Mortgage - Home Loan, Commercial Loan

Julie Jason
ROAD To SECURITY

You’ve seen them - those ads that promise introductory lower-than-market mortgage loans, credit card loans, and higher-than-market introductory interest on savings accounts. Stay away from them. These ticking time bombs are nothing but trouble and perhaps should be made illegal.

Just think of the mortgage industry. Teaser rates, combined with aggressive lending practices, lured people into thinking they could borrow more than they could afford.

market rate was 6 percent, knowing that the borrower would not qualify at the higher rate.

Underlying some of these practices was the idea that housing prices would continue to rise, so that borrowers could refinance as their equity grew.

When that didn’t happen, many of these borrowers soon found themselves “upside-down” with negative equity, owing more than the house was worth.

Moreover, some of these loans had substantial prepayment penalties if the borrower wanted to repay the loan early.

Teaser rates also attracted people who were trying to do the right thing. When a Wisconsin couple with three college-aged children received a promotional flyer in the mail for a 1.95 percent adjustable rate mortgage, they leapt at the chance to reduce their monthly mortgage payments.

Understanding that the rate would be fixed for five years, they learned the hard way that it was good for only one month. The rate first more than doubled to 4.375 percent, then, skyrocketed to over 7 percent.

After suing the lender, that couple was able to rescind their mortgage when the court found that the lender failed to make proper disclosures about how the loan worked.

There are laws that protect borrowers, such as the federal Truth-In-Lending Act. But those laws can be violated. Borrowers can be misled by deceptive disclosures into thinking they are getting lower rates, as was the case with the Wisconsin couple.

Then consider the option adjustable rate mortgage that opens the door to negative amortization - growing your loan instead of your equity in your home. Many borrowers may not realize that by paying only the minimum permitted under the option adjustable rate mortgage, they may be increasing their debt over time instead of decreasing it.

Who can we thank for this state of affairs?

Things used to be a lot simpler when you went to your local bank for a fixed 30-year mortgage. Now that lenders sell their mortgages, they no longer service their loans. Instead, they are pooled, securitized and sold off to investors.

Sometimes, the only personal contact borrowers have is with a relationship manager, who can be a salesperson working for an outside sales organization with little oversight or supervision.

At a minimum, the loan should be suitable for the borrower, based on his or her financial situation and goals. “Suitability” is the standard of care that securities salespeople are held to, and there is no reason that standard should not apply to mortgage sales.

Sometimes, lenders even pay these salesmen incentives to get borrowers to sign up for higher cost loans, according to a recent case filed by the attorney general of Massachusetts.

Teaser rates extend beyond mortgages.

When a super-sized, high-definition TV beckons, low introductory consumer credit rates make the purchase possible when the paycheck doesn’t.

And what about those teaser rates on savings products and fixed annuities? The lure is a higher interest rate than you can get at your local bank.

It all comes back to a very simple lesson: If something looks too good to be true, it probably is. Be skeptical of better-than-market deals, understand what you are signing up for, and pass up those teaser rates.

- Julie Jason, a money manager and principal of Jackson, Grant Investment Advisers, Inc. of Stamford, welcomes questions for consideration in her column. E-mail her at Readers@JulieJason.com or write to her c/o The Advocate and Greenwich Time, 75 Tresser Blvd., Stamford, CT 06904.

ONTARIO - The mortgage crisis is affecting residents nationwide, but it may be most pressing in California, specifically the Inland Empire.

The Golden State has the highest number of foreclosure filings as well as the most properties in some stage of foreclosure in the country, according to Irvine-based RealtyTrac Inc.

As a result, questions and concerns abound.

On Saturday, some homeowners went to Ontario’s Loveland Community Church on Inland Empire Boulevard for answers.

They were greeted by a panel of experts who provided advice on financial counseling, predatory lending and fraud.

The panel was put together by Rep. Joe Baca’s Foreclosure Prevention Initiative campaign and the Neighborhood Partnership Housing Services Inc.

“With one out of every 43 households in San Bernardino and Riverside counties currently experiencing foreclosure, the current mortgage crisis has already hurt too many families,” said Baca, D-San Bernardino.

The experts also discussed the subprime crisis, foreclosure prevention and different terminology.

They also shared steps that a homeowner can do to retain their home such as:

Make mortgage payments a first priority.

Manage budgets to avoid overspending.

Build savings in preparation for a financial crisis.

Contact a lender as soon as possible if it is learned that the next mortgage payment can’t be met.

Baca unveiled at the

workshop proposed legislation that would create an entity - the Family Foreclosure Rescue Corp. - responsible for financing loans to those facing foreclosure or are in default.

Families would be allowed to refinance their mortgage through a government-administered loan with a set interest. The entity would accept loan applications for three years, and after that, it would serve to finish the administration of the loans.

The area of San Bernardino and Riverside counties ranked seventh in the nation in foreclosures in 2007, according to RealtyTrac.

Mortgage default notices jumped 45percent statewide in December, according to a report released by ForeclosureRadar.com, which tracks such data.

Ontario Mayor Paul Leon said he was familiar with the situation that homeowners face. He shared a story about a friend who approached him four years ago and tried to get him to take out a loan.

The friend told Leon that he would be able to pay back the loan in four years, and that all the costs would be recouped in that time.

“That was what people were being told by people they trusted,” Leon told the audience on Saturday. “This was my own friend. Well, let me tell you, right now I’d be moving out with nowhere to go.”

Baca’s campaign has provided additional funding to NeighborWorks America, a national public/private neighborhood redevelopment organization, so it could address local foreclosures as well as launch a 24-hour hot line for homeowners needing assistance.

| Just about anybody who bought a home or took out a mortgage in the past five years has run into them in some form: mysterious fees from realty brokers, lenders, builders and title agents — admin, processing, doc-prep, and regulatory compliance among some of the opaque names — that lumped $200 to $500 extra onto the consumer’s bottom line at settlement.

You might have asked a realty agent to explain why an administrative fee of $450 was needed when you were already paying tens of thousands of dollars in commissions. Good question. The answer you got might have been something along the lines of: Don’t blame me. My broker requires it. I don’t a get a penny of it.

Now a federal appellate court has weighed in with a decision involving a realty firm’s $149 mandatory add-on fee, and a home buyer who filed suit to challenge it. The 11th U.S. Circuit Court of Appeals reversed a lower court’s denial of class action standing in the suit by Vicki B. Busby of Jefferson, Ala. The class action is intended to cover all consumers forced to pay what the brokerage firm termed its ”ABC” fee — an administrative brokerage commission.

Busby filed suit against RealtySouth, a large Birmingham-based broker, charging that in addition to paying a substantial commission to the firm and its sales agent, she was nonetheless required to pay the ABC fee. Busby said there was no evidence that the firm had actually performed any extra services — above and beyond the brokerage services compensated by the commissions — and therefore the ABC fee violated federal law.

The appeals court ruled that the lower court had erred in not considering the factual issue — was any specific work done to justify the extra charge? — in making its decision to deny Busby’s request for class action certification. The case, which now goes back to the district court, is the latest in a long-running battle pitting realty, mortgage and title companies against consumers protesting so-called ”junk fees” and settlement sheet add-ons.

The Department of Housing and Urban Development (HUD) has ruled for years that any fee imposed in connection with a residential real estate transaction must be for services actually rendered. Some federal courts have disagreed with HUD’s interpretation of the Real Estate Settlement Procedures Act. Others have agreed.

In the Busby case, the appeals court ”bolstered HUD’s interpretation that if a real estate broker cannot produce evidence of the services it performed for the administrative (or other add-on) fees it charges, a violation may exist,” according to Washington attorney Phillip L. Schulman of K&L Gates, an authority on real estate settlement issues.

In an interview, Schulman said the court’s ruling is not the final word on the matter, but it ”underscores the importance of performing actual services in exchange for” fees charged in connection with real estate and mortgage transactions.

In other words, a brokerage firm cannot simply dream up new fees and force them upon their unwitting clients. Many brokers have imposed extra charges because their sales agents demanded higher splits of the listing and selling commission dollars.

Laurie Janik, general counsel for the National Association of Realtors, argues that brokers are fully within their legal rights to receive compensation ”for the increasing costs they incur to run their businesses” — communications technology, taxes, lease payments, marketing, to name just a few. They should be able ”to recoup these legitimate expenses,” especially in an environment of declining commission rates and higher splits with agents.

Janik said brokers should consider moving to a standardized, well-disclosed flat fee-plus-commission approach to handle the problem. For example, listing and sales agreements could specify that a firm charges a base fee — say $500 — plus commissions of 4 percent to 6 percent of the selling price of the property, split between listing and selling agents.

Using that approach, according to Janik, consumers, agents and brokers ”all know up front” where the fees will flow. ”If the sellers or buyers don’t like that arrangement, they can walk down the street to another broker.”

How should consumers handle the issue in light of recent court rulings? No 1: always ask agents up front about the existence and size of administrative or processing add-ons beyond the commissions. If the answer is yes, ask what specific services are rendered to earn them, and who pockets the money.

If you don’t like what you hear, shop around for a better deal. Remember: in real estate transactions, all compensation is negotiable. If you don’t push for lower fees, you’ll usually pay the max.

Ken Harney’s e-mail address is kenharney@earthlink.net.

The Welcome Home Funds from the Federal Home Loan Bank of Cincinnati will become available, by reservation only, beginning March 17 and continuing until the funds are gone. Borrowers can receive up to $2,000 in grant assistance. These funds will be available on a first-come, first-served basis.

To qualify, the borrower must:

Have an annual household income at or below $51,200 for Licking County and $55,632 in Muskingum County for a one- to two-family household. For households with three or more, the income limits are $58,880 in Licking and $64,904 in Muskingum.
Buy a property located within the specific lenders lending footprint.

Have a fully executed purchase contract on a specific property.

Contribute $500 of their own funds toward the transaction.

Occupy the property for a period of no less than five years.

These Welcome Home Funds are grant funds and are not repaid by the borrower. However, the borrower is required to live in the property for five years. You must allow at least four weeks for your reservation approval. The pool of Welcome Home Funds for 2008 is limited, and these funds are strictly first-come, first-served. It is important for you to know not all mortgage lenders are approved to participate in this pool of funds. Huntington is an approved lender, as well as several other lenders throughout central Ohio. Just ask them if they participate.

These grant funds can be used for closing costs and down payment assistance for several other unique mortgage lending programs that also will assist first-time buyers. Remember, a difference exists between your down payment and closing costs. Closing costs are costs associated with the loan closing, and the down payment is the part of the purchase price of a property the buyer pays in cash and does not finance with a mortgage loan. It’s always a good idea to count on paying some closing costs. Although if the loan is structured right, it’s possible to come to the closing with $500 or less out of your pocket. The rates on these unique mortgage programs are great. Some require Private Mortgage Insurance, and some don’t. Some require you must be a first-time homebuyer, and that’s defined as not being on a property title for the past three years.

Also keep in mind many of those loan programs are available for refinancing your current mortgage as long as you fit the qualifications:

1) Make under the HUD median income limit. Many homebuyers are fairly new in the working world and make less than the average income for their county. Loan programs are available for up to 100 percent financing at great rates. Check with a professional lender for the income levels for your county.

2) 100 percent financing. With a stellar credit history, you can qualify for 100 percent financing typically at a slightly higher rate than conforming rates. With a blemished credit history, 100 percent financing can be available, but the rates are higher, depending on the amount of late credit. Those mortgage loans can be available in one loan to 100 percent, or two loans of 75/25 programs to avoid PMI.

3) 3 percent down programs. With good credit, and even with damaged credit, FHA loans and down payment assistance programs can be used to raise the 3 percent.

4) Teacher, police officer and firefighter loans. If you are a full-time or part-time state accredited school teacher, a school administrator, a police officer or firefighter, you have earned some special consideration in the loan process. Up to 100 percent financing with expanded credit and expanded debt-to-income ratio guidelines is available. Income requirements might apply in certain areas.

5) Census tract. If the home is in a certain census tract, you can qualify for great financing. This is to encourage development of certain areas. Many neighborhoods in our area do fall within the census tract. Again, check with a professional lender to determine the location.

6) Non-occupant borrowers. Sometimes, an individual doesn’t have the credit history or the income to qualify. A relative can co-sign for the loan to assist on FHA financing. This is common with college students who want to buy a place to qualify for in-state tuition. The parents co-sign with them. This typically is called a “kiddie condo.”

I can not stress this enough: Make sure you are dealing with a professional lender and shop around to determine you’re not getting charged elevated fees. Some lenders tend to prey on the inexperience of a first-time home buyer.

The federal government’s four-part home-loan plan will save people a lot of money over the years, Treasurer Wayne Swan says.

Under the plan, the Australian Securities and Investments Commission (ASIC) will review entry and exit fees that banks levy on customers who want to take out or close a mortgage account.

The government will also establish a complaints hotline and a website that will give customers advice on how to switch banks.

And banks will have to help customers transfer their direct debits and credits.

Mr Swan said the plan, to be in place be November, will save customers “a lot” of money.

“The most important thing here is that people can access the benefits of competition,” Mr Swan told Sky News.

“If there are better rates…for their mortgage and there is a bank down the road offering a better rate then being able to switch your account can save you a lot of money over the years.”

The foreclosure crisis is focusing new attention on the need for consumers to understand what they are signing when they take out a loan to buy a home.

Clearly, some salesmen misled some consumers. But there’s reason to believe other consumers didn’t carefully read what was put in front of them.

Buying a house is a foreign exercise for first-timers. But knowing in advance the importance of key documents can keep you from taking on more debt than you can afford or getting stuck with added costs and heartache.

The first rule is to take whatever a lender or loan broker tells you with a grain of salt. In real estate deals, only what’s on paper is enforceable.

Because buying a house can be complicated, Congress passed two key laws to protect consumers.

The Truth In Lending Act, enacted in 1968, is intended to ensure consumers are made aware of the terms and costs of credit so they can compare offers from lenders.

The Real Estate Settlement Procedures Act, enacted in 1974, requires lenders to explain in writing the settlement process and the resulting fees. Lenders must provide a fair estimate of the costs at the beginning of the process and an accurate itemization again at the end, or at closing.

Here are some of the most important documents that experts say you should have at least a working knowledge of when you buy a home:

•Good faith estimate: This provides a rough estimate of the interest rate you will pay along with fees and other expenses associated with your loan. These costs normally include fees paid to third parties, such as appraisers, the recorder’s office, title companies, inspectors, and other legitimate processing costs.

But you should be careful of what experts call “junk” fees, unnecessary costs some unscrupulous lenders stick in to make a quick buck.

You are supposed to get it within three business days of applying for a loan. A caveat is that a good faith estimate is only that, an estimate. Charges at closing could still be higher.

Still, attorney Mike Vaughn says it affords an early way to compare the charges of one lender against another.

•Truth in lending statement: This should tell you clearly how much the loan will cost you by the time you pay it off over 30 years or whatever the term of the loan happens to be.

It should also tell you the annual percentage rate, the exact amount you are borrowing and how much you will have to pay each month over the life of the loan. In addition it should clearly state whether or not there is any prepayment penalty for paying off your loan early.

“You need to carefully read this before you complete your closing,” said Pam Hider Johnson, a senior housing counselor at the Greater Kansas City Housing Information Center, a Housing and Urban Development-certified home counseling agency.

Johnson said many first-time subprime borrowers with shaky credit got in over their heads because they listened to unscrupulous loan brokers who told them they didn’t have to pay attention to the truth in lending statement.

•Settlement statement or HUD-1 disclosure: This document provides a complete accounting of the transaction. In other words, it explains where all the money is going and how much.

If the terms look different from what you were told, you need to ask questions, said Chris Collins, president-elect of the Kansas City Regional Association of Realtors.

You have a right to see this document a day before the closing so you can go over it more carefully.

Understanding these documents is only a good start, however, Collins said. A buyer needs to understand how insurance and taxes can add to the loan payments.

And there is also the need for an inspection and understanding how a mortgage works. That’s why experts say first-time buyers should first take a course in home buying or hire a professional they can trust to help walk them through the process.

SAN DIEGO — San Diego Mayor Jerry Sanders urged Congress to support a temporary increase in home loan interests in pricey areas Thursday.

The mayor sent a letter to Senate Majority Leader Harry Reid asking for the increase, which is part of President George W. Bush’s economic stimulus package.

If the proposal is passed, loan limits before a “jumbo” loan would increase from $417,000 to $730,000, officials said.

Sanders said the proposal is in response to the increasing number of resident who cannot afford homes in the San Diego area.

The Federal Home Loan Bank of San Francisco will sponsor a homeowner foreclosure-prevention workshop this weekend in Oakland.

The workshop, scheduled for Saturday, Feb. 9, from 9 a.m. to 12:30 p.m. at Faith Presbyterian Church on Webster Street, is the Federal Home Loan Bank’s first foreclosure-prevention workshop in the East Bay, and comes on the heels of a similar workshop it sponsored recently in Las Vegas.

The Federal Home Loan Bank provides low-cost funding for mortgage loans to its member banks and credit unions.

This weekend’s event will bring together several foreclosure-prevention counseling organizations from the Oakland area, including Housing and Economic Rights Advocatesand several of the bank’s member institutions, as well as the city of Oakland, to provide education and counseling to people affected by mortgage resets.

The workshop dovetails with the Federal Home Loan Bank of San Francisco’s new Homeownership Preservation Subsidy program, which was devised to help low- to moderate-income homeowners in danger of losing their homes because of increases in monthly mortgage payments. Through the HPS program, the Home Loan Bank will make $10 million available to its member banks so that they can restructure eligible adjustable-rate mortgages into fixed 30-year loans. The program is structured so that the home loan bank will put up $1 for every $2 provided by a member bank, up to a maximum of $25,000 in funds per restructuring, but is limited to loans with an outstanding balance below $417,000.

The program, approved is January, is expected to debut in March and could help up to 1,000 homeowners, according to the home loan bank.

IndyMac Bank will be among the lenders participating in the Oakland workshop, according to Kevin Blackburn, regional manager for legislative and regulatory affairs at the Home Loan Bank. Other participating lenders requested that their names not be publicized, he added. Lenders are “trying to gear up their loss mitigation arms,” he said, referring to teams that handle foreclosures, loan modifications, and other credit loss issues. “They are formulating new groups that require training that can actually (begin working out a loan modification) as opposed to just intake. In order to be effective they are, if you will, taking a managed entry approach,” he added. “They don’t want to get overwhelmed by people they can’t really respond to.”

Big mortgage lenders such as Washington Mutual, Countrywide Financial Corp. and Wells Fargo & Co. have publicized their attendance at previous local foreclosure prevention workshops.

U.S Congressman Barbara Lee (D-Calif.) will attend the workshop as a special guest. Also scheduled to attend are state Assemblyman Sandré Swanson (D-Oakland), Dwight Alexander, vice president, Federal Home Loan Bank of San Francisco, and Maeve Elise Brown, director of Oakland’s Housing and Economic Rights Advocates.

STANDARD variable home loan rates offered by major banks have gone above 9 per cent for the first time in more than a decade.

BankSA yesterday announced it was increasing the rate on its standard variable loan to 9.02 per cent.

National Australia Bank said it would raise its rates within days and that the increase was likely to be more than the 0.25 percentage point increase forced on banks by the Reserve Bank this week.

The move follows the Commonwealth Bank, which on Wednesday attracted the anger of customers by lifting rates by 0.3 percentage points.

Westpac also moved upward yesterday to bring its rates to 8.97 per cent, level with the Commonwealth.

The Reserve Bank has been trying to dampen inflation, lifting rates in November and this week.
But extra volatility has been injected into the market by the fallout of the sub-prime crisis in the U.S which has made lending money more expensive globally.

NAB chairman Michael Chaney said the bank was under pressure to raise rates further.
“We’ve only passed on half of the total cost increase that we’ve experienced in the past few months,” he said.

“It’s an issue of balancing competitiveness, customer interest and shareholder interest.” The last time rates at major banks topped 9 per cent was in mid-1996.

BankSA general manager Chris Ward urged customers to look at alternatives to the standard variable loan.

“It’s important to note, almost half of our home loan customers have fixed rate home loans and will not be affected by the change, while most of those with variable loans already pay more than their regular minimum repayment - this is something we encourage,” he said.

“However, we do recognise that any increase to rates does have an impact and if any customers do have any concerns about their mortgage, I certainly would urge them to contact us.”

The ANZ said it was reviewing its rates while HomeStart in SA said its standard variable rate would increase to 9.12 per cent.

PNB Housing Finance, a subsidiary of Punjab National Bank, today reduced home loan rates by 50 basis points for new borrowers.

“In view of the downward interest rate scenario, the company has decided to reduce interest rates on home loans for new borrowers by 0.50 percentage points with immediate effect,” PNB Housing said in a press release.

Meanwhile, the company has reported 76% growth in net profit at Rs 28.87 crore during the nine months ended December 31.

The total income of the company rose 51% to Rs 159.97 crore during April-December 2007 compared with Rs 106 crore in the year-ago period.

VK Khanna, managing director, PNBH, said: “The company is looking at a higher business volume in the coming months. It is entering into tie-ups for promoting individual loans in the projects of various builders across the country.”

Punjab National Bank had recently said that it planned to either list PNB Housing Company or induct a strategic partner into the company.

The net worth of the company was Rs 156.60 crore, as on December 31, 2007. The book value per share was Rs 52.20, as on December 31.