QUESTION

Can my loan be sold? What happens if my lender goes out of business?

ANSWER

Your loan can be sold at any time. There is a secondary mortgage market in which lenders frequently buy and sell pools of mortgages. This secondary mortgage market results in lower rates for consumers. A lender buying your loan assumes all terms and conditions of the original loan. As a result, the only thing that changes when a loan is sold is to whom you mail your payment. If your loan has been sold, your existing lender will notify you that your loan has been sold, who your new lender is, and where you should send your payments from now on.

If your lender goes out of business, you are still obligated to make payments! Typically, loans owned by a lender going out of business are sold to another lender. The lender purchasing your loan is obligated to honor the terms and conditions of the original loan. Therefore, if your lender goes out of business, it makes little difference with regards to your loan payments. In some cases, there may be a gap between the date of your lender’s going out of business and the date that a new lender purchases your loan. In such a situation, continue making payments to your old lender until you are asked to make payments to your new lender.

$50 Billion Worth of Mortgage Resets on October 1?!

David Bach, The Automatic Millionaire over at finance.yahoo.com wrote an article entitled “Making Mortgage Relief Work for You” on Monday, September 10, 2007. He begins his article in this way:

“On Aug. 31, while many of us were getting ready for a long holiday weekend, President Bush addressed the nation about the mounting concerns in the housing market. His speech took place exactly one month before we’ll see a record-breaking $50 billion in mortgages reset to a new rate.

“That’s right, in the month of October alone, many homeowners will be forced to pay higher monthly mortgage payments than they can reasonably afford. And while this number is staggering, it’s not exactly new information — it’s been known for two years that the crisis was coming.

So once again I’m left befuddled. In approximately two weeks, homeowners of all stripes with adjustable rate mortgages (interest only mortgages, subprime borrowers and those homeowners with weak credit and no cash reserves) will be forced to pony up more cash to keep a roof over their collective heads. We are talking about mortgages that are barely affordable to these borrowers at the margin and the specific mortgage amounts will be going up based on what the Federal Reserve sets the rate at in one week, on September 18, 2007 A.D.

So, if the Fed adjusts the prime rate significantly lower (.50 to .75 basis points), then these households that are struggling with budgetary concerns will have just a hint of fiscal breathing room. If the Fed does nothing to the prime rate, then the stock market will go in the tank which will cause more individuals lose their jobs while their adjustable rate mortgages will reset beyond their budgetary abilities to make the monthly payments. I don’t even have to tell you what will happen if the Fed raises the prime rate (which is unlikely but still one of three options)!

$50 billion in mortgages resetting in approximate two weeks is no small number! If you are a homeowner who wants to get out of your home as quickly as possible because your mortgage loan was financed with an adjustable rate mortgage, perhaps you should consider putting a nice-looking sign in the front yard that says “Owner Will Finance”. It’s far better to sell your home quickly and save what is left of your credit rating than it is to be one of thousands in your community with homes will be foreclosed upon as unaffordable to the previous owner. Cut your losses now, owner finance!

InvestorInsight has an interesting chart of the amount of adjustable rate mortgage resets that will be happening over the next year or so. While we think that there have been an incredible amount of mortgage resets in the past few months the real bubble will be occurring starting in January of 2008. For the period of January to April expectations are that 370 million in adjustable rate loans will reset.

Now in reality, most of these loans will be refinanced or kept up to date, but if the credit situation does not get figured out, there are going to many households that are going to be stressed.

Adjustable Rate Loan Resets For 2007–2008

Month           Millions
January-07      22
February-07     25
March-07        35
April-07        37
May-07          36
June-07         42
July-07         43
August-07       52
September-07    58
October-07      55
November-07     52
December-07     58
January-08      80
February-08     88
March-08        110
April-08        92
May-08          76
June-08         75
July-08         50
August-08       35
September-08    26
October-08      20
November-08     15
December-08     17

Mortgage resets: Record bill coming due

Billions in subprime ARMs will be subject to higher payments.

By Les Christie, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) — More than two million subprime adjustable rate mortgages (ARMs) are poised to reset at much higher rates in coming months, worsening an already suffering housing market.

Borrowers who took out hybrid ARMs in 2004 and 2005 to secure low “teaser” rates for the first two or three years of the loan may see their monthly mortgage payments climb by 35 percent or more.

Consumer groups and politicians worry that hundreds of thousands of subprime ARM borrowers will be unable to keep up with their mortgage payments and will lose their homes.

“In October alone more than $50 billion in ARMs will reset,” according to Mark Zandi, chief economist and co-founder of Moody’s Economy.com. That’s a record, according to Zandi.

Foreclosures: Hardest hit zip codes

A buyer in 2005 with poor credit and limited means might have signed on for a $200,000 2/28 hybrid ARM, locking in a fixed rate of 4 percent for two years. After paying $955 a month, the bill would now be set to spike to $1,331, a 39 percent increase.

Until recently, rising home prices bailed out many ARM borrowers in trouble. They could raise cash with cash-out refinancings or home equity lines of credit. If worse came to worse, they could sell the house and get some money back.

But prices have stabilized or slipped in many markets. (Latest home prices.)

As a result, Doug Duncan, chief economist for the Mortgage Bankers Association (MBA), is expecting as many as 600,000 home owners will get into trouble with perhaps half of them actually losing their homes.

One of the reasons for the worsening situation, according to Zandi, is that just as the number of subprime ARMs being underwritten was reaching a high, the quality of loans was hitting new lows.

“There were increasingly poor quality loans made starting in the spring of 2005,” he said, “with the poorest of all made during the fall of 2006.”

Lenders approved many borrowers who had little chance of being able to afford the payments two and three years out. They approved applications without any proof of income or assets (”liar loans”) and others that barely could make the low teaser-rate payments. Some borrowers chose interest-only ARMs, which left the principal of the loan untouched. Regulators are urging tighter standards.

“Lenders wanted to keep the pipeline flowing,” said Zandi, “and were hopeful that prices would grow again.”

The hardest hit areas will fall into two categories, according to Duncan. The regions battered by basic economic storms - think Detroit, Cleveland, St. Louis and other old industrial centers - and high-growth areas where home markets went crazy earlier in the 2000s and where home prices are now falling

Subprime ARM lending was most common in some of those once red-hot areas. According to Zandi, three quarters of all those loans were made in the California, Nevada, Arizona, Florida and Massachusetts markets.

“Prices there are falling quickly, particularly in Florida and Las Vegas,” he said. (Florida foreclosures are set to spike.)

There will be more downward pressure on prices as delinquencies, foreclosures and short sales add inventory to markets.

Another factor is that regulators and lenders are attempting to tighten loan underwriting standards, meaning fewer credit-damaged applicants will get approved, lowering demand for homes.

The tightening mortgage-loan standards could also result in short-term foreclosure spikes. Home owners with resetting ARMs, for example, may not qualify for refinancing under the stricter oversight. That could lock borrowers into unaffordable loans and they could lose their homes.

Another increase in supply, according to Josh Rosner, managing director at financial research firm Graham Fisher & Co, will be from investment properties coming back on the market. There was a precipitous burst of buying homes for investment purposes earlier in the decade. In 2005, about 40 percent of all purchases were of second homes and the majority of these were for investment purposes.

As returns on these investment properties decline, owners will bail out, increasing the listing backlog and depressing prices further. The effect of a foreclosure rise and home price slide on the nation’s economy may be hard to predict but it will have an impact.

Mortgage brokers and lenders that change rate? It’s disgusting, deceitful, and these type of companies should be exposed for what hey are.  Click the link to see what I’m talking about.

WATCH THIS VIDEO…PROTECT YOURSELF FROM THINGS LIKE THIS

QUESTION: My parents are in their mid-70s and have some health issues. They would like to stay in their home. Would a reverse mortgage make sense for them?
— Keven Engel, Scottsdale, Ariz.
ANSWER: For cash-strapped seniors rich in home equity, a reverse mortgage can spell the difference between burgers at Denny’s and steak at a four-star restaurant — but that steak does come at a high cost. Reverse mortgages are the inverse of traditional mortgages. Here, you borrow against your home’s equity. But instead of making payments to the bank, the bank makes payments to you. Unlike a regular mortgage, your debt (rather than equity) grows over time. But as long as you continue to live in the home, you won’t owe a dime. The loan is paid back when the house is sold (often upon death) or your heirs can pick up the tab. Only folks age 62 and older are eligible.

MORE REVERSE MORTGAGE PITFALLS

Reverse-mortgage market zooms forward

Plenty of new products are emerging, but consumers still need to be wary

By Andrea Coombes, MarketWatch

The new breed of reverse mortgages generally allow for higher loan amounts and lower fees than the traditional, government-backed loans, but may charge higher interest rates.

There’s even a new product that sidesteps banks entirely and structures a reverse-mortgage loan between family members.

 hat growth may be spurred by a new generation of homeowners who are more willing to tap their home equity.

“There is an older generation that believes strongly in paying off the mortgage and having the home free and clear, but many boomers have used home-equity lines of credit their whole lives. They’re much more likely to see their home as a financial resource,” Rother said.

A willingness to tap your home equity isn’t always a good thing, he warned, particularly if you’re a younger retiree with many years of property taxes and maintenance costs ahead of you — costs which you’ll have to pay even with a reverse mortgage in hand.

But “the bigger risk, frankly, is just the cost of taking out a reverse mortgage,” Rother said. “This is a lot more expensive than a first mortgage, a second mortgage or a home-equity line of credit. The fees involved are much, much higher,” he said.

With the most common reverse mortgage, the FHA-backed home equity conversion mortgage, loan limits vary by locale, but top out at about $362,000. Borrowers can expect to pay about 4% of the loan amount in origination and insurance fees, plus another $900 to $1,200 in various other closing-cost fees, according to NRMLA.

Reverse-mortgage interest rates can be fixed or variable, although the Federal Trade Commission says most are variable. Those rates are tied to financial indexes such as the London Interbank Offered rate or 1-year Treasury rate and move up or down with market conditions.

“Our advice is that this could make sense for some people, but it’s risky and it’s expensive. It really should be a last resort if you really don’t have another option,” Rother said. “It’s more appropriate for people in their late 70s and 80s. They’re much more likely to find themselves in that situation.

MORE INFO ABOUT REVERSE MORTGAGES

Reverse mortgages are loans that are available to elderly homeowners. The loan amount is based on their age and the amount of equity they have in their home, and doesn’t have to be repaid until the homeowner passes away, moves out, or sells the house.

A reverse mortgage can be dispersed in several ways:

1. A line of credit can be extended, from which the homeowner can draw money as needed.
2. A fixed, monthly amount over a short period of time (5 years, for example).
3. A fixed, monthly amount for the rest their lives (or until they sell the home).
4. One lump sum.

The most popular type of reverse mortgage is FHA.s Home Equity Conversion Mortgage. This loan has the lowest interest rates, but also has the lowest maximum amounts you can borrow against the home’s equity. Maximum amounts vary by state and county, ranging from $200,160 to $362,170.

Fannie Mae also offers a reverse mortgage program called Home Keeper. The interest rates with Fannie Mae are a little higher, and adjust monthly. The benefit of the Fannie Mae program is that the maximum mortgage limit is higher. The limit for 2006 is $417,000 and does not vary by county or state.

To be eligible for a reverse mortgage, the borrower must be 62 or older, and the home must be the borrower’s permanent residence. Because there’s no repayment obligation, borrowers need not have excellent, or even good, credit.

Save $32,000! Save $54,000! Save a ton of money! Take 5 to 7 years off your thirty-year loan! This biweekly payment program is being heavily advertised right now for a fee of almost $400. This is a great deal for the mortgage company, but not for you.

In fact, people in the mortgage business–loan officers and brokers– unanimously call this fee a rip-off for home owners. Here’s why. You can do it yourself for free. Why should you pay a company $400 needlessly? Actually, this is quite clever on the part of the mortgage companies; they have figured out a way to get more money out of their already existing, excellent customers.

Magicians use slight-of-hand to trick their audience. They distract people with flashy movements in their right hand, while the real trick is taking place unnoticed in their left hand. In this case, the mortgage company flashes your savings at you, making you think the “magic” is in the biweekly payment. The truth is, there is no savings by sending in money biweekly rather than monthly, and you do not save because of compounding interest, like you might think; in fact, if you read the fine print you see that they do not even credit your account biweekly, but monthly. The reason there is no savings by paying biweekly rather than monthly is because mortgage payments are paid in arrears. (This means your payment on the first of the month makes the payment due for the previous month. Mortgage payments are not like rent payments which are paid in advance; they are paid in arrears; therefore, paying days or even two weeks early does not save anything in interest.)

The savings comes from the fact that there are two months out of the year in which you would be making three payments rather than two. Thus, you are making two extra biweekly payments (one extra monthly payment) per year. There is no good reason why you should pay a company $400 to make an extra payment per year. It’s nonsense.

To accomplish the same thing yourself for free, select one of these two options:

1. Option 1 (Best for people who are paid every other week)
   Calculate 1/2 of your principal and interest payment. Send in that extra amount on the two months you receive three paychecks.
   
2. Option 2 (Best for people who are paid once a month or twice a month)
   Divide your principal and interest payment by 12. Send in that extra amount each month with your payment.

• If you are one of the majority of people who work hard for their money and pay taxes, then you don’t want to spend $400-$500–and perhaps a monthly fee as well–to do what you can easily do yourself for free.You don’t need sales flattery such as “You are a special customer chosen to receive this special offer,” or the silly sales pressure, “Hurry and sign up before the expiration date.”

• You are in charge of the terms of your mortgage. If you choose to add to the principal and pay off your loan early, you will save good money. It is simple arithmetic; there is nothing magical about sending in the money every other week.

By Kay Bell

If historically low mortgage rates turned you into a serial refinancer, beware of the tax pitfalls surrounding the deductibility of any points you paid on your new loan (or loans).

As a veteran homeowner, you’re already well acquainted with your house’s many tax breaks. You’ve claimed mortgage interest and property tax deductions for years. And when you refinanced the first time, you were wise enough to know that the interest on the new loan, although thankfully much less, still could help reduce your Internal Revenue Service bill.

Heck, you even knew how to make tax use of the new points you paid. In most cases, points paid on a refinanced mortgage must be deducted over the life of the loan. It’s not quite as good a tax deal as the immediate deduction for points you got on your original mortgage, but it still offers some savings.

Once, however, was not enough. You diligently followed mortgage rates (on Bankrate, of course) and were able to refinance again at an even lower rate. Even better, the new refi is with the same lender with whom you got your earlier refi. And because of your prior lending relationship, you saved on the subsequent refi’s closing costs.

But by doing so, you’ve sacrificed an immediate tax break when it comes to deducting points. (See Refinancing and tax deductions table at the end of this story.)

Special refi point rules
Each point is 1 percent of the loan amount. Lenders charge points as a way to make a profit and borrowers pay points in exchange for lower mortgage rates.

In refi cases, however, any points usually must be amortized over the life of the new loan. The main exception to this rule is when you get extra cash from a refi to make improvements to your home. In this case, you can deduct the points attributable to this improvement money all at once. But the portion of the points related to the refinanced existing balance are not eligible for immediate tax-deduction purposes; they must be amortized over the life of the refinanced loan.

Mark H. Misselbeck, CPA with Levine Katz Nannis & Solomon PC in Needham, Mass., gives this example:

You have existing home debt of $200,000 and refinance to $250,000 so you can put a $50,000 addition on the house. You pay 1 point ($2,500) for the refinanced loan. Since $500 in points is attributable to the amount you will use for the home improvement, that $500 is immediately deductible on your taxes. The remaining $2,000 in points is considered prepaid interest that must be amortized over the life of the $250,000 loan.

“Only if the loan proceeds from the refinance were totally used to purchase the principal residence or improve the principal residence would all of any points paid on a refinance be fully deductible,” notes Misselbeck. “This would usually not be the case, since the whole point of a refinance is to lower the cost of existing debt, not take out a totally ‘fresh’ amount of money, except in unusual circumstances, to improve a principal residence.”

But in many cases, homeowners use cash-out refi or home equity money for something other than home improvement, such as paying college costs or buying a car. Here they still can deduct the points paid on these loans, but not completely on one tax return. They must parcel out the point deductions in each tax year over the equity loan’s term.

To figure the annual deduction amount, divide the total points paid by the number of payments to be made over the life of the loan. For example, if you paid $1,500 in points on a 30-year refi (360 monthly payments), you can deduct $4.17 per payment, or a total of $50 a year, for each tax year of the loan.

Serial refinancing restrictions
What if the continuing interest rate drops prompted you to refinance again? The good news for most homeowners is that they don’t lose that portion of the first refi’s points that they’ve been amortizing.

Dean Foust

Anyone have an agent horror story like this one?

It is very easy to make mistakes when selling your home, but taking the proper precautions can result in, more money in your pocket. Don’t take my word for it…read this story to get an inside look at how a bad realtor can take money out of your wallet.

t’s been more than eight years since my wife and I sold our house in Alexandria, Va., and moved to Atlanta, where we still live. And I still seethe over the agent who sold our house. It was the first time we’d ever sold a house — this was our starter home, a 2,700-square-foot center-hall colonial — and I still vividly remember the night we received our first formal offer. It was our starter home (for which we’d paid $216,000, back when you could still do that in Washington D.C.), the local market had flat-lined during the seven years we’d owned it, but we still felt confident we’d get close to the $235,000 we were asking.

Our first formal offer came from a junior NATO officer on the very day after we listed it. His agent showed up at 7 p.m. that night, settled in at our dining room table, made his spiel and then offered…$226,000 and the buyer wanted us to cover $6,000 in closings costs to boot. If we didn’t accept it, he said his client was prepared to simply walk away and bid on a house in Burke.

My wife and I were dejected at the price, but when the agent walked outside, our agent turned to us and pressed us hard–really hard–to take the offer. “I think we need to work with them,” he implored. “Don’t let them walk away. Let’s work with them.” The other agent returned, and my agent–in front of the other agent–pressed us hard to take the offer. “You’re starting your new life in Atlanta in a few weeks and you should take their offer so you can wrap things up here,” he said in front of the other agent. So much for out agent representing our interests.

We got the buyer to nudge his price up by $2,000, but we ‘d never done this before. I had that small pang that maybe this WOULD be the only offer we got and in the end, we capitulated.

And the next morning I had seller’s remorse. Another agent dropped by that afternoon after seeing the “For Sale” sign in the yard, we told her the price we’d accepted but still let her look around. After a walk through she said, “Oh honey, you just GAVE your house away. You should have gotten $250,000. Your decorating is fabulous.”

In hindsight, I felt that I’d been negotiating against three people–the buyer, his agent AND MY OWN AGENT….

I fumed, but I’d already signed the contract. I turned my anger against my own agent. I concluded that he was one of those agents that made a fat income by maximizing “turns”–squeezing his client to take a quick offer so he could flip the house in less than a week and move on to another client. (Adding to our angst is the fact that the Washington market took off like a rocket in 2000 and similar houses on our old street now go for upwards of $650,000 or $700,000. I’ve gotten over it but my wife hasn’t.)

When our agent called us in Atlanta (when we were on our own house hunting trip) a couple days later after the home inspection and rattled off a list of a half-dozen minor repairs and improvements the buyer was demanding–which collectively, would add up to more than a thousand bucks–I said, “Pay for it all yourself. And frankly, I hope you don’t, because I’d like the contract to fall through so I can fire you and hire a new agent.” And I hung up on him. I contemplated taking the sign he hung out front of homes he’d just gotten a contract for, which said, “(His name) SOLD ANOTHER ONE!” and defacing it to read, “(His name) DUMPED ANOTHER ONE!”

Our agent paid for the repairs out of his own pocket to save the deal–and his commission. So I had to honor the contract. But to this day, I still can’t see straight when I think of him. When our family vacationed at Sea Pines in Hilton Head a couple of years ago, I discovered that he’d bought a three-bedroom townhouse two doors from the one we were renting, and he was there with his family (the personalized plate on his car was the giveaway). My wife stopped me from going over and giving him a piece of my mind. “We’re on vacation, let it go,” she said.

Am I being irrational? Yeah, probably. Admittedly, over a lifetime of home ownership and investments, $10,000 or $20,000 will be a mere rounding error in our net worth. And I realize I’m going to get no sympathy from those many homebuyers who have seen their homes drop by $25,000, $50,000 or even $100,000 from what it was worth a year ago. And some homeowners now own a home that is worth less than they paid for it.

But to me, it was the principle of the matter. Our agent wasn’t intent on getting me the highest price possible–as was his fiduciary obligation–he was hell-bent on flipping a house within 24 hours after he listed it so he could move on quickly to his next client.

Anyone else have any agent horror stories? I created this thread to give fellow homeowners a place to vent, so have at it. Consider this a form of group therapy, so you too can excise your own real estate demons along with me.

And to give equal time to agents–just so you think I’m allowing our readers to take cheap shots without giving you equal time–feel free to post the habits that drives you crazy about buyers or sellers. Maybe creating a dialogue here will help us all find common group. Maybe all this therapy will help me get over my experiences with that agent from eight years ago. Heck, maybe an agent will tell me to just shut up and get over it.