Steve and Lisa's Mortgage Morsels

If you're not behind on your mortgage payments but have been unable to get traditional refinancing because the value of your home has declined, you may be eligible to refinance through MHA's Home Affordable Refinance Program (HARP). HARP is designed to help you get a new, more affordable, more stable mortgage. HARP refinance loans require a loan application and underwriting process, and refinance fees will apply.  Call us today to find out if you qualify!  866-954-4252 (Toll free).

+ Eligibility

You may be eligible for HARP if you meet all of the following criteria:

•The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.

•The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.

•The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.

•The current loan-to-value (LTV) ratio must be greater than 80%.

•The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.

*Eligibility criteria are for guidance only. Contact your mortgage servicer to see if you are eligible for HARP.

+ Program Availability & Steps to HARP Refinance

•Determine whether your mortgage is owned or guaranteed by Fannie Mae or Freddie Mac by calling Iltis Lending Group (866) 954-4252 (Toll Free).

Program ends December 31, 2013.

A sale pending sign sits outside a home in San Rafael, Calif. The new mortgage fee may make loans unaffordable for some people, but the effect probably would be modest, banking analyst Bert Ely said. (Justin Sullivan, Getty Images)

The payroll tax cut extension lauded as a victory for the American middle class will in part come at the expense of homeowners and homebuyers who will see an increase in mortgage costs. A loan guarantee fee paid for by loan originators like Fannie Mae and Freddie Mac will be increased as part of the measure, and that cost is expected to get passed on to mortgage holders. The tax-bill provision is set to last for 10 years, which experts believe will make it harder for the two insolvent loan servicers to be phased out. Further, it is expected to cause more delays in the housing recovery by raising mortgage costs, creating a true hidden costs to what should have been a boon for the U.S. economy. For more on this continue reading the following article from Money Morning.

Americans had better enjoy the extra $40 they'll continue to get in their biweekly paychecks for the next two months, because most of them will be paying for it many times over in the form of higher mortgage costs.

Lost in the contentious debate over the payroll tax cut extension - a 2% cut in U.S. workers' Social Security tax - was the devious way Congress devised to pay for it.

The law that Congress passed - and U.S. President Barack Obama signed - included a provision that will increase a guarantee fee that finance companies Fannie Mae and Freddie Mac charge to mortgage loan originators - a fee that will get passed on to borrowers as a slightly higher interest rate.

"We understand the desire by Congress to extend the payroll tax [cut] because so many Americans are hurting right now," David Stevens, president of the Mortgage Bankers Association, told the Los Angeles Times. "But the cost of that is going to be directly paid for by a whole other set of Americans who use Fannie Mae and Freddie Mac for their mortgages."

The 0.1% increase doesn't sound like much - it would add $11 a month to the payment on a $200,000 loan and $18 a month to a $300,000 loan. But it adds up over the life of a 30-year mortgage.

A $200,000 loan would end up costing $3,863 more, while a $300,000 loan would cost $6,246 more. That's quite a premium to pay for an average payroll tax cut benefit of less than $200, and most people will never even know they're paying it.

The hidden tax, which goes into effect April 12, will affect most people buying or refinancing a home, as Fannie Mae and Freddie Mac account for about 60% of the U.S. mortgage market. It is scheduled to last 10 years in order to produce the $37.5 billion needed to cover the payroll tax cut extension and an extension of unemployment benefits for up to 99 weeks.

Now Congress Is Stuck

By creating a decade-long dependence on the fee, Congress has made it far tougher to untangle the government from Fannie and Freddie, which bear much of the blame for the subprime mortgage crisis that triggered the financial meltdown in 2008.

That's when the federal government took control of both Fannie and Freddie to avert a failure due to billions of dollars in loan defaults. With the ensuing bailout having cost American taxpayers $153 billion, you'd think Fannie and Freddie would have few friends.

"The goal was, at the beginning of the year, how do we wind these down?" Edward Pinto, a resident fellow at the American Enterprise Institute, told Bloomberg News. "And at the end of the year we have further entrenched them and made it more difficult to wind them down, which is classic Washington."

Indeed, several proposals from both President Obama and Congress that would have started the process of getting the federal government out of the mortgage business faded away as the year went on.

"They're both insolvent wards of the government," said Money Morning Capital Waves Strategist Shah Gilani. "They have to be phased out eventually."

But now that Congress has seized upon Fannie and Freddie as a source of revenue, they could be with us for many, many years to come.

"It's the precedent here that is troubling," Anthony Sanders, a professor of real-estate finance at George Mason University, told The Wall Street Journal "This isn't going to help Fannie and Freddie pay back what they owe and almost adds a permanency to Fannie and Freddie as a slush fund for Congress and the administration."

Making More Trouble

In addition, the diversion of the new money into the U.S. Treasury defeats the purpose of the existing loan guarantee fee, which is to compensate Freddie and Fannie for loan risk as well as cover their overhead. After the debacle of 2008, it hardly makes sense to send money intended to prevent such disasters elsewhere.

Finally, the new tax won't do the struggling housing market any favors by raising the cost of borrowing.

"Housing doesn't need any more speed bumps, and this is a speed bump," Jaret Seiberg, senior financial policy analyst at Guggenheim Partners told the Los Angeles Times. "It's not a big one, but every extra penny that it costs to finance a home puts that much more downward pressure on home prices."

No wonder America hates Congress.

"It's a stupid, stupid idea,"Ken Rosen, chairman of the Fisher Center for Real Estate at UC Berkeley, told the San Francisco Chronicle. "[Guarantee fees] should be actuarially determined, not a function of fiscal policy. Making it harder and more expensive to get a mortgage at this time is insane. [Housing] is far more important to the economy than a payroll tax cut."

Written by: David Zeiler

Each comprise 10 percent of the total credit score. Borrowers, even those new to credit, should avoid opening too many credit lines at the same time, since such behavior could suggest they are in financial trouble and need significant access to lots of credit. FICO suggests that borrowers only take on additional credit when they must have it or when it makes sense financially.

Credit mix: This is somewhat of a vague category, but experts say that repaying a variety of debt indicates the borrower can handle all sorts of credit. According to FICO, historical data indicates that borrowers with a good mix of revolving credit and installment loans generally represent less risk for lenders. Knowing the various weights given to components of a FICO credit score give borrowers a better idea where to focus their attention.

"So to get a good score you mostly need a credit history with no reported late payments, as well as low reported balances currently on any credit cards," Watts says.

15 percent of the total credit score is based on the length of time each account has been open and the length of time since the account's most recent action. As a result, it is impossible for a person who is new to credit to have a perfect credit score. A longer credit history provides more information and offers a better picture of long-term financial behavior. Therefore, to improve their credit scores, individuals without a history should begin using credit, and those with credit should maintain longstanding accounts.

30 percent of the total credit score is based on a borrower's total outstanding debt. Revolving lines of credit, which allow a consumer to borrow as much or as little as desired up to a limit (versus installment loans where a set amount -- say, $20,000 plus interest for a car – is determined at the outset), are more heavily weighted. Credit cards are a type of revolving account. Since FICO views borrowers who habitually max out credit cards -- or who get very close to their credit limits -- as people who cannot handle debt responsibly, a borrower should maintain low credit card balances. Experts recommend that the amount owed should not exceed 30 percent of the individuals credit limit. That 30 percent rule of thumb applies to each individual credit card as well as the overall level of debt.

The final components of a FICO credit score get less weight in the score's calculation. "The remaining one-third of your score is determined by how long you have managed credit, to what degree you have pursued new credit recently and the variety of credit types you have successfully handled," Watts says.

35 percent of the total credit score is based on a borrower's payment history, making the repayment of past debt the most important factor in calculating credit scores. According to FICO, past long-term behavior is used to forecast future long-term behavior. FICO keeps an eye on both revolving loans -- like credit cards -- and installment loans, such as mortgages or student loans. Although the weight of each loan varies between individuals, FICO indicates that defaulting on a larger installment loan like a mortgage will damage a credit score more severely than defaulting on a smaller revolving loan. One of the best ways for borrowers to improve their credit score as a whole is by making consistent, timely payments.

http://www.iltislending.com/MortgageMorsels

Have a great weekend everyone!

Payment history and debt total are important parts but not the only factors in the land of credit scores, FICO is king. The bulk of banks in the United States use FICO scores to decide whether to offer credit to potential borrowers and at what interest rate. FICO has a major global presence, as well. According to the company's testimony before a House Financial Services Committee, FICO scores are used in about 10 billion decisions worldwide each year.

So how does FICO come up with its widely used score?
While the inner workings of the FICO scoring system are a closely guarded secret, the company is open about the general components of a FICO credit score. Using the information in a borrower's credit report, FICO breaks that information into categories. Those five components each get different weights. "FICO scores give the most attention to how you have paid back lenders in the past and how much you are using of the credit available to you, as shown on your credit report. Those two factors contribute roughly two-thirds of a typical person's FICO score," says FICO spokesman Craig Watts.

Prior to obtaining a mortgage approval, buyers are required to have the prospective property appraised by a licensed professional, which is typically arranged by the lender. The appraisal is a detailed report about the value of the home and assures the bank that the home’s value is equal to the purchase price. The best case scenario is that the appraisal supports the purchase price. Savvy buyers will include a contingency clause in their purchase agreement that the property will appraise for asking price or better.

To determine the value of the home, the appraiser will take many things into consideration: the condition of the home, the neighborhood, what similar homes are selling for in your area, and how quickly similar homes sell. The appraiser’s focus will be, for the most part, on the square footage of the home, the lot size, the number of bedrooms and bathrooms, garage space, and deck/porch space.

If an appraisal comes in less than asking price what are my options?

Sometimes, an appraisal can come in lower than the asking price. This can throw a wrench in the gears of the closing process because a lender will typically loan only 80 percent of the appraised value. For example, a seller agrees to a homebuyer’s offer to purchase the home for $250,000. The buyer agrees to put 20 percent, or $50,000, as a down payment and applies for a mortgage to cover the remainder, which totals $200,000. If the home is appraised at $220,000, the bank will mortgage only 80 percent of that amount ($176,000), not the $200,000 the buyer needs.

What to do:

There are several options you can exercise to keep a home sale from stalling out if an appraisal comes in lower than expected. First, review your appraisal to learn what comparable properties were used and why the value came in where it did. If you believe the appraisal is off the mark and if you can provide enough evidence to support a different value, you may be able to have the appraised value modified by contesting it. Contesting an appraisal is best done with the guidance of a real estate professional.

If you opt to try to get the appraisal modified, bear in mind that quick action is important. As the buyer, you must find adequate financing in order to close or complete the sale within the agreed-upon period. If interest rates rise during the appraisal-related delay, further financing problems can also arise. The time it takes to contest the appraisal may be longer than the contingency clause in your agreement.

You can also renegotiate the purchase price with the seller. This may be easier than you think: if you walk away from the purchase, the seller loses the agreement of sale as well as the cost of inspection and other costs. In addition, there is no guarantee that the seller will find another buyer or that a re-appraisal will come in for the asking price.

The last resort is to walk away from the purchase. As mentioned above, because your sales contract most likely has a contingency clause, you can cancel the purchase contract and get your earnest money back, as long as you do so within the contingency period.

Sources:

MacDonald J. How to avoid a low home appraisal [online]. Bankrate [cited 2011 Aug 23]. Available from Internet: http://www.bankrate.com/finance/real-estate/how-to-avoid-a-low-home-appraisal-1.aspx 2011

Kass B. Contingency clauses aid buyer when home's appraisal value falls short of loan amount [online]. The Washington Post. 25 September 2004. Available from Internet: http://www.washingtonpost.com/wp-dyn/articles/A47864-2004Sep24_2.html.

 Some of the "cash needed to close" as it's sometimes called includes settlement costs and fees, prepaid interest, escrow reserves, state or local government charges, or even extra funds needed to pay off your existing mortgage. Some or all of those costs can sometimes be financed as part of your new mortgage loan.

But you have to be careful. It's not always the case that you can borrow up to 100 percent of your home's value. Many loan programs are based on what's called a "loan-to-value" ratio. You may qualify for a very advantageous refinanced mortgage if you borrow no more than 80 percent of your home's value, but may not qualify for the same terms if you borrow 90 percent. We can help you qualify for refinance loan programs for as much as 125 percent of your home's value in some cases, but the lower your loan-to-value ratio (that is, the less you borrow), the better terms you'll generally qualify for. 

The bottom line is that in many cases you can reduce your up-front costs for refinancing your mortgage in exchange for higher monthly payments for the life of the loan. But whether, and to what extent, you can do this depends on the value of your home and the amount of your new mortgage, and what options you decide are best for you.

If you've had your current mortgage for a few years, chances are you've built up enough equity to finance cash needed to close and still have a smaller loan balance than your original -- and a balance that will qualify you for a favorable mortgage program tied to your loan-to-value ratio. We can help you decide!

Many people find that it's advantageous to pay the cash needed at closing from checking, savings or money market accounts or from other assets. This is because the less you borrow on the new refinanced loan, the lower your monthly payment will be. But we'll work with you to see if there is an advantageous refinancing program for you based on your ability and willingness to pay closing costs and other fees and the amount you wish to borrow.
We want to make the best loan for you, work for you!

http://www.iltislending.com/FinancingClosingCosts

Generally, ARMs determine what you must pay based on an outside index,LIBOR[ London inter Bank Offered Rate, the one-year Treasury Security rate, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others. They may adjust every six months or once a year. LIBOR is the most common index today

Most programs have a "cap" that protects you from your monthly payment going up too much at once. There may be a cap on how much your interest rate can go up in one period -- say, no more than two percent per year, even if the underlying index goes up by more than two percent. You may have a "payment cap," that instead of capping the interest rate, directly caps the amount your monthly payment can go up in one period. In addition, almost all ARM programs have a "lifetime cap" -- your interest rate can never exceed that cap amount, no matter what.

ARMs often have their lowest, most attractive rates at the beginning of the loan, and can guarantee that rate for anywhere from a month to ten years. You may hear people talking about or read about what are called "3/1 ARMs" or "5/1 ARMs" or the like. That means that the introductory rate is set for three or five years, and then adjusts according to an index every year thereafter for the life of the loan. Loans like this are often best for people who anticipate moving -- and therefore selling the house to be mortgaged -- within three or five years, depending on how long the lower rate will be in effect.

You might choose an ARM to take advantage of a lower introductory rate because you anticipate paying the mortgage off before the fixed rate period is over.

http://www.iltislending.com/FixedVs.Adjustable