Archive for the 'Mortgage Info' Category
Underwater? Is It Ethical To Walk Away From Your Mortgage?
January 4th, 2010 categories: Economic Recovery, For Homeowners, Foreclosures, Housing Market, Mortgage Info, Real Estate News
Sometimes I’m amazed at what I read in the newspapers. In late November, the Los Angeles Times reported on a white paper written by a law professor at the University of Arizona – Brent T. White. This professor actually argued that homeowners who owe more on their mortgage loans than what their homes are worth should walk away from their loans.
White wrote that not only is such a move in the financial best interest of these homeowners, but that owners who do this are not acting immorally.
White writes that mortgage lenders and banks deserve a large share of the blame for the high housing foreclosure numbers across the country. These lenders were lax, he said, approving borrowers for too much money and passing out mortgage loans to consumers who were not financially fit to take on any mortgage loan. This helped cause the housing crisis, White argues, and led to plummeting home values across the country.
Not surprisingly, the Los Angeles Times story also quotes mortgage-industry officials who argue that walking away from a mortgage is an immoral act.
Personally, I find White’s message to be disturbing. Homeowners have a responsibility to do everything they can to pay their mortgage bills, even if they owe more on their loans than what their homes are worth. And, yes, lenders did approve some questionable mortgage loans during the heights of the housing boom. But no one forced homeowners to take out any of these loans. Don’t homeowners bear responsibility for their own actions, too?
Here’s what happens when homeowners simply walk away from their mortgage loans and abandon a house: They help drag down housing values in the rest of their former neighborhood. Sellers struggle to sell their homes for a good price when foreclosed properties are often offered for so little just two or three doors down. Foreclosed properties can also become neighborhood eyesores.
Besides, just because a home is worth less than what its owners owe today, that doesn’t mean the situation won’t change in a year or two. Home prices have traditionally risen over the long haul. Owners who hang onto their properties for seven or 10 years or longer will typically see their housing values increase. The odds are good that they’ll still see a good price should they sell after keeping their property for a long enough time.
What White is suggesting is morally offensive, no matter how he couches his argument. Homeowners have a responsibility to pay off their mortgage loans. If they are struggling to make their payments because of a hardship – the loss of a job or a serious illness, for example – they should call their mortgage lenders. The lender might be able to work out a loan modification designed to help homeowners stay away from foreclosure.
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Fannie Mae Gets Tough(er) On Borrowers. Again.
December 16th, 2009 categories: Economic Recovery, For Buyers, Housing Market, Mortgage Info
Fannie Mae raised the bar for mortgage applicants this past weekend. Getting approved for a home loan just got harder.
In its official announcement, Fannie Mae says the updates minimize long-term lending risks. If that’s the case, this won’t be the last guideline change Fannie Mae makes — especially with loans defaulting at an above-normal clip.
The immediate changes are major. The first pertains to credit scores.
Effective December 13, 2009, the bulk of Fannie Mae’s loans require a 620 credit score minimum. There are very few exceptions.
A second relates to loans with private mortgage insurance.
Homeowners whose loan-to-value exceeds 80 percent now have a choice:
- Pay higher mortgage insurance premiums month-after-month
- Pay a one-time fee paid at closing to compensate for higher risk
Both options result in higher consumer loan costs.
A third change concerns maximum debt-to-income ratio. Fannie Mae will no longer approve loans with debt ratios exceeding 45 percent except with very strong assets and very high credit scores.
In no case whatsoever may debt-to-income exceed 50 percent.
There are other changes, too, including the elimination of seldom-used mortgage products and additional risk-based fees for “expanded level” mortgage approvals. These updates affect just a small part of the population.
So, home prices are rebounding, mortgage rates are low, and — for 5 more months at least — there’s a federal tax credit for qualified buyers. You don’t have to buy a home now, but with mortgage guidelines sure to tighten in 2010, now may be a better time than later.
The best “deal” won’t matter if you can’t get qualified on your mortgage.
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Don’t Risk Missing Out On Historic Mortgage Interest Rates
November 23rd, 2009 categories: For Buyers, For Homeowners, Housing Market, Mortgage Info
Something rather amazing happened earlier this month: The average interest rate on a 30-year fixed-rate mortgage fell to 4.83 percent. That’s the lowest this figure has been in six months. This rate is also barely above the record low of 4.61 percent that we saw in March.
And even if you didn’t take out a mortgage loan earlier this month, the interest rates are still at impressively low levels. Bankrate.com, an online source of financial news, reported that, according to its sources, the average rate on a 30-year fixed-rate mortgage stood at 5.02 percent on Nov. 22.
These amazing rates only reinforce my stance that this is a great time for Chicago residents to buy a condominium or single-family home in one of the city’s most desirable neighborhoods. Buyers today can find great prices on residences in Lincoln Park, Lincoln Square, Roscoe Village, Lakeview and Ravenswood. And with the low interest rates as a bonus, they’ll be paying even less for more home.
Here’s what a difference low mortgage interest rates can make: Say you take out a $300,000 mortgage loan for a condo in Lincoln Park. If you pay off that loan with a 30-year fixed-rate mortgage with an interest rate of 5.02 percent, you’ll pay $1,614.13 a month.
Now, if you take out that same mortgage loan with an interest rate of 6.3 percent, you’ll pay $1,856.92. That’s a difference of $242.79 a month, or $2,913.48 a year. It doesn’t take much number crunching to see how this can add up to a significant difference during the years in which you own your house.
No one can predict what mortgage interest rates are going to do next. They might fall lower in mid-December. Or maybe they’ll start rising early next month.
But we do know where mortgage interest rates stand today: They’re at nearly historic lows. If you do take out a mortgage loan today, you’ll know that you’re borrowing money at rates that very few homeowners have ever been lucky enough to nab. Combine that with the fact that homeowners, even in Chicago’s top neighborhoods, are still in a negotiating mood, and you have an environment that makes this one of the best times to be a homebuyer.
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Can The Move-Up Buyer Tax Credit Help You?
November 19th, 2009 categories: Economic Recovery, For Buyers, For Homeowners, Housing Market, Mortgage Info, Real Estate News, Taxes
You probably read a lot earlier this month about the first-time homebuyer tax credit. That’s because Congress approved an extension of this important measure that provides first-time buyers an $8,000 tax credit when they purchase a house. Many in the real estate community, including myself, believe that that this tax credit has helped provide a significant boost to housing sales. That’s why we were so excited to learn that the credit wouldn’t expire at midnight on Nov. 30, as it was originally scheduled to do.
But amid all the press about the first-time buyer credit, you might have overlooked the significance of another housing measure that Congress also approved in early November: the so-called move-up buyer tax credit.
This tax credit provides $6,500 to anyone buying a new house who isn’t a first-time buyer. It’s another great financial incentive for homebuyers.
National real estate writer Kenneth Harney recently wrote an excellent column explaining this new housing credit. It’s a good summary of the credit.
Harney explains that the new credit, which took effect as soon as President Obama signed the bill creating it on Nov. 6, is available to homebuyers who have owned and lived in their current residences for a consecutive five out of the last eight years.
Your adjusted household income can’t exceed $125,000 if you file your taxes singly or $225,000 if you are married and filing jointly if you want to claim the entire tax credit. You might be able to qualify for a partial tax credit if your income is higher than those limits. But if your adjusted gross income is $145,000 and more and you are a single filer, you won’t qualify for any part of the credit. If you are married and filing jointly, you won’t get any credit if your modified adjusted gross income is $245,000 or more.
Harney also points out that the home you are purchasing can’t cost more than $800,000, and that it must become your main residence. However, you should be aware that you don’t have to sell your current house to qualify for the move-up buyer credit. You can keep that house and rent it out if you’d like. Just make sure, as Harney advises, to move out of your current home as soon as you close on your new house or condominium.
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Some Good News Regarding Chicago Housing Foreclosures
November 13th, 2009 categories: Chicago Info/News, Chicago News, Economic Recovery, For Homeowners, Foreclosures, Housing Market, Mortgage Info
Housing foreclosures in Chicago and across the nation have been rising steadily ever since the real estate slump began. This, of course, is not good: Foreclosures help no one. It’s a nightmarish experience for homeowners, but banks and lenders don’t want all of these foreclosed homes either. And foreclosures drag down the property values in the neighborhoods surrounding them, hurting every homeowner in the area.
That’s why the news from the Chicago-based Woodstock Institute was so welcome: The organization reported that housing foreclosures in the city of Chicago fell 9.6 percent in the third quarter of this year when compared to the same time period one year earlier.
These numbers buck the trend in the rest of the state. The six-county Chicago region, which, of course, includes the nearby Chicago suburbs, saw housing foreclosures rise 18 percent in the third quarter.
The numbers might cause people to look at foreclosure differently. We’re used to thinking of housing foreclosures as a city problem. We automatically think that homeowners in the inner city are the ones most in danger of losing their homes.
The Woodstock Institute numbers, though, tell a different tale. This time, foreclosures are spreading to the middle- and even upper-end homeowners of the suburbs. For instance, in Lake County, home to such wealthy suburbs as Lake Forest and Highland Park, housing foreclosures were up nearly 83 percent from a year earlier. In west suburban Kane County, home to the wealthy suburb of Geneva, housing foreclosures were up 96.6 percent.
To be fair, these counties still have far fewer housing foreclosures than does Cook County, so their sample size is far smaller. But the trends can’t be ignored: Housing foreclosure is a serious issue for all homeowners, no matter how ritzy a neighborhood in which they live. It’s why the federal government’s loan modification program, the Making Home Affordable program, is so important. It gives qualifying homeowners the chance to modify their existing home loans so that they can more easily make their mortgage payments. You can learn more about the program here.
We should support anything that reduces the number of foreclosures. According to the government’s latest statistics, about 5,000 loan modifications were in progress as of Oct. 8.
If you don’t think foreclosure is a problem that you’ll ever have to worry about, think again: You never know when you or your neighbor might suddenly have trouble paying the mortgage.
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