San Diego Union-Tribune – Shopping a mortgage can translate into hundreds to thousands of dollars in savings over time, but many buyers fail to do so.

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USA Today – Spurred by low interest rates and a desire to pay off their debts, homeowners are shortening the terms of their loans.  In the first quarter, 34 percent of refinancers switched to a 20- or 15-year loan, the highest level in seven years, according to Freddie Mac.

San Diego Union-Tribune – The Obama administration’s key program for modifying troubled mortgages has failed to help the vast majority of Americans facing foreclosure, according to the bipartisan Congressional Oversight Panel, which monitors the federal bank bailout program.

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Well-qualified borrowers with good loan-to-value ratios and steady employment are increasingly finding it difficult to refinance because of medical billing mistakes impacting their credit reports and scores, according to mortgage bankers and real estate agents.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Nearly 14 million Americans have errors on their credit report due to medical collections, according to the Commonwealth Fund, a non-profit organization focused on health care research.
• Unnoticed credit errors, such as small, unpaid balances on medical bills, can make refinancing a mortgage difficult or, in some instances, impossible.  If approved for a refinance, unpaid bills can result in the borrower paying higher closing costs.
• It is critical that consumers routinely review their credit reports to ensure the reports are accurate and up-to-date.  Consumers are entitled to one free credit report annually from https://www.annualcreditreport.com/cra/index.jsp.  The report does not include the credit score; however, the score can be obtained for a small fee.
• The U.S. House of Representatives passed a bill this fall that could provide relief for homeowners with medical-debt troubles.  The Medical Debt Relief Act, which is currently in the Senate, would remove settled medical debt from credit reports after 45 days, instead of the customary seven years.

Read the full story from the Wall Street Journal

Government Sponsored Enterprises (GSE) Fannie Mae and Freddie Mac last week released guidelines for implementing the Treasury Dept.’s Home Affordable Foreclosure Alternatives Program (HAFA).  The new guidelines apply to loans owned or guaranteed by the GSEs; servicers are required to implement the new policies no later than Aug. 1. 

While largely consistent with the HAFA guidelines for non-GSE mortgages, both Fannie and Freddie have implemented changes. To qualify for the Freddie Mac HAFA program, borrowers must be more than 60 days delinquent and have cash reserves of less than $5,000 or three times the current monthly mortgage payment, whichever is greater.  Similar to the non-GSE HAFA program, Fannie Mae allows borrowers to qualify if they are at imminent risk of default.  However, Fannie prohibits borrowers from participating in HAFA if the borrower: Has the ability to continue making mortgage payment, but chooses not to do so; has substantial encumbered assets of significant cash reserves equal to or exceeding three times the borrower’s total monthly mortgage payment or $5,000, whichever is greater; or has high surplus income.

Fannie and Freddie both allow the real estate commission in the listing agreement, but not more than 6 percent.  Consistent with the non-GSE HAFA program, Fannie and Freddie guidelines do not permit subordinate lien holders to require contributions from the real estate agent or borrower as a condition for releasing its lien and releasing the borrower from personal liability.

Homeowners wanting to pay off their mortgage earlier than planned can do so by making extra principal payments.  One extra full principal and interest payment a year will reduce a 30-year loan to about 17 years, and adding the following month’s principal payment to the current one will cut the loan almost in half.  It is important that borrowers tell their lender the extra money is to be credited to principal.  Homeowners should keep records of their payments and review it once a year to be certain the lender has followed directions.

Private mortgage insurance (PMI) generally is required for home buyers whose down payment is less than 20 percent.  PMI may be added to the mortgage payment each month to protect the lender should the borrower default.  By law, PMI generally must be canceled automatically when the loan balance reaches 78 percent of the home’s original value.  However, lenders also may agree to cancel this coverage upon a borrower’s request when the balance declines to 80 percent of the current value, if certain conditions are met. Borrowers who have made their payments on time each month for five years should contact their lender or loan servicer to obtain all the details on cancelling the coverage.

- Mick Orton

From SFAR - Three new videos—one entitled Recognizing the Bottom, another entitled First-Time Incentives and a third entitled Can I Get a Jumbo—have been added to the Association’s Spotlight with Tom Sinkovitz video series. REALTORS^® who have placed a link to the series on the home page of their web sites need not do anything. When a visitor clicks on the link, a window opens up and displays all of the videos in the current series by subject. The video on whatever subject the visitor finds interesting can be viewed by clicking on an arrow next to the subject. Although it is not apparent to the visitor, the window is a page from the Association’s web site, www.sfrealtors.com, which contains all of the current Spotlight videos. When the window is closed, a visitor is back on the REALTOR’S^® home page.

With the addition of these three videos, there are now eleven that are viewable. They cover the following subjects:

1. Recognizing the Bottom
2. First Time Incentive
3. Can I Get a Jumbo?
4. Appraiser
5. Green Homes
6. Value of Green
7. Why It Makes Sense to Use a REALTOR^®
8. Shared Equity Mortgages, An Alternative for Some
9. What to Do If You Have a Problem Mortgage
10. Fighting Foreclosure (What you can do about the threat of foreclosure)
11. Curb Appeal (How to make your home stand out)

To view the videos, click on the following link: http://www.sfrealtors.com/media_center.html

Background

Tom Sinkovitz, the KNTV political reporter and anchor, has been working with the San Francisco Association of REALTORS^® for two years producing video features on contemporary real estate subjects. The features, called “Spotlight with Tom Sinkovitz”, are intended to be of interest to clients and prospective clients of REALTOR^® members and a link to them is intended to be posted on the home page of each member’s web site. To obtain the link, click on http://www.sfrealtors.com/media_center.html. To post the link, send the “landing page” on which the link appears to your web master and ask the person to add the link to the home page of your web site. Alternatively, you can obtain the code needed to paste the link into the home page of your web site on the same landing page and do the work yourself, if you have the technical expertise to do so.

The video features are intended to serve several purposes. First and foremost, they are intended to underscore the value of using a REALTOR^® in real estate sale and purchase transactions, with validation coming from clients and real estate service providers. Second, they are intended to provide the public with information they need to know to better understand the dynamics of the current real estate market. And, third, they are intended to establish REALTORS^® as the “go to” professionals for everything having to do with real estate.

A new study found that borrowers who receive loan modifications that reduce loan balances, and not simply interest rates, are less likely to redefault on the loan, according to the Federal Reserve Bank of New York.

Principal reductions are more successful at avoiding redefaults because they reduce negative equity and provide the borrowers with greater incentive to remain current on the loan, according to the study.  The study also found that borrowers who owe 15 percent or more than their homes’ value have a 51 percent higher risk of redefaulting in any given month.

Near historic low mortgage rates, favorable home prices, and the federal tax credit for first-time home buyers have contributed to home purchases in the past year.  However, the onset of the credit crisis, new regulations for home appraisals, and more stringent guidelines for purchases and refinances have resulted in confusion for some potential home buyers.

While using a mortgage broker to find the best loan may work for some buyers, it may not always be the best route.  In the past, mortgage brokers could “shop” a loan to multiple lenders to help find the best deal.  However, new practices and procedures under the Home Valuation Code of Conduct (HVCC) have hampered mortgage brokers’ abilities, namely that lenders may no longer accept home appraisals commissioned by brokers.  As a result, consumers may have to pay for new appraisals with each lender, which costs time and money.  However, consumers who are very busy or need guidance may find that working with a mortgage broker is the easiest solution.

Qualifying for a mortgage under current lender standards is more difficult nowadays than in years past.  Beginning Nov. 1 or Dec. 12, depending on the type of loan, Fannie Mae is tightening its lending standards to the 620 credit score benchmark—including loans backed by the Federal Housing Administration and Veterans Affairs.  Borrowers with credit scores of less than 620 will find it very difficult to qualify for a mortgage.   However, to qualify for the best rates, consumers generally need credit scores of 720 and must have verifiable, steady income.

As for loan type, most real estate professionals agree that a fixed-rate mortgage is the best choice for buyers and refinancers.

(Editor’s Note: In the event readers missed it the first time around, here’s another glimpse at the Mortgage Disclosure Improvement Act (MDIA))

Starting July 30, 2009, if the APR on an initial Good Faith Estimate is no longer accurate (within a 0.125% range) at close of escrow, a lender must generally provide a residential borrower with a new disclosure and a three-day right to rescind before consummating the loan.  Because of this new three-day waiting period, a lender’s failure to timely provide corrected disclosures has the potential of delaying funding of the loan and close of escrow.

This new requirement is part of the Mortgage Disclosure Improvement Act (MDIA) implementing new loan procedures to protect borrowers and foster greater transparency in mortgage lending.  For loan applications submitted on or after July 30, 2009, the new MDIA changes to the Truth in Lending Act are generally as follows:

• Applicability: The new MDIA rules pertain to federally-related mortgage loans covered under RESPA and secured by a consumer’s dwelling.  The rules apply to both purchase and refinance loans.
• Early Disclosures: A lender must provide a borrower with an initial Good Faith Estimate within three business days of receiving the borrower’s written loan application as specified.  For this provision, a “business day” is generally defined as a day on which the lender’s offices are open for business.
• Upfront Fees Restriction: Neither a lender nor any other person may impose an upfront fee on the borrower (except for credit report) until the borrower has received the early disclosures in person or, if mailed, three business days after the early disclosures are mailed.  For this rule, a “business day” is defined as all calendar days except Sundays and legal public holidays as specified.
• Seven-Day Waiting Period: A lender must wait seven business days after providing the early disclosures before consummating the loan.  For purposes of this waiting period, a “business day” is defined as all calendar days except Sundays and federal legal holidays as specified.  A borrower may waive the waiting period in writing in case of personal financial emergency, such as an imminent foreclosure sale.
• Re-disclosure Requirement: If the final Annual Percentage Rate (APR) at loan consummation varies more than 0.125% (or 1/8 of one percent) from the initial APR on the early disclosures of a regular transaction, the lender must provide the borrower with a corrected disclosure at least three business days before the loan is consummated.  For purposes of this waiting period, a “business day” is defined as all calendar days except Sundays and federal legal holidays as specified.
• Three-Day Waiting Period: For corrected disclosures, a lender cannot consummate a loan until three business days after the borrower receives the corrected disclosure in person.  If the corrected disclosure is mailed, the borrower is deemed to have received it three business days after it is placed in the mail.  A borrower may waive this waiting period in writing in case of a bona fide personal financial emergency, such as an imminent foreclosure sale.

The new MDIA rules and regulations are set forth at 74 Federal Register 23,289 (May 19, 2009) (to be codified at 12 CFR 226) and are available at http://www.federalreserve.gov/reportforms/formsreview/RegZ_20090519_ffr.pdf.

- San Francisco Association of Realtors