of passing it along on their rate sheets in order to potentially help locks.)

As for interest rates they are hopping around daily. We have seen rates as low as 4.5% and as high as 5.375% just in a matter of days. My recommendation is getting an application in, getting approved with our IN HOUSE Underwriter, and lock when the rate is where you desire. Speaking of rates lets look back since rates were tracked back in 1971. I think 8% looks great right now, It will help fight inflation!!!!

 

	Jan	Feb	March	April	May	June	July	Aug	Sept	Oct	Nov	Dec	Average
1971				7.31%	7.43%	7.53%	7.60%	7.70%	7.69%	7.63%	7.55%	7.48%	7.55%
1972	7.44%	7.32%	7.29%	7.29%	7.37%	7.37%	7.40%	7.40%	7.42%	7.42%	7.43%	7.44%	7.39%
1973	7.44%	7.44%	7.46%	7.54%	7.65%	7.73%	8.05%	8.50%	8.82%	8.77%	8.58%	8.54%	8.24%
1974	8.54%	8.46%	8.41%	8.58%	8.97%	9.09%	9.28%	9.59%	9.96%	9.98%	9.79%	9.62%	9.43%
1975	9.43%	9.10%	8.89%	8.82%	8.91%	8.89%	8.89%	8.94%	9.12%	9.22%	9.15%	9.10%	9.00%
1976	9.02%	8.81%	8.76%	8.73%	8.76%	8.85%	8.93%	9.90%	8.98%	8.92%	8.81%	8.79%	8.96%
1977	8.72%	8.67%	8.69%	8.87%	8.83%	8.86%	8.94%	8.94%	8.90%	8.92%	8.92%	8.96%	8.90%
1978	9.01%	9.14%	9.20%	9.35%	9.57%	9.71%	9.74%	9.78%	9.76%	9.86%	10.11%	10.35%	9.80%
1979	10.39%	10.41%	10.43%	10.50%	10.69%	11.04%	11.09%	11.09%	11.30%	11.64%	12.83%	12.90%	11.45%
1980	12.88%	13.04%	15.28%	16.32%	14.26%	12.71%	12.19%	12.56%	13.20%	13.79%	14.21%	14.79%	13.78%
1981	14.90%	15.13%	15.40%	15.58%	16.40%	16.70%	16.83%	17.28%	18.16%	18.45%	17.82%	16.95%	17.13%
1982	17.48%	17.60%	17.16%	16.89%	16.68%	16.70%	16.82%	16.27%	15.43%	14.61%	13.82%	13.62%	15.65%
1983	13.25%	13.04%	12.80%	12.78%	12.63%	12.87%	13.43%	13.81%	13.73%	13.54%	13.44%	13.42%	13.29%
1984	13.37%	13.23%	13.39%	13.65%	13.94%	14.42%	14.67%	16.47%	14.35%	14.13%	13.64%	13.18%	14.27%
1985	13.08%	12.92%	13.17%	13.20%	12.91%	12.22%	12.03%	12.19%	12.19%	12.14%	11.78%	11.20%	12.21%
1986	10.89%	10.71%	10.08%	9.94%	10.15%	10.69%	10.51%	10.20%	10.01%	9.98%	9.70%	9.32%	10.06%
1987	9.20%	9.08%	9.04%	9.83%	10.60%	10.54%	10.28%	10.33%	10.89%	11.26%	10.65%	10.64%	10.56%
1988	10.38%	9.89%	9.93%	10.20%	10.46%	10.46%	10.43%	10.60%	10.48%	10.30%	10.27%	10.61%	10.42%
1989	10.73%	10.65%	11.03%	11.05%	10.77%	10.20%	9.88%	9.99%	10.13%	9.95%	9.77%	9.74%	10.16%
1990	9.90%	10.20%	10.27%	10.37%	10.48%	10.16%	10.04%	10.10%	10.18%	10.17%	10.01%	9.67%	10.13%
1991	9.64%	9.37%	9.50%	9.50%	9.47%	9.62%	9.58%	9.24%	9.01%	8.86%	8.71%	8.50%	9.17%
1992	8.43%	8.76%	8.94%	8.85%	8.67%	8.51%	8.13%	7.98%	7.92%	8.09%	8.31%	8.21%	8.30%
1993	7.99%	7.68%	7.50%	7.46%	7.47%	7.42%	7.21%	7.11%	6.91%	6.83%	7.16%	7.17%	7.19%
1994	7.07%	7.15%	7.80%	8.32%	8.60%	8.40%	8.61%	8.51%	8.64%	8.93%	9.17%	9.20%	8.71%
1995	9.15%	8.83%	8.46%	8.32%	7.96%	7.87%	7.61%	7.86%	7.64%	7.48%	7.38%	7.20%	7.70%
1996	7.03%	7.08%	7.62%	7.93%	8.07%	8.32%	8.25%	8.00%	8.23%	7.92%	7.62%	7.60%	7.99%
1997	7.82%	7.65%	7.90%	8.14%	7.94%	7.69%	7.50%	7.48%	7.43%	7.29%	7.21%	7.10%	7.53%
1998	6.99%	7.04%	7.13%	7.14%	7.14%	7.00%	6.95%	6.92%	6.72%	6.71%	6.87%	6.74%	6.91%
1999	6.79%	6.81%	7.04%	6.92%	7.15%	7.55%	7.63%	7.94%	7.82%	7.85%	7.74%	7.91%	7.61%
2000	8.21%	8.33%	8.24%	8.15%	8.52%	8.29%	8.15%	8.03%	7.91%	7.80%	7.75%	7.38%	8.00%
2001	7.03%	7.05%	6.95%	7.08%	7.15%	7.16%	7.13%	6.95%	6.82%	6.62%	6.66%	7.07%	6.96%
2002	7.00%	6.89%	7.01%	6.99%	6.81%	6.65%	6.49%	6.29%	6.09%	6.11%	6.07%	6.05%	6.39%
2003	5.92%	5.84%	5.75%	5.81%	5.48%	5.23%	5.63%	6.26%	6.15%	5.95%	5.93%	5.88%	5.81%
2004	5.71%	5.64%	5.45%	5.83%	6.27%	6.29%	6.06%	5.87%	5.75%	5.72%	5.73%	5.75%	5.92%
2005	5.71%	5.63%	5.93%	5.86%	5.72%	5.58%	5.70%	5.82%	5.77%	6.07%	6.33%	6.27%	5.90%
2006	6.15%	6.25%	6.32%	6.51%	6.60%	6.68%	6.76%	6.52%	6.40%	6.36%	6.24%	6.14%	6.47%
2007	6.22%	6.29%	6.16%	6.18%	6.26%	6.66%	6.70%	6.57%	6.38%	6.38%	6.21%	6.10%	6.38%
2008	5.76%	5.92%	5.97%	5.92%	6.04%	6.32%	6.43%	6.48%	6.04%	6.20%	6.09%	5.29%	6.09%
									Historical Average				9.14%
	5% Range Months				6%  Range Months
	Interesting Facts:
> All Time High was October 1981 of 18.45%
> The all time LOW was in June of 2003 at 5.23% and we are near that right now at 5.29%
> In the First 30 years that rates were tracked (April 1971 – April 2001) rates were below 7% for only 12 months

 

Stability and Affordability Program FAQ

Hello Family, Friends, and Referral Partners:

In light of the new reform from federal government on the subject of loan modifications, many homeowners who are current, and have fulfilled their obligation to the bank will finally be recognized. Contrary to current guidelines set in place that do not allow up- to- date customer’s assistance even if default is immanent. If a homeowner lost a significant portion of their income and have been paying their mortgage from a depleting savings account, former stipulations would require these Americans to be three months late before any relief would be considered. Now, the banks will have an incentive from our government to cure future loan default situations before they become a reality. The federal government has also recognized that the formula used to calculate a loan modifications for current, and past due consumers are unreasonable. Previous statutes state that 38% of the household income should go to mortgage payments (first mortgage, second mortgage, taxes, and insurance). This formula resulted in 47% of modified loans becoming delinquent again in six months. The stimulus package will lower the gross monthly income percentage to be paid toward mortgage expenses to 31%. Here’s a look at some of the frequently asked questions:
Do I have to fall behind on my loan payments to be eligible for a loan modification?

No, but borrowers do have to demonstrate that they are in danger of staying current on their mortgage payments and that they don’t have enough income to make their mortgage payments. That could help borrowers whose interest rates are resetting or who have lost their jobs.

Who is eligible for a loan modification?

The program is open only to primary residences and homeowners who are paying more than 31% of their monthly gross income on mortgage payments. Jumbo loans, which exceed Fannie or Freddie loan limits, are not eligible. Final eligibility will be determined by your mortgage lender. Can I modify a second mortgage? No. Only first mortgages are eligible.

Is my lender required to participate?

No. Lenders participate on a voluntary basis, but the government is providing subsidies to encourage lenders and servicers to modify loans. Mortgage servicers, for example, receive $1,000 upfront for each loan modification and can receive an additional $1,000 annually for three years if the borrower stays current on the loan. (Plan is heavy on incentives to modify loans.

Will the government reduce the size of my loan?

For those eligible for the government-subsidized loan modification, borrowers can receive a reduction in loan principal of $1,000 annually for five years if they stay current on their modified loan. Borrowers who aren’t able to qualify for a loan modification because they aren’t in danger of defaulting on their loans may still be able to refinance their loans to take advantage of low interest rates.

Can I refinance my loan if I owe more than my property is worth?

Borrowers with little or no equity can refinance into a 30-year or 15-year fixed-rate mortgage at current rates as long as the amount owed on a first mortgage does not exceed 105% of their home’s current value. The refinance program is only open to borrowers with conforming loans that are owned or guaranteed by Fannie Mae or Freddie Mac. Borrowers must be able to demonstrate that they are current on mortgage payments and that they will be able to meet the new payment terms on the first mortgage.

How do I know if my mortgage is owned or guaranteed by Fannie or Freddie?

It is recommending that borrowers contact their lender at that time to see if their mortgage is owned or guaranteed by Fannie or Freddie.

What happens if I have a second mortgage?

Can I still refinance? Borrowers with more than one mortgage may be eligible to refinance as long as they owe less than 105% the value of their property on the first mortgage. The second mortgage holder will have to agree to remain in a second position on the home.

Are jumbo loan holders eligible?

No. Only those who have mortgages owned or guaranteed by Fannie or Freddie can apply, and the government-held mortgage companies don’t guarantee jumbo loans.

Here are the latest in loan modification guidelines released by the US Treasury: http://www.ustreas.gov/press/releases/reports/modification_program_guidelines.pdf.

Rates are in the low 5’s for most clients right now. It is vital you call and review your situation and take advantage of this new legislation.

Homeowner Affordability and Stability Plan

As many of you know or have heard, the White House unveiled a plan yesterday that is designed to help up to 9 million “at risk” homeowners modify their mortgages by committing $75 billion of taxpayer money to back the initiative.  The program seeks to bring mortgage payments down to 31% of income (DTI) for these homeowners.  

 

Keep in mind that three critical steps must occur before this or any plan goes into effect:

 

1. The Agencies (Fannie and Freddie) and FHA must determine whether pricing, policy and/or delivery requirements will be changed.
2. The Agencies and FHA must communicate their requirements to mortgage investors (Wells Fargo, Chase, CitiMortgage, GMAC Bank, Band of America, etc…).
3. These mortgage investors must identify impacts caused by the Agencies’ and FHA’s requirements, implement the changes and communicate them out to mortgage lenders like us.

 

Below is an Executive Summary that I found which I thought would help everyone understand what was signed.

 

Homeowner Affordability and Stability Plan

Executive Summary 

The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country. 

• Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
• Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.
• Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.

The Homeowner Affordability and Stability Plan is part of the President’s broad, comprehensive strategy to get the economy back on track.  The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure.  In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner Affordability and Stability Plan are: 

1.      Affordability:  Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering >From Falling Home Prices

·         Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.

·         Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year: 

o Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.

2.      Stability:  Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

• Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.
• No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
• Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.
• Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments. 
• Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:
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    • A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
    • “Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
    • Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
    • Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
    • Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration — together with the FDIC — has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
• Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC’s pioneering work.  The Guidelines will be used for the Administration’s new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance.  Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans’ Affairs and the Department of Agriculture.
• Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities
  • Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
  •  Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
  • Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
  • Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers

3.      Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:

• Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.
  • Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
  • Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each. 
• Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.  
• Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
• Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
• No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP. 

What does $787 B look like

Just signed and sealed…a $787 Billion Stimulus Plan made up of tax cuts and spending programs aims at reviving the US economy. Although the package was scaled down from nearly $1 Trillion, it still stands as the largest anti-recession effort since World War II. Home owners and potential homebuyers stand to gain from key provisions in this stimulus plan. Here is what we know as of today… The following discussions are intended for you to use directly with your client either in writing or verbally.

Tax Credit for Homebuyers First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction – a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income. The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.

Additional Housing-Related Provisions Tax Incentives to Spur Energy Savings and Green Jobs — This provision is designed to help promote energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors, or insulation. Landmark Energy Savings — This provision provides $5 Billion for energy efficient improvements for more than one million modest-income homes through weatherization. According to some estimates, this can help modest-income families save an average of $350 a year on heating and air conditioning bills. Repairing Public Housing and Making Key Energy Efficiency Retrofits To HUD-Assisted Housing—This provision provides a total of $6.3 Billion for increasing energy efficiency in federally supported housing programs.Specifically, it establishes a new program to upgrade HUD-sponsored low-income housing (for elderly, disabled, and Section 8) to increase energy efficiency, including new insulation, windows, and frames. Expanding Housing Assistance—This provision increases support for several critical housing programs. It includes $2 Billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties.

More Help for Homeowners in the Future Another thing to keep an eye on in the coming weeks is President Obama’s plan to help struggling borrowers before they are faced with a default on their mortgage. According to reports, the Obama administration is discussing plans to help borrowers who are struggling to stay afloat, but who have not yet fallen behind on their payments. At this point, details are scarce; however, reports indicate that President Obama is looking to spend approximately $50 Billion to directly help homeowners before they face foreclosure and financial disaster. While this is good news for individual homeowners, it will likely be good for the housing industry as a whole. That’s because, assisting struggling borrowers before they default should help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices. The Economic Stimulus Plan is huge, and impacts a number of industries. I’ve highlighted some of the major provisions that may impact you now and in the future. As always, if you have any questions or would like to discuss how this may specifically impact you, I’d be happy to sit down with you. Just call or email me to set up an appointment.

New Rules of Lending

By Les Christie, CNNMoney.com staff writer

February 4, 2009: 1:35 PM ET

NEW YORK (CNNMoney.com) — If you’re shopping for a mortgage these days, it’s a whole new world out there. “There have been a huge number of changes over the past few years in mortgage borrowing,” said Gibran Nicholas, founder of the CMPS Institute, which trains and certifies mortgage advisors. Of course, many of the subprime loans that helped fuel the housing boom – those that didn’t require borrowers to show any proof of income, or that let homeowners make minimum payments – are are simply no longer available. But even buyers looking for a traditional mortgage are now faced with different factors to consider. Here is what you need to know: Paying up-front points. Borrowers can pay points – one-time, up-front fees – in order to reduce their mortgage’s interest rate over the life of the loan. One point represents 1% of the mortgage value. But they often assume that they should never pay points, according to Alan Rosenbaum, founder of mortgage broker Guardhill Financial. That’s a mistake, in his opinion. When interest rates were high, paying points didn’t make sense because borrowers were very likely to refinance after rates dropped. They wouldn’t hold their original loans long enough to recoup their up-front costs. But now borrowers can get a lot more bang for their buck. The old rule of thumb was that paying one point at closing could lower their mortgage’s interest rate by a quarter percentage point or so. “Today the spread is worth a half point to a full point on the rate,” said Rosenbaum. It means paying $2,000 on a $200,000 mortgage at closing can shave as much as a whole percentage point off the loan’s interest rate, changing a 6% loan to 5%. That would save $126 a month, and pay for itself in 16 months. Even if the rate were only lowered to 5.5%, that would still save $64 a month, paying for itself in 32 months. Still, not everyone is convinced. Rosenbaum recently had a client who chose a 15-year fixed rate loan at 5.875% with zero up-front points on a $800,000 loan, instead of paying a point to get a 5.375% loan. Had the borrower chosen to pay that point, he would have recouped that cost in about three years, and then gone on to save more than $200 a month for the remaining 12 years of the loan. Of course, there are caveats. Buyers who are planning to refinance or sell within a few years shouldn’t pay points, since the strategy simply doesn’t pay in the short term. Making more than the minimum down payment. If you can afford to put 25%, 30% or more down, should you do it? Most lenders require a minimum down payment of 20%; anything less and borrowers will need to obtain private mortgage insurance. And if a buyer could afford to put more than 20% down, it was generally assumed that they should. The traditional thinking was, “If you have the capital to commit, why not?” said Keith Gumbinger of mortgage research firm HSH Associates. “It will give you a smaller balance to pay off. But now, in light of declining home markets, not everyone would agree with that.” High down payments can be wiped out in severely declining markets. Nicholas said he knows of a couple in Arizona who put a whopping $400,000 down on a million dollar house a couple of years ago. That gave them, they thought, a nice home equity cushion should they run into financial trouble. “But prices are down so much, the couple still fell underwater,” he said. “It would have been better to conserve that cash in case home prices continue to decline.” Locking in the mortgage rate. Many borrowers choose not to lock in when rates are falling, as they have been, since they assume that the deals will only get better. But that’s often a mistake. “We almost always recommend that if you have the numbers that make your deal work, then lock it in,” said Gumbinger. His reason: Interest rates tend to jump up much faster than they inch down, meaning that buyers are much more likely to get stuck with a higher mortgage rate than they are to get lower one because they waited. Besides, locking in at the currently very affordable rates can give borrowers peace of mind, which is no small matter when you’re trying to buy a house. “You’ll sleep better at night,” said Gumbinger.