What are you waiting for??

Do you know that a 1% rise in interest rates will wipe out 10% of what you can buy? Get off the fence! There has never been a better time to buy than right now.

Take a look at this well-written advice.

How do foreclosures affect your home's value?

J.L. Boney sends these sobering thoughts. Can you find the holes in his argument?




So you've decided to sell your house and you are well aware of the fact that homes for sale in your community have involved foreclosed properties. All those homes that sold in the past 6 months were bank owned and they weren't sold by an individual, but instead, they were sold by those evil banks that got us into this mess in the first place. Not only did the Cretans foreclose on the homes and kick out homeowners, but now they step in and undercut the prices of other sellers and steal their buyers. But we don't have to price our house the way the bank does, because ours is not a foreclosure, so we really don't have to worry about because ours is worth more.

Well, welcome to the harsh reality of what I like to refer to as the truth. It's not always a fun thing, but you have to face it if you want to be successful in today's market. All those foreclosed properties in your community do affect your home. They do lower the market value in a lot of cases, because the banks do lower their prices to aggressively market their properties. As a result, the market value of comparable properties like yours does change.

I know that's not at all what you wanted to hear. In fact I didn't really want to say it, but it needed to be said. You can't ignore the facts.

The facts are unfortunately something that we all have to face and foreclosures and bank owned properties are a fact of life today. They are your competition and you do have to price your house for sale in accordance with the current market value for your community.

Another horrible fact to face is that pricing is one of the most important things to focus on when selling a house. Having a house that's in great condition is also extremely important, but if you find yourself overpriced by ten or twenty thousand dollars, you don't stand a chance of moving any time soon. So while you may be able to get a little more for your house due to its better condition, you may want to lose the theory that your house isn't affected by foreclosures. Unfortunately, we all are, and we just have to accept it and move on.

Short sales and foreclosures

Thinking about making a killing by buying a short sale or a foreclosure? Print this information before going ahead:

Are you being treated fairly?

If you have a few moments to read this transcript from last night's Nightly News Hour, please leave a comment on whether you feel somehow ignored because you make your mortgage payments on time. 

One remark is especially interesting: homeowners who deliberately refuse to make their mortgage payments for 90 days are being offered better terms than those who make (and have made) their payments on time!

Fighting foreclosure

You might want to share this post with someone you know who is worried about foreclosure.

The recent agreement by federal regulators and mortgage lenders to freeze interest rates for five years on certain subprime, adjustable rate mortgage loans is intended to help many homeowners avoid foreclosure.

However, for homeowners who have missed mortgage payments and may not qualify for the program, working with a credit counseling agency will allow them to explore alternatives to foreclosure, more commonly known as “workout solutions.”


“The agreement announced in early December is an effort to help people with adjustable rate loans stay in their homes,” said Suzanne Boas, president of Consumer Credit Counseling Service of Greater Atlanta, Inc. “However, most of the people who are turning to us for help are currently delinquent on their loans, having missed payments for a variety of reasons, ranging from reduced income to large medical expenses. We are working every day to find ways to help these families stay in their homes, too.”

Under the agreement announced Dec. 6, borrowers with interest rates scheduled to adjust between January 2008 and July 2010, who are no more than 60 days late and would be unable to afford their new mortgage payments can have their rates frozen for five years.

At CCCS of Greater Atlanta, Inc., certified housing counselors work with homeowners to analyze their current financial situation, communicate with their mortgage lender and outline a variety of options that may allow them to keep their home. If the homeowner has the desire to stay in their home, there are four common plans that CCCS counselors typically explore with their lenders.

Here are four recommended options:

Repayment Plan — This is the most common workout plan for any household that is 1-3 months delinquent on their mortgage payment.

Under this scenario, a homeowner sends in their normal payment plus an additional amount each month that is agreed upon by the mortgage lender. Repayment terms typically span from 3-24 months and the terms of the loan are not changed.

Loan Modification — A loan modification is a written agreement between the servicer and homeowner that changes one or more of the original loan terms, such as the interest rate, term of the loan or type of mortgage.

Under a loan modification, the monthly payment often is not reduced, though the interest rate usually will not “reset” to a higher rate or will be rolled back to the initial rate. This can be a solution for a family with an adjustable rate loan where the rate has recently increased, or is about to increase.

Forbearance — A forbearance is similar to a repayment plan, but this agreement usually applies to people who have experienced a major financial setback, such as one-time medical expenses or a temporary loss of income. The borrower must be able to prove that they have a new job or a new source of income to resume making their regular monthly payments in the future.

A forbearance allows the homeowner to send in no payment or a reduced payment for a collected during the plan by either doing a reinstatement, a repayment plan, or a loan modification.

Partial Claim (FHA) — In effect, this is a second loan for anyone with a loan guaranteed by the Federal Housing Administration (FHA). The mortgage loan is brought up to date by securing up to 12 months of past due principle, interest, taxes and insurance in a separate, interest free note that is payable when the original mortgage is paid off.

To qualify, a homeowner must be at least 4 months delinquent on their mortgage loan, but no more than 12 months. The new loan enables them to pay off the amount they are “in arrears” and immediately brings their mortgage loan up to date. There are no extra payments or extra interest. A lien is placed on the home and the amount needed to make the loan current is deducted when the home is sold.

For more information, visit http://www.cccsinc.org/.

Tips for renters when a landlord forecloses

RISMEDIA, Dec. 5, 2007-Sixty-seven-year old Sharron Shagonaby was looking forward to a quiet Christmas at home - a home she has rented for more than a year, and has never missed a rent payment. Now, thanks to her landlord, she has just five days to get out - a hidden victim of the foreclosure crisis. What should tenants be doing to protect themselves?

“One of the hidden casualties of the foreclosure crisis are the tenants.” says Chip Cummings, CMC, a 25-year mortgage industry veteran and author. “When the landlord doesn’t make the mortgage payment and goes into foreclosure, most leases are worthless, and even the best renters are being hit with eviction notices.”

Statistics show that just over 20% of all foreclosures are rental properties, and in almost every state, a foreclosure trumps the lease - and without warning, tenants are being evicted in as little as 3-5 days. So what can renter do to protect themselves? Here’s a few precautions they can take:

- In all cases, notice of the foreclosure must be served on the property. Look for notices posted on doors, and if suspicious, check with your county for a filing notice of the foreclosure action.

- Ask for a credit report on your landlord, or at least three credit references to be satisfied that they are making their payments. Check for overdue utility bills or notices. Look for deferred maintenance on the property. Even small items that have been ignored could raise a red flag for a foreclosure action.

- Is the property all of the sudden for sale? Check with the real estate agent to find out why they are selling and how motivated they are. Be wary of deep-discounted listing prices and incentives. Check your rent checks to see if they have been assigned to a third-party agent in recent months.

- If you are aware of a foreclosure action on the property, don’t pay the landlord - pay your rent into an escrow account and contact an attorney who specializes in foreclosure property issues.

- File a legal action against the landlord for “non-performance” on the lease, and try to recover expenses, damages and the costs of relocating you incur as a result of the foreclosure.

- Call the new owner (the foreclosure lender) directly, and try to negotiate a short-term lease and offer to protect the property for them while you search for new housing.

Cummings is the author of “Mortgage Myths - 77 Insider Secrets to Saving Thousands on Home Financing.” A 25-year mortgage industry veteran and international speaker, he has been interviewed on Fox News, NBC, numerous radio & print media, and has authored dozens of articles.

How mortgage payments and interest are calculated

By Jack Guttentag
Syndicated Columnist

The thing that most borrowers know about their mortgages is the amount of the initial scheduled payment.

This is the amount they are obliged to pay each period under the terms of the mortgage contract. They know that failure to pay that amount is a violation of the contract, leading to late charges, delinquency reports and foreclosure. While borrowers know the amount, they are often hazy about how it is calculated and what it includes. I will illustrate the possibilities related to a $100,000 loan at 6 percent.



In the simplest possible case, the scheduled payment includes only interest until the final payment, when it includes repayment of the balance.

The interest payment each month is 0.06/12, or 0.005, multiplied by $100,000, which equals $500. The final payment, assuming the borrower paid only interest throughout, would be $100,500.

Most mortgages written during the 1920s were of this type, usually with terms of five or 10 years.

Their weakness is that they must be refinanced at term, which during the Depression of the 1930s became difficult because property values and borrower incomes had fallen.

The notion took hold that it was prudent for borrowers to pay down the balance over time by making a mortgage payment larger than the interest. This additional amount is called the principal payment.

The principal payment is always a residual -- the total payment less the interest. If the borrower in the example paid $600, the $500 of interest would be deducted, leaving $100 as the principal payment. If the borrower paid $700, the principal payment would be $200.

Including principal in the scheduled payment requires a rule for determining what that payment is. The most obvious rule is to pay back equal amounts of principal every month. If our sample loan is for 30 years, we divide $100,000 by 360 to get a principal repayment of $277.78 a month.

Loans of this type have existed, most recently in New Zealand, but they have a serious drawback. The scheduled payment that includes a fixed amount of principal every month starts high -- too high for many borrowers -- and ends low because of the decline in interest. In month one, the scheduled payment is $277.78 plus $500, or $777.78. In month 360, it is $277.78 plus $1.39, or $279.17.

So some unknown pundit reasoned as follows: "If payments beginning at $777.78 and declining every month to $279.17 will pay off this loan, there must be some amount in between, which, if made every month without change, would do the same."

The reasoning is correct -- the amount ($599.56 in my example) is called the fully amortizing payment.

The fully amortizing payment is calculated from an equation that my editor says does not belong in a family publication. It is on my Web site (www.mtgprofessor.com) under "Formulas." But you don't need the equation; financial calculators have programmed it so you can derive an answer in seconds, whereas solving the equation takes minutes.

The only way to reduce the initial payment is to reduce the principal payment.

On mortgages with an interest-only option, the scheduled payment is the interest payment for the length of the interest-only period, usually five to 10 years. After that, the scheduled payment becomes the fully amortizing payment.

On option ARMs, borrowers have the rare privilege of selecting their own scheduled payment during the first five or 10 years.

They can select the fully amortizing payment over either 15 or 30 years, the interest-only payment, or a "minimum" payment that is less than the interest.

Most borrowers select the last, and sometimes find themselves in trouble when their scheduled payment increases in future years.

If the borrower has agreed to escrow property taxes and homeowners insurance, most lenders treat the monthly escrow payments as if they are also part of the scheduled payment; if the escrow payment is short, the payment is considered delinquent.

A borrower can start down a slippery path to foreclosure by failing to pay required escrows.

The writer is professor emeritus of finance at the Wharton School of the University of Pennsylvania: jguttentag@mtgprofessor.com.

A mortgage meltdown quiz

By Ralph Roberts

RISMEDIA, Oct. 18, 2007-You have been reading about the mortgage meltdown and seeing daily news reports about the record number of foreclosures. Mortgage lenders are dropping like flies. Even large companies such as Countrywide Mortgage are feeling the crunch, having to borrow billions of dollars to keep their doors open. Based on what you have read, heard, and seen in the media, maybe you feel as though you have a pretty good grasp of what is going on and what caused it, but how much do you really know?

To find out how savvy you really are about this mortgage meltdown, take the following single-question quiz:

Why have so many mortgage lenders gone out of business?

A. Homeowners are unable to make their payments.

B. Massive amounts of real estate and mortgage fraud.




If you are among the multitudes of the ill-informed, you probably chose A. And if this were the 1950s, perhaps you would have been correct. Back in the 1950s when banks loaned money directly to people who were unable to repay the debt, the banks took a direct hit to their bottom line. They felt the pain.

In the current system, most banks rely on brokers to originate the mortgage loans. These brokers typically have loan officers who work for them and are in charge of selling loans to consumers, helping the consumers fill out their loan applications, and performing other tasks to expedite the loan process. Loan originators receive a commission for every loan that’s approved, and because they are lending someone else’s money, they take on risk only indirectly.

When someone borrows $300,000 to purchase a home, for example, the broker receives 2 points at closing for a total of $6,000. They then package the loan with other loans and sell it to the market at 104% or $312,000. In this case, the originator just “earned” $18,000 off the mortgage loan-the $6,000 commission plus the $12,000 markup.

When bad loans are traced back to mortgage fraud, misrepresentations, and misdeeds, originators takes a double hit. They are forced to buy back the bad loans, and the lender cuts off access to future transactions. With huge chunks of money flowing out and little or no money flowing in, the mortgage originator is forced to close up shop. That is what is currently happening and why we are now seeing a mortgage meltdown.

When interest rates were low and housing prices were soaring, mortgage fraud was rampant, but the problem remained hidden because homeowners were awash in equity. Credit was easy to get, and mortgage brokers and loan officers made it even easier. If an applicant couldn’t qualify for a particular loan, the loan officer would simply encourage the applicant to fudge the numbers or would fudge the numbers on the applicant’s behalf. If a home buyer wanted a larger loan to cash out some money at closing, you could always find an applicant to accommodate-inflating the appraisal to make the property appear to be worth more than it really was. Loan officers were tripping over each other to approve risky loans and nab their commissions.

MILA, a subprime wholesale lender that was based in Mountlake Terrace, Washington shut down during the spring of 2007, primarily due to the fact that its loan officers were responsible for huge numbers of fraudulent loans. Several employees who refused to go on the record reported that they passed along proof of fraud committed by at least one of the company’s loan officers. This person made so much money for the company that instead of firing its employee, MILA relocated and promoted the person.

Now that the housing market is in a slump, it’s as though the water has been drained out of the pond, and now we can see what is at the bottom… a whole lot of muck.

Ralph Roberts is a real estate fraud expert and activist and co-author of Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership (Kaplan, August 2007).

Visit http://www.flippingfrenzy.com or contact Ralph at RalphRoberts@ralphroberts.com or 586.751.0000.