Mortgage - Home Loan, Commercial Loan

(ARA) - As the drum beat of news continues about the credit crunch in the mortgage market, millions of homeowners are worried about their adjustable-rate mortgages that will adjust to higher interest rates, leaving many struggling to make their payment. As a result, there’s a lot of confusion about what to do, or not do, before an ARM resets.

According to industry statistics, $75 billion in ARMs are slated to adjust higher through the rest of 2007. Another $500 billion will adjust higher in 2008.

What should a consumer do if their ARM is about to reset? There is no “one size fits all” answer, so it’s imperative that homeowners educate themselves and take action before that happens.

To help consumers find answers, Quicken Loans, one of the nation’s largest mortgage lenders, has launched its new Home Loan U (http://www.quickenloans.com/homeloanu.html) Web site. The site offers a wealth of free informational guides providing easy-to-understand information and advice on a wide range of housing topics, including refinancing.

“With so many ARMs adjusting higher in the near future, a lot of folks are confused and worried about what to do. Their first impulse may be to immediately refinance but, in some cases, that might not be the best option,” says Bob Walters, chief economist for Quicken Loans. “There are several factors to consider when an ARM resets, such as the new interest rate and how long they plan to stay in their home.”

Walters notes that the first thing someone with an ARM should do is consult an experienced mortgage lender who can review their current loan program, discuss financial goals and explore available options to determine the best course of action to meet their immediate and long-term needs.

For more information on refinancing an arm and additional mortgage guides, visit Home Loan U online.

Daniel Mudd, chief executive of Fannie Mae, knows the feeling when a physician attends a party and a guest wants a diagnosis for a rash or some other unexplained ailment.

In Mudd’s case, people want to know about the housing market. Often they ask him if it’s a good time to refinance their mortgage loan.

Mudd may be the go-to guy at parties because he heads the Federal National Mortgage Association, or Fannie Mae.

Fannie Mae and the Federal Home Loan Mortgage Corp. (Freddie Mac) purchase mortgages from lenders. This in turn allows the lending institutions to provide more home loans.

Naturally, people think Mudd, who runs the larger government-sponsored enterprise, would know about the best time to get a mortgage since Fannie Mae is crucial to the mortgage industry.

But as Mudd points out, he’s operating in the back end of the mortgage process after the loans have been originated.

“I’m not retail,” he tells people.

Frequently, mortgage rates are the topic at parties — and just about anywhere else — because many homeowners are desperate to know the opportune time to get out of the loans that they won’t be able to afford once their teaser rates expire.

Of late, Mudd is fielding questions about a new law that has the potential to lower interest rates for jumbo mortgage loans. He certainly was pressed about it during a lunch meeting recently at The Washington Post.

First, some background.

A jumbo loan is a mortgage that exceeds $417,000, which is the purchase limit for both Fannie Mae and Freddie Mac. Loans of $417,000 and below are considered conforming because financial institutions can easily sell them to Fannie or Freddie.

Jumbo loans are needed for areas where home prices exceed that $417,000 limit, such as high-priced housing markets on the West Coast and East Coast. Because jumbo loans are not purchased by Fannie or Freddie, they typically carry higher interest rates.

As of Thursday, the national average for a 30-year fixed-rate jumbo loan was 6.97 percent, compared to 6.01 percent for a fixed-rate conventional loan, according to Bankrate.com. Many jumbo borrowers have adjustable-rate mortgages. A jumbo ARM that adjusts after five years was 5.79 percent compared with 5.12 percent for a nonjumbo ARM with the same term.

In an effort to help lower rates for borrowers needing jumbo loans, the recent economic stimulus bill included a provision to allow Fannie Mae and Freddie Mac to buy mortgages above the $417,000 limit.

The new jumbo loan limits won’t be the same for all areas. The limits will vary but can’t be more than $729,750.

Many jumbo loan holders are certainly anxious to know if rates will fall soon. However, Mudd wasn’t sure many homeowners with jumbo loans would actually see lower rates anytime in the near future.

“There will be some benefit,” Mudd said. “How much? I don’t know.”

Mudd questioned whether investors would buy bundles of jumbo loans. Given the current mortgage crisis, investors might fear that these larger loans would be more risky, he said.

And with tighter lending standards some borrowers won’t qualify because their home values have dropped. Or they might not meet other stricter underwriting requirements.

Still, during our discussion about jumbo loans, I pushed Mudd to provide some idea of when jumbo loan borrowers might approach lenders to refinance.

“I don’t know,” he said.

Then Mudd added a very helpful tip that I thought I would pass along.

He said if you are worried about a 50 basis point difference in your interest rate (that’s half a percentage point), you might be living at the wrong place.

Mudd wasn’t talking about bargain shoppers who negotiate hard for a good loan deal or who are calculating whether a refinancing would make sense long term.

Let’s say a jumbo rate of 7 percent for 30 years comes down half a percentage point as a result of the new loan limit. On a $500,000 mortgage, that’s a savings of about $166 a month.

In other words, you shouldn’t be buying a home or refinancing into a mortgage that leaves you with little cash cushion. That’s what led so many to be in trouble now.

If you have a jumbo mortgage and a half-percentage-point difference is going to mean a great deal to you financially — that is, it will free up money you need to pay for essentials — you’re in too much house.

It means you are living above your means. Cornering mortgage professionals or other real estate experts at parties to press them for the best time to refinance your huge mortgage is nonsensical. You need to be asking when you should sell.

Announcements that U.S. mortgage applications are down and the Consumer Price Index is up are ominous signs that the economy is cooling. Investors and consumers are tugging at their collars over news that fewer houses will become homes and those homes will probably gonna hold less stuff.

On Tuesday, the Mortgage Bankers Association said its index of mortgage applications fell to its lowest level since early January, dipping 22.6% to 822.8 for the week that ended Feb. 15. Short-term interest cuts by the Fed aren’t helping would-be home-owners because their mortgages tend to be linked to longer-term rates and the 10-year yield has been rising on fears of inflation. (See “Bernanke Watch Next Week”) Bush’s stimulus plan is generous, but it isn’t expected to redirect what appears to be an economy with a downward trajectory. (See “A Lifeline In The Mortgage Mess”)

The terms of loans aren’t sweet enough to entice a borrower staring down the barrel of a depressed economy. Borrowing costs on a 30-year fixed rate mortgage are up .37% from last week. Excluding fees, costs averaged 6.09%, the highest since late December. The silver lining on this announcement is that interest rates stayed below year-ago levels of 6.19%.

The MBA Index also reported that refinancing applications are down 27.9% to 3,533.8 for the week.

The news brought home loan company Washington Mutual (nyse: WM - news - people ) down 29 cents, or 1.75%, to $16.69. Homebuilder KB Home (nyse: KBH - news - people ) is also down 43 cents, or 1.81%, to $23.72. Pulte Homes (nyse: PHM - news - people ) is down 28 cents, or 1.98%, to $13.88.

As if news of more Americans being forced to rent and not own isn’t depressing enough, the U.S. Labor Department Consumer Price Index announced more bad news Tuesday. January’s CPI rates were only a point up, but the psychology of getting less for a each buck is likely to put a damper on the mood of investors and consumers alike. Headline inflation for January was .4% and it was expected to be .3%. Core inflation, excluding food and energy, is .3% instead of the projected .2%. Year-on-Year headline inflation is up 4.3%, and core CPI is up 2.5%.

Tuesday, the Automobile Association of America and the Oil Price Information Service reported that a gallon of gas hit an average of $3.032 in U.S.. Last month it was $3.015 and last year it was $2.256. More increases at the pump are likely because oil futures have shot up in price despite a reported decline in demand has to do with concerns about future supply.

By Eileen Putman

WASHINGTON — In a time of bad mortgage news, there’s a bright spot or two for homeowners: Foreclosure comes with a tax break, and 2007 mortgage-insurance payments may be tax-deductible.

Congress acted on both provisions late last year, extending the mortgage-insurance deduction for three more years and creating a new tax break for homeowners facing foreclosure.

The mortgage-insurance deduction will help certain low and moderate-income homeowners, especially first-time homebuyers and those struggling with higher house payments as adjustable-rate mortgages reset.

Mortgage insurance is required by government and private lenders on home purchases in which the buyer makes a down payment of less than 20 percent.

For the first nine months of 2007, about 16.7 percent of the estimated $1.98 trillion in new mortgages originating during that period had private mortgage insurance (commonly known as PMI) or government mortgage insurance, according to Inside Mortgage Finance Publications, which researches and tracks the residential mortgage business.

Typically, homeowners pay an average of $50 to $100 a month in mortgage insurance on a median single family home price of $217,600, according to the Mortgage Insurance Companies of America (MICA), a trade association.

The new tax deduction could save taxpayers who itemize as much as $300 to $350 in federal taxes, MICA estimates.

There are restrictions. Only taxpayers with adjusted gross incomes of $100,000 or less can take the full deduction, which gradually decreases for incomes above that and is eliminated altogether for those with AGIs over $109,000.

And only insurance on mortgages taken out in 2007 — new or refinanced — qualifies for the deduction. If you simply continued paying mortgage insurance in 2007 on a loan taken out in an earlier year, you cannot deduct those payments.

To be deductible, the insurance must have been paid on “home-acquisition debt” — debt incurred to buy, build or substantially improve a principal residence or second home.

Most tax experts interpret this provision as meaning that if in 2007 you refinanced your home to take out extra cash from your equity — then used that cash toward building a home addition or making a substantial home improvement — insurance on that added mortgage debt is deductible along with insurance on the old mortgage amount.

But if you simply refinanced your home to take out extra cash for other purposes, the portion of a mortgage-insurance premium that covers that additional amount isn’t deductible, only the amount that covers the original mortgage debt.

Late last year, Congress approved a measure to help homeowners fighting foreclosure as the mortgage crisis took its toll. Taxpayers who were granted forgiveness of mortgage debt in 2007 don’t have to pay taxes on the amount of that forgiveness, up to $2 million ($1 million for a married person filing a separate return). Only debt forgiveness on a principal residence is eligible.

The provision applies to restructured mortgage agreements after Jan. 1, 2007. Previously, such loan forgiveness was often taxed as income.

Several other common tax benefits are in effect for homeowners who itemize. They include:

• Mortgage-interest deduction: Interest you paid to the lender in 2007 on mortgages for your principal home and a second home for your personal use, providing the mortgages are secured by the home.

• Points: Certain fees, computed as a percentage of the loan amount, that you paid to obtain your mortgage; for second homes, these must be amortized over the life of the loan. (There are nine tests, spelled out in Publication 936.)

• Refinancings: Points paid for refinancing are usually not deductible in full during the year you refinance, but are instead amortized over the life of the loan. But if you refinanced in 2007 and used part of the refinancing proceeds to substantially improve your home, you can deduct in full the points on that part of the loan; the remaining points are amortized.

Many homeowners will be able to write off hundreds of dollars of mortgage insurance premiums on their taxes starting with their 2007 returns – a reward for steering clear of exotic “piggyback” loans.

Congress initially approved the tax break for only 2007, then extended it for three years in late December as the housing market sagged.

However, many people who pay for PMI, or private mortgage insurance, won’t benefit. Only insurance contracts issued after Jan. 1, 2007, qualify.

And the tax break is available only to homeowners with adjusted gross income of less than $100,000; after that, it phases out gradually until income hits $110,000.

For details, see IRS Publication 936.

READING, Pa. (AP) - Two Berks County couples have sued a mortgage broker awaiting sentencing on fraud charges.

Prosecutors say Wesley Snyder ran a Ponzi scheme that defrauded homeowners and investors out of more than $29 million over two decades. The 71-year-old pleaded guilty to a federal charge of mail fraud and will be sentenced in March. He faces up to 30 years in prison.

In the lawsuit, the two couples say they were cheated by Snyder and SunTrust Mortgage Inc. They are seeking credit for tens of thousands of dollars they say they paid on their mortgages.

SunTrust claims it never got the money and now is demanding it.

The suits also seek class-action status for all Pennsylvania mortgage customers whom SunTrust got through Snyder’s company, which collapsed in September.

WASHINGTON (AP) — Rates on 30-year mortgages dipped slightly this past week, the fifth decline in the past six weeks. Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 5.67 percent, down from 5.68 percent the previous week. The 30-year mortgage, which ended last year at 6.17 percent, has been below 6 percent for five weeks, a stretch that has not been seen since 2005. Analysts attributed the declines in mortgage rates to growing fears that the country could be slipping into a recession. Other mortgage rates also declined this past week. Rates on 15-year mortgages, a popular choice for refinancing, dipped to 5.15 percent, compared with 5.17 percent the previous week. Rates on five-year adjustable-rate mortgages declined to 5.21 percent, down from 5.32. One-year adjustable-rate mortgages fell to 5.03 percent, down from 5.05 percent.

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.