Cash-out mortgage refinancing

Your house is a potential source of money if you are willing to sacrifice some of your equity in return for liquidity. Cash-out mortgage refinancing is one way to access this cash.

What is cash-out mortgage refinancing?
Cash-out refinancing involves refinancing your mortgage for more than you currently owe and pocketing the difference. If you have been paying down your mortgage for some time, then the principal is likely to be substantially lower than what it was when you first took out your mortgage. That build-up of equity will allow you to take out a loan that covers what you currently owe -- and then some.

For example, say you owe $90,000 on a $180,000 house and want $30,000 to add a family room. You could refinance your mortgage for $120,000, and the bank will then hand over a check for the difference of $30,000.

You can take the difference and use it for home renovations, second-property purchases, tuition, debt repayment or anything else that needs a significant amount of cash. What’s more, you may be able to get a more favorable interest rate for your refinanced mortgage.

However, if the interest rate offered for your refinanced mortgage is significantly higher than your current rate, this may not be a sensible choice. A home equity loan or line of credit (HELOC) might be a better option in this instance.

Typically, homeowners are allowed to refinance up to 80 percent of their property’s value. Certain lenders may allow you to borrow more than 80 percent of your home’s value, but you may have to pay private mortgage insurance, or pay a higher interest rate.

Cash-out refinancing versus home equity loans
Homeowners sometimes confuse these two pools of home-financed cash. Cash-out refinancing and home equity loans are quite different. Cash-out refinancing is a replacement of your first mortgage; HELOCs are separate loans on top of your existing mortgage. In other words, with refinancing you get a new mortgage, not a second loan against the equity in your home.

Refinancing usually makes sense only when there has been a drop in interest rates and you want to lock in a new mortgage at a lower rate for a longer term than your existing mortgage. It can also benefit those who want to refinance their mortgages for a longer term to lower their monthly payments.

5 Reasons to Pay Down Debt

The old adage, "neither a borrower nor a lender be," doesn't always apply in today's consumer economy. Still, it doesn't pay to carry more debt than absolutely necessary. Here are five compelling reasons you should pay down any outstanding loans as quickly as possible.

• You'll pay less total interest. Interest is essentially rent you pay a lender for the use of its money. The longer you keep the money, the more rent you'll pay. If, for example, you borrow $50,000 for 15 years at a rate of eight percent per year, you'll pay a total of $36,009 in interest charges. The same loan amortized over 30 years would cost $82,078 in interest. Refinancing your mortgage or auto loan over a shorter term can save you big bucks -- but only if you can afford the higher monthly payments.
  
• You'll be able to borrow more economically. When lenders calculate the rate of interest at which you can borrow, they take into account the amount of debt you are currently carrying and your ability to repay it. The greater your debt load, the greater the risk you will default on your payments and the higher the interest rate the lender will charge, to offset the risk. Pay off some debt -- particularly high-interest debt such as credit-card balances -- and you may qualify for a lower interest rate on the rest if you refinance it.
  
• You'll have greater credit to draw on. When lenders calculate how much you can borrow, they look at the amount of debt you have outstanding now and how much more you can afford to service, given your current income. If you have a big mortgage or a lot of credit-card debt and pay high monthly installments, lenders will be wary of letting you borrow much more. Pay down your debts and free up some cash each month and you'll qualify for more credit.
  
• You'll have better cash flow. By paying down debt, you'll reduce the amount of your monthly installments going forward. You'll have more money in your pocket for current expenses and extras -- and less need to borrow from high-interest lenders, such as credit card companies, for day-to-day needs.
  
• You'll reduce your opportunity cost. You could put the money you're paying in interest each month to better use if you pay off your loans. If you deposit the same amount in a savings account, you will earn interest. If you invest it in a home that appreciates in value or brings in rental income, you will make a capital gain when you sell or earn extra income while you are renting it out. You'll be better off by the annual rate of return you make on your investment plus the annual rate of interest you've been paying on your loans.

Home buyer tax credit can be used as down payment

A new federal government program will allow some home buyers to use the $8,000 first-time home buyer tax credit at closing. Prior to the new program, buyers could claim the credit on their 2008 or 2009 federal tax return, but couldn't immediately make use of the funds.

Through this new program, the home buyer tax credit can be used:

• as a down payment
• to pay settlement fees or other closing costs or
• to pay discount points to buy down the interest rate on the loan.

"We believe this is a real win for everyone," said Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, in a statement. "Families will now be able to apply their anticipated tax credit toward their home purchase right away."

How to use tax credit at closing
To use the tax credit at closing, home buyers must obtain a loan that's insured by the Federal Housing Administration (FHA). To obtain an FHA-insured loan, be sure to apply through an FHA-approved lender.

The credit can't be used toward the first 3.5 percent of the down payment on an FHA loan. That means borrowers who want to use the tax credit as a down payment must still bring at least that amount to the transaction in addition to the tax credit. The 3.5 percent down payment must come from the buyer's own funds or a gift, subject to FHA rules. However, if the borrower obtains a loan through a state housing finance agency, the minimum down payment requirement to use the tax credit at closing may be waived.

$8,000 first-time home buyer tax credit guidelines
If you want to take advantage of the first-time home buyer tax credit, make sure you understand the rules. Here’s an overview of how the tax credit works:

• The first-time home buyer tax credit is worth $8,000 or 10 percent of the purchase price of the home, whichever is less.
• The amount of the tax credit is reduced for single home buyers who earn more than $75,000 and married couples who earn more than $150,000.
• It's phased out completely for single and married buyers who earn more than $95,000 and $170,000, respectively.
• The tax credit can be taken by buyers who haven't owned a home in the last three years.
• The home must be purchase between Jan. 1, 2009, and Nov. 30, 2009.
• The credit is refundable, and there is no repayment requirement.

More information about the first-time home buyer tax credit can be found on the IRS website.

Government offers mortgage help

New government programs may be good news for homeowners who want to refinance or obtain a loan modification.

Homeowners who want to refinance their mortgage or need help to obtain a loan modification may be cheered by several recent federal government announcements.

The Federal Reserve said it will keep the benchmark federal funds rate at zero to 0.25 percent. The low target rate is good news for borrowers who have an adjustable-rate mortgage (ARM) or want to refinance, even though the Fed doesn't directly control the interest rates that borrowers pay on their loans.

These low interest rates may not be fleeting. The Fed said it expects "exceptionally low" rates to continue for "an extended period" due to current economic conditions. That's good news for buyers who need time to shop for a home and a loan.

The Fed also reiterated its plans to buy up to $1.25 trillion of mortgage-backed securities, $300 billion of Treasury securities and $200 billion of other debt instruments this year. These purchases are intended to "support to mortgage lending and housing markets," among other objectives, the Fed said in its statement.

Second loans to be modified
Meanwhile, the U.S. Treasury announced a new Second Lien Program that will lower the payment on some homeowners' second mortgages. This program is intended to help homeowners who are in danger of foreclosure qualify for a loan modification through the Making Home Affordable program. Second mortgages can create significant challenges in these situations.

The Making Home Affordable program also has a refinance component that's open to borrowers whose loan is owned or guaranteed by Fannie Mae or Freddie Mac. Through this program, homeowners may be able to refinance even if they owe slightly more than their home is worth.

A dozen or so lenders have signed formal agreements to offer the Making Home Affordable programs.

Loan principal may be reduced
The Treasury also announced a program that would require loan servicers to offer the existing Hope for Homeowners program to more borrowers who apply for the Home Affordable Modification program. Hope for Homeowners is a government program that helps to create equity for homeowners, so they can refinance into a new loan that's guaranteed by the Federal Housing Administration (FHA).

Home buyers score tax credit
For home buyers, the federal government offers an $8,000 tax credit. The credit can be taken by taxpayers who purchase a home between Jan. 1, 2009, and Nov. 30, 2009, and have not owned a home in the last three years. The credit does not have to be repaid and can be claimed on the taxpayer's 2008 or 2009 tax return. The credit is subject to income limits and is phased out for higher-income earners.

Obama administration to expand housing plan

From yahoo:

WASHINGTON – The Obama administration is expected to expand its mortgage aid program on Thursday, announcing new measures that would help homeowners avoid a blemished credit record even if they don't qualify for other assistance.

The new initiatives are expected to include ways to allow borrowers to avoid foreclosure by selling their properties or giving them back to lenders, according to people briefed on the plan who declined to be identified because it has yet to be announced.

One way would be to encourage a "short sale," in which the home is sold for less than the amount owed on the mortgage but the lender considers the debt paid off. Another option is a deed-in-lieu of foreclosure — in which the borrower gives the property to the lender to satisfy a delinquent loan and to avoid foreclosure proceedings.

Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan are scheduled to appear Thursday morning with some borrowers who have benefited from the government's housing aid program launched in March. An administration official said more than 55,000 offers have been made to modify borrowers' loans in its first two months.

Short sales are often seen as preferable to foreclosure because they don't harm a borrowers' credit record as much as a foreclosure, but real estate agents have complained that the process can drag out for months.

"The problem is it's never clear who in a bank has the authority to approve a short sale," said Howard Glaser, a mortgage industry consultant in Washington and a former HUD official. Federal standards "would speed the process for buyers and sellers by making it more efficient."

The administration estimated earlier this year that as many as 9 million borrowers will be helped through its "Making Home Affordable" initiative, including up to 5 million borrowers who are refinancing loans and 4 million who are modifying mortgages at lower monthly payments.

So far, 14 companies representing about three quarters of the mortgage market have signed up and are in line to pocket a portion of $50 billion in incentives to lower borrowers' monthly payments so they can stay in their homes.

"We are confident that banks and servicers will move as quickly as possible to modify these loans to avert additional foreclosures in the coming months," Donovan said earlier this week.

Meanwhile, the pace of the foreclosure crisis continues to accelerate.

The number of U.S. households faced with losing their homes to foreclosure jumped 32 percent in April compared with the same month last year, with Nevada, Florida and California showing the highest rates, foreclosure listing service RealtyTrac Inc. said Wednesday.

More than 342,000 households received at least one foreclosure-related notice in April. That means one in every 374 U.S. housing units received a foreclosure filing last month, the highest monthly rate since Irvine, Calif.-based RealtyTrac began its report in January 2005.

April was the second straight month that more than 300,000 households received a foreclosure filing, as the number of borrowers with mortgage troubles failed to abate.

The April number, however, was less than 1 percent above that posted in March, when more than 340,000 properties were affected.

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Qualifying to refinance your mortgage

There's no doubt about it: Lenders have tightened the guidelines they use to evaluate loan applications. That means borrowers who want to refinance their mortgage to take advantage of low interest rates may wonder whether they will qualify for a new loan. This summary should help you understand what lenders look for when they evaluate mortgage refinance applications:

How much you make and how much you owe
Lenders weigh your monthly income and debt payments through a debt-to-income (DTI) ratio. Conventional wisdom is that lenders look for a DTI that's no more than 38 percent. However, some programs are more flexible and allow a larger DTI ratio.

DTI is a complicated calculation, so you should discuss your income, debts and housing costs with at least a few lenders to determine if you’ll qualify to refinance your mortgage. If you have a high debt-to-income ratio, you may want to concentrate on paying off some of your debts prior to refinancing.

Also keep in mind that most lenders will require that you document your income with recent paycheck stubs, W-2 Forms or federal income tax returns.

How much you want to borrow and how mch your home is worth
Another factor that contributes to whether you can qualify for a mortgage refinance is your loan-to value (LTV) ratio. To calculate your loan-to-value ratio, divide the amount you want to borrow by the current value of your home. For example, if your home is worth $250,000 and you want to borrow $210,000, your LTV is 84 percent.

Most lenders look for a loan-to-value ratio of less than 80 percent to refinance. However, again, some loan programs are more flexible.

One example is the new Making Home Affordable program, which allows refinancing with up to 105 percent LTV. This program is open to borrowers who have a good track record of making their mortgage payments and whose loan is owned or backed by Fannie Mae or Freddie Mac.

A second example is the streamlined refinancing program offered by the Federal Housing Administration (FHA), which doesn't require an appraisal. This program is open to borrowers who have an FHA-insured loan.

Have you paid your bills?
Your credit score also can be an important factor in your ability to qualify to refinance your mortgage. While there is no specific minimum credit score that you'll need to refinance, keep in mind that if your credit is impaired, the interest rate and terms you'll be offered might not make refinancing an attractive option. If you have a strong credit score (and a good track record of paying your bills on time), you'll likely be offered a lower interest rate and better terms.

Remember, lenders will look at a combination of the factors mentioned above —your debt-to-income ratio, loan-to-value ratio, and credit history—along with other aspects of your financial situation to determine whether you’ll qualify to refinance your mortgage. Either way, it is best to speak directly with a lender or multiple lenders to determine your options. You can get no-obligation rates and offers from multiple lenders through LendingTree.

Also keep in mind, if you do qualify to refinance, you should still consider whether refinancing makes sense for you. The free LendingTree refinance calculator can help you figure out how long it will take you to recover your refinance closing costs through a lower monthly mortgage payment.

Details of the Housing Rescue Plan

Re-utters:

Obama's housing rescue plan aims to help homeowners refinance.

By Marcie Geffner

President Obama has announced a new housing rescue plan that aims to help homeowners who are struggling to pay their mortgage. The new plan allows some homeowners to refinance even if they owe more on their mortgage than their home is worth. The plan also includes a loan modification program. Read more about the loan modification program.

Who will benefit from the HASP housing rescue plan?
The housing rescue plan, formally known as the Housing Affordability and Stability Plan (HASP), is intended to help homeowners who haven't been able to refinance because the value of their home has declined.

For example, a borrower whose home was worth $210,000, but who owed $200,000 might be able to lower his or her interest rate by refinancing into a new 15- or 30-year fixed-rate loan.

The housing rescue plan program is open to homeowners who:

• Earn enough income to afford the payments on a new mortgage.
• Have an acceptable payment history on their current mortgage.
• Aren’t currently behind on their payments.
• Have a mortgage that's owned or guaranteed by Fannie Mae or Freddie Mac.

Fannie Mae and Freddie Mac are the two mortgage companies that were taken over by the federal government last year. To find out whether your mortgage is owned or guaranteed by either of these companies, call your lender or loan servicer.

How will the HASP housing rescue plan work?
New mortgages under the housing rescue plan will have a fixed interest rate and a term of either 15 or 30 years. Lenders may offer different combinations of rates, terms and points, so it's a good idea to shop around for a loan that will fit your needs. These loans will not have a prepayment penalty.

The best part of the HASP housing rescue plan is that it allows homeowners to refinance with a loan-to-value (LTV) ratio as high as 105 percent. For example, if your house was worth $200,000, but you owed $210,000, your loan-to-value ratio would be 105 percent. Without this plan, you might not be able refinance, but with this plan, you might be able to do so.

You will have to pay closing costs and fees, though you may be able to finance those costs as part of your new loan. If you have a second mortgage (i.e., a home equity loan or home equity line of credit), your lender must agree to subordinate that loan to your new mortgage.

The HASP housing rescue plan also contains incentives to encourage lenders and loan servicers to modify some homeowners' mortgages to make the payments more affordable. You can read details about the loan modification program here. Or, visit FinancialStability.gov to find out if you may be eligible for a loan modification.

You can find more information about the housing rescue plan on the White House blog: "Questions-and-Answers for Borrowers about the Homeowner Affordability and Stability Plan."

The Governments Economic Stimulus Plan Breakdown: $787 Billion

Now that it’s been a few weeks since our new president passed the $787 Billion Economic Stimulus Plan, it’s easier to get more details on exactly how it’s broken down. Did you know that $217 billion is allotted for state and local governments? Many of our president’s speeches touted the infrastructure and investments in efficient energy inventions but those only totaled $169.5 billion. Want to know the rest?

The Governments Economic Stimulus Plan Breakdown

Tax Cuts - $244 Billion

$99B - Payroll-Tax Holiday
$90B - Business Expenses Tax Breaks
$25B - Earned Income Tax Credit
$20B - Renewable Energy Tax Credit
$10B - Tuition Tax Credit

Aids For State and Local Gov - $217 Billion

$87B - Medicaid Cost Sharing
$79B - State Grants
$42B - State and Local Bond Tax Credit
$5B - Community Development
$4B - Rural Development

Relief - $120 Billion

$42B - Expanded Unemployment Insurance
$40B - Health Insurance for Unemployed
$20B - Expanded Food Stamps
$11B - Housing Assistance
$4B- Supplemental Social Security Income Payments
$3B - Welfare

Infrastructure - $101 Billion

$30B - Highways
$20B - School Renovation
$17B - Health Information Technology
$13B - Transportation Projects
$8B - Water Projects
$7B - Military and V.A. Construction
$6B - Accelerated Deployment of Broadband

Energy Efficiency - $59.5 Billion

$22B - Federal Energy Efficiency Grants
$19B - Other Energy Efficiency Grants
$11B - Smart Electric Grid
$8B - Renewable Energy Loan Guarantees

Human Capital - $45.5 Billion

$25B - Education Programs
$15B - Federal Pell Grants
$4B - Job Training
$2B - Scientific Research

Short Refinance

Don't Lose Your Keys. Short REFI vs Short SALE Right now, we are witnessing first-hand the worst real estate crash in U.S. history. Someday many of us will look back at years 2007-20?? and say, "Yeah, those were the days when we owed more than our houses were worth." But in the present day, in the midst of our housing crisis, we must decide what to do about it. Bottom-line is, nobody wants to lose their home, but most would rather lose that than lose money- and keep on losing it. So do I sell short or walk away? These are two things that come to mind when homeowners think about their equity lost and cutting their losses short. Unfortunately, both of these choices involve moving out of one's home and all of the trauma that goes along with it. There's hardly a bright side to either one, but what if there were another way? Today, I want to give you an alternative option to consider, which may also be for the greater benefit of our national economy: SHORT REFINANCING.
Fed Chairman Ben Bernanke said it best,
	"With low or negative equity... a stressed borrower has less ability (because there is no home equity to tap) and less financial incentive to try to remain in the home. In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure."
In layman's terms, reduce the loan balance or else the house forecloses. The easiest way for me to explain the way a short refinance works is to draw the analogy between that and a short sale. By now we've all heard or spoke about someone short selling their property, typically because they can no longer afford the payments and cannot sell it at a high enough price to payoff their existing lender. In a short sale, the lender's potential losses- by having to foreclose on a home and incur the costs of re-selling it on the open market- are reduced by accepting a buyer's offer for less than what is owed. Obviously, no bank or investor wants to accept a payoff of less than what they originally lent out, but by not accepting such an offer they run the proven risk of recouping far less than that later. Most importantly, a short sale pays the bank whatever they can get for the home NOW. In finance, we like liquidity and appreciate the time value of money. A bank can use this partial payoff and quickly re-allocate it to less risky borrowers who pay on time, thereby realizing an immediate profit. It takes at least 6 months for a bank to recover a home once a borrower misses their first payment! As bank's must report quarterly profits, 6 months can be an eternity for them to wait their money. Okay, I think we can all agree that a short sale may be in a bank's best interest if doing nothing can result in greater losses. The concept of short refinancing works in the exact same way, except in a short refi the current homeowner remains the homeowner. Let's compare these two concepts more closely:
In a short refi, the lender accepts a "short payoff" for less than what is owed, just like a short sale. This is fairly easy to understand, as a full payoff would be considered a straight forward refinance.
In a short refi, the lender should reduce the principal balance for LESS THAN the true market value of the home. This may not be so simple to comprehend as one might think the bank would be giving up more money than necessary. However, if a lender does not leave some equity in the home, a new lender would not take the risk of refinancing it. Its investors require a little cushion in the event that property values drop further. Presently, the highest loan-to-value ratio loans are being offered by FHA (Federal Housing Administration), which are capped between 95%-97.5% depending on loan amount. Even at these high levels, banks must write-down an additional 2.5-5% in order for an FHA guaranteed loan to come to the rescue and pay them off. 2.5-5% is not too much to ask, considering the bank would pay realtors a 6% commission for short selling the same home (not to mention the added closing costs). The new FHA bailout plan calls for lenders to forgive principal balances down to market value PLUS an additional 10%! *The FHA bailout is targeted towards delinquent borrowers, which is not being discussed here. More on this topic later...
For a short refi, YOU DO NOT HAVE TO BE LATE, unlike a short sale. *If you are or have been late, ask me about a "short modification." In fact, most refinance options are limited if you have been late on your mortgage. Present underwriting guidelines for FHA loans do not allow mortgage lates, unless those lates happened AFTER an Adjustable Rate Mortgage payment increase (See FHASecure). On the other hand, you may need to prove that there is imminent threat of becoming late if they decide to do nothing. For instance, you have a negative amortization loan that will balloon in payments 2X what you are paying now, and you will certainly default if the future payment is not reduced. Threatening to walk away, simply because there is no equity, may not justify a short refinance.
To enter into a short refinance negotiation with your lender, you do not have to wait for Congress to pass the FHA bailout plan (a.k.a FHA Housing Stabalization and Homeownership Retention Act of 2008). Short refinancing involves direct negotiation with your lender, at your lender's option, just like a short sale. Laws do not need to be enacted before a lender can agree to accept a lesser sum for payoff. For them, this is purely a business decision.
To enter into a short refinance negotiation with your lender, you should be able to prove financial hardship, just like a short sale. It may be difficult to convince a lender to reduce the total debt owing if you can truly afford to pay it. Remember, a lender may not be willing to accept less money unless they risk losing more by doing nothing. Lenders are aware that many borrowers would rather continue paying on their high cost mortgages instead of sacrificing their good credit. At the same time, you must be able to prove ON PAPER that you can afford principal and interest payments at the reduced loan amount.
For a short refi, you may want to take on the services of an experienced loan broker to pre-qualify and negotiate your case. Because you must be able to qualify for an entirely new loan, only a licensed loan originator can successfully fund a short refinance. The charge for my negotiation services is a flat fee of $2200 deposited upfront into my broker trust account, but collected only after I've obtained a resolution from your lender. If it is possible to earn a commission on the new loan, I may even be able to offer you a refund of your advance fee.
If they are so similar, why aren't short refis as common as short sales? I think it has a lot to do with banks having to deal with the idea of rewarding their borrowers for not honoring the original terms of their agreements, and the domino effect of having to reduce balances for otherwise "good loans." Things are different now. Banks have greater incentive to workout terms with existing homeowners, since their repos simply aren't selling. Besides, I think we're way past the concern of rewarding speculators and investors who made bad investment decisions. The overall health of the national economy is at stake. Since early 2007, I have been deeply concerned about how I can assist my clients who have zero or negative equity in their homes. Finally, I can help. It is my strong belief that offering home loan and loss mitigation services now go hand-in-hand, as many home sales and refinances cannot and will not happen unless principal balances are negotiated DOWN. Please stay tuned for my write-up on "short modifications." By: Randy Miguel

First Time Home Buyers

The Nehemiah Corporation believes Congress and President Bush will ban its down-payment assistance "gift" program within days as part of the $300B FHA bailout bill, Nehemiah President and Chief Executive Officer Scott Syphax acknowledged Monday.

What does this mean? NO MORE DOWN PAYMENT ASSISTANCE (DPA). The Nehemiah gift was a way for many first time buyers to purchase homes with no money down. It is unfortunate that this will no longer be an option. HOWEVER, there is an alternative. Right now, participating sellers typically credit 3% towards a Nehemiah "gift" plus an additional 3% towards buyer closing costs (up to 6% total) - where 3% is hardly enough to cover closing costs for an FHA loan. Although DPA is soon to vanish, sellers can still assist buyers by crediting a full 6% to closing costs instead - where a majority of that would go towards a rate buy down on the loan. Although buyers must now come up with 2.5%-5% of their own money, if the "would-be gift" were instead used for such a buy down, the monthly payments on the loan would be substantially lower. Basically, if a seller credits the same amount to the buyers closing costs instead of routing the funds through Nehemiah as a Gift, buyers would save much more in the long run through lower monthly payments and reduced compounding interest.

Latest Loan Modification News

Two of the primary government sponsored entities, Fannie Mae and Freddi Mac, are making an aggressive move to modify hundreds of thousands of mortgages across the United States. Requirements for consideration of relief are 3 part:

• You must occupy your home.
• You must be 90 days delinquent (non intentional, of course)
• You must have a loan-to-value ratio of 90% or greater. To put it more simply, you must have little or no equity in your home.

First thing homeowners must determine is if their loan is guaranteed by Fannie or Freddie. This program does not include the option to write down mortgage balances down to their present market value. If you'd like to be considered for this or other available relief programs, please send me an email to randymiguel@gmail.com.

Who's Gonna Bailout the Homeowner?

Who's Gonna Bailout the Homeowner?
Bailout after Bailout
Earlier this month, I was hopeful that the bailout legislation would be revised to directly help homeowners and not just banks. Didn't happen. The bailout as it was passed will not stop foreclosures, and as you can tell, I do not have much faith in our government's ability to fix things overnight. In fact, Bush himself says that will take some time to figure out how to resolve our credit crisis. Unfortunately, for most delinquent homeowners, there is not much time left. After missing one mortgage payment, it takes only 6 months for a lender to foreclose on a home.

SO WHAT NOW?

For homeowners, there is "hope" as it is sold. There's the HOPE for homeowners program. There's the Hope hotline or HOPE Now Alliance. Countrywide has a Hope Department for deliquent borrowers. Is it real hope or just a government campaign to boost confidence in times of dire straits? Honestly, I think it's a little bit of both. Obviously, the government does not want you to give up hope so you'll continue paying on your mortgages, but there are very promising programs either in effect or being discussed by lenders now that will make your payments more affordable. In this article, I'll make an attempt to explain what can be done sooner rather than later, for the delinquent and/or upside-down homeowner, based on loss mitigation programs offered by these lenders.

FHA Bailout a.k.a HOPE for Homeowner's Program

I've reviewed this in depth in my previous FHA bailout update, but in short, it gives seriously delinquent homeowners a chance to refinance at a reduced loan balance, equal to present market value minus another 10%. The idea is to give homeowners, who are near foreclosure, real incentive to stay in their homes by lowering their payments and giving them back some lost equity. The catch is that 1) the current lender MUST AGREE to the write-down at their option only; 2) all subordinate liens (2nds or 3rds) on the subject property must be non-existent; 3) you must own only ONE home; 4) you cannot make too much money but still enough to make the new loan payment; 5) you must agree to share equity with the government if you later sell or refinance; and 6) you must not have intentionally gone late to qualify for the program. I receive an unbelievable number of calls about this program, and as of 10/07/2008, it is still not available on the wholesale mortgage level. As with any new programs, it may take yet another several weeks for banks to train loan staff, program automated systems, and release underwriting guidelines. More importantly, no one lender wants to be the first to offer such a risky loan product, in terms of the complexity involved with this short refinance transaction. Official information on the HOPE for Homeowners program can be found at FHA.gov. Even there, you'll see that FHA has not yet published a list of participating lenders, although the program was effective October 1st. If you think you qualify for this program, please email me directly at randymiguel@gmail.com, and I'll reply once it becomes available. If I already have your email address, you can expect to receive a follow-up announcement the same day I receive the broker alert to begin submitting applications.

Remember, the primary take away here is that your lender MUST AGREE to accept less than what they are presently owed. And if you have a 2nd equityline of credit or equity loan, that lender MUST ALSO AGREE to completely forgive that debt. Very soon, I'll be directly negotiating with lenders to convince them that taking the write down makes more financial sense than foreclosure. However, you must understand that as of right now, there is no incentive for banks to accept this lesser amount other than the tax write off and to cut their losses short. Like I've mentioned before, short sales are no different in net payoff to the lender, besides the fact that the borrower remains in the home. So it should be a no brainer to the lender then, that they should accept FHA bailout loans in any case where the borrower qualifies. Unfortunately, they [lenders] haven't learned to put 2 and 2 together, and it's my job to teach them how to add.

One possible draw back to the $700B bailout of banks, is that the Feds are now offering to buy up a significant amount of bad debt. Considering delinquent mortgages are classified as bad debt, why would banks agree to a balance write down if they can sell your loan to the Feds instead? Will the Feds then modify your loan? Quite possibly. In fact, I read verbage in the bailout plan that stated the government's ability to modify the acquired loans. Perhaps they [the Feds] will then approve you for the FHA bailout program after acquiring the debt from your bank. It will be interesting to find out what the impact of the $700B bailout will have on the FHA bailout, and banks' willingness to accept short payoffs through the HOPE for Homeowners program. Because there is presently little incentive for banks to participate, likely candidates will be homeowners who are in clear and imminent danger of foreclosure if the lender decides to do nothing. In the near future, I'll make certain to keep you posted with my successes and failures in negotiating these loans. Again, I'd be happy to assess your situation if you think you might be a strong candidate.

Countrywide (Bank of America) Bailout

Yesterday 10/06/2008, Bank of America announced their "Home Ownership Retention Program for Countrywide Customers." This plan was actually forced as a settlement to predatory lending lawsuits filed against Countrywide. Even if you do not have a Countrywide loan, please continue reading as this may set a precendent for other banks with severely delinquent loans in their portfolios - which is pretty much all of them. The program allocates $8.7 billion for nationwide relief, where $3.5 billion is slated for California alone. 400,000 loans will be examined across the nation, assuming all eligible borrowers participate for possible relief. Bank of America has acknowledged that they may also require the cooperation of investors, who own the loans through mortgage securities. This creates a problem, since Bank of America may not be the sole decision maker on the workout. All troubled homeowners with Countrywide mortgages should inquire with the lender or seek professional assistance for negotiation. Program highlights include complete suspension of foreclosure, reduced rates as low as 2.5%, and principal balance reductions for certain borrowers. How do you become one of the select borrowers to receive a balance reduction over a reduced rate? You may want to take a proactive approach rather than passively wait for a letter in the mail. As with the pending FHA bailout, I'll soon be negotiating terms for this Bank of America bailout as well. Please contact me if you would like to be informed as soon as this program becomes available.

IndyMac Bailout

The Federal Deposit Insurance Corp. is now renegotiating loans that were acquired from the now defunct IndyMac Bank. Likewise, it has announced a similar program to modify loans that were originated by the failed lender. When entering into negotiations with IndyMac, FDIC will ultimately make a decision on your loan modification claim. IndyMac customers have an advantage in negotiation, as their loans are not owned by investors with an eye towards profits. Although the federal government will also make money on its loans, it may be more likely to produce a favorable workout since it secured its loan portfolio for pennies on the dollar. Make certain that your loan modification package is prepared by someone who thoroughly understands your situation and who has the ability to effectively communicate your situation to the FDIC.

Washington Mutual (JPMorgan Chase) Bailout

Be aware of ongoing bank mergers and takeovers. Troubled Washington Mutual customers can expect that JPMorgan will soon address their newly acquired mortgage holdings. In fact, the company expects to write down more than $30 billion in loans. Existing WAMU borrowers should hang tight, in anticipation that more favorable workout solutions will be made available in the coming weeks.

Wachovia (Citi or Wells?) Bailout

Yesterday 10/06/2008, Citigroup sued Wells Fargo over its recent merger agreement with Wachovia. No matter the result, Wachovia (and ex-World Savings) customers can expect similar workout programs to be enacted by the new owning bank. If you presently hold a Wachovia loan, and are now in default, you will want to make contact with the lender to prevent your home from foreclosure, but maybe not be so quick to demand a loan modification. Once the acquisition is complete, it will not be long before a real modification program is put in place. Due to the pending merger, you can expect interim workouts to offer little homeowner benefit, as there is limited authority to modify the loan in the borrower's favor. Bottom-line, present Wachovia management has little say so when approving a loss. If you can, wait for the real decision makers to settle your loan. Ultimately, the new Wachovia owner may follow Bank of America's lead in writing down loan balances rather than offering temporary payment relief.

Direct Lender Negotiation

If your loan is held by another lender that was not mentioned here, or if it is managed by an unknown servicing company, you may indirectly benefit by the aggressive actions of the government and other major banks, because this is a "follow-me" industry. Financial institutions know what needs to be done to fix our housing crisis, but no lender wants to go first. Banks do not want to see their investors flee as they become known for settling on their bad debt. Even worse, they do not want to be sued by their investors for settling on their bad debt. Sadly, it took class action lawsuits to persuade Countrywide to take an aggresive action in loan workouts. Very soon, you'll hear about balance write-down modifications that were previously not considered for Countrywide customers. These write downs will echo throughout the industry. And hopefully, banks that are now standing on the sidelines for short refinances and write-downs will soon follow suit as they become the acceptable norm. In the meantime, enter into loan modification negotiations with your lender if you can present a clear and imminent threat of foreclosure, AND if you can prove that threat will be extinguished if a modification agreement is reached. But do so with caution, because you might accept a temporary workout agreement in haste, when a more favorable resolution may be right around the corner.

As always, feel free to email me with questions or concerns about your specific situation. I'd be glad to help.
-Randy Miguel

Car Refinance

If you are thinking about car refinance, there are several factors to consider. As with any financial decision, it is important to be fully informed first.

What is a car refinance loan?
A car refinance loan pays off an existing auto loan with a new loan. It’s really quite simple: Your current auto loan and title are transferred to your new lender. You then simply make your car payments to the new lender.

When should you get a car refinance loan?
Ask yourself the following questions as part of the decision-making process:

1. Did you get your auto loan from the dealership? Although you may have gotten a great deal on the car, you probably didn’t get the best deal on the financing if you used the dealership. If your car is dealer-financed, that might be the first sign that car refinance is right for you.

2. Do you have an upside-down loan? An upside-down loan means that you owe more for your auto loan than the car is worth. Car refinance may be able to correct this situation. No one wants to trade-in or sell a vehicle and find out that the money given for the car won’t even cover the balance on the auto loan.

3. Is your interest rate high? Your interest rate may be higher than it should be, especially if you originally got your auto loan through a dealership. Also, rates may have fallen since you first got your loan. Using car refinance to get a lower rate is usually a good idea.

4. Is your monthly payment too high? If you get a lower interest rate through car refinance, your monthly payments should fall, too. However, avoid the mistake of stretching out the term of your auto loan. Although it may yield lower monthly payments, that is also the surest way to end up with an upside-down loan.

If all or even most of the above questions apply to you, then you may be a good candidate for car refinance.

If you have decided that car refinance is for you, then you must look into your options. A good place to start is at LendingTree.com where you can compare auto loan offers from up to four different lenders. That way, you can find a rate that you like and get a better auto loan through car refinance.

Sources: Lendingtree.com

Car Insurance Company

The top ten car insurance companies in North America offer different features and bells and whistles to their clients, but most function under similar principles of sales and premiums. Finding out which is the best auto insurance company is not an easy task but one of the best ways to do this is compare how the companies stack up against one another. If the total coverage and liability offered by most companies is examined, differences will be found that can help make a better choice in terms of the type of insurance that is best.

The largest American car insurers is Esurance, a company that offers a online car insurance quote. Upon arriving at the web page (http://www.esurance.com), customers can get their online car insurance quote within minutes by simply inputting their zip code and some basic facts. Esurance offers 24-hour, seven-day customer support service and has a plethora of online options for getting your quote and your policy information as quickly as possible.

The next largest on the list of auto insurers is Progressive Insurance. Progressive Insurance offers comparisons to their competitors, right on the website, and claims to be able to deliver a quote in eight minutes through their representatives. They also have over thirty thousand brokers across the United States.

Third, GEICO Direct offers the friendly Gecko as a mascot and a claim center for reporting accidents or known issues in a relatively quick time. They boast friendly service in terms of getting quotes and reporting claims. GEICO also promotes an "umbrella" package that puts all of a family's insurance policies under one umbrella plan.

Fourth, 21st Century Insurance brings about easy-to-manage policies and online bill payments as a part of their way to get in touch with their customer base quicker than the competition. 21st Century Insurance also offers to estimate car insurance online as quickly as possible, enabling customers to find their auto insurance estimate on the website at their convenience.

You will find that the Comparison Market, American Automobile Association, Car Insurance Quotes, Mercury Insurance Group, the National Motor Club, and Hagerty Insurance round out the list of the top ten car insurers. These companies promote similar systems to the aforementioned and still compete for your premium car insurance insurance dollars. Car insurance is the product that these companies sell and, without a doubt, car insurers will continue to haggle to try to be the best auto insurance company for years to come.

Sources: streetdirectory.com

Refinancing

Refinancing

Refinancing refers to the replacement of an existing debt obligation with a debt obligation bearing different terms. The most common consumer refinancing is for a home mortgage.

Advantages:
Refinancing may be undertaken to reduce interest rate/interest costs (by refinancing at a lower rate), to extend the repayment time, to pay off other debt(s), to reduce one's periodic payment obligations (sometimes by taking a longer-term loan), to reduce or alter risk (such as by refinancing from a variable-rate to a fixed-rate loan), and/or to raise cash for investment, consumption, or the payment of a dividend.

In essence, refinancing can alter the monthly payments owed on the loan either by changing the loan's interest rate, or by altering the term to maturity of the loan. More favourable lending conditions may reduce overall borrowing costs. Refinancing is used in most cases to improve overall cash flow.

Risks:
Most fixed-term debt contains penalty clauses (known as "call provisions") that are triggered by an early payment of the loan, either in its entirety or a specified portion. In addition, there are also closing and transaction fees typically associated with refinancing debt. In some cases, these fees may outweigh any savings generated through refinancing the loan itself. Typically, one only rationally considers refinancing if the potential for a substantial cost savings exists, or if there is a need to extend the loan due to weak cash flow or other non-recurring commitments.

In addition, some refinanced loans, while having lower initial payments, may result in larger total interest costs over the life of the loan, or expose the borrower to greater risks than the existing loan, depending on the type of loan used to refinance the existing debt. Calculating the up-front, ongoing, and potentially variable costs of refinancing is an important part of the decision on whether or not to refinance.

Sources: wikipedia