Filed under: News, Financing, Foreclosures, Home Equity

By Les Christie @CNNMoney

NEW YORK -- Despite rising home prices, more than 30 percent of borrowers, or close to 16 million homeowners, were underwater on their mortgage during the first quarter, according to Zillow.

The percentage of borrowers who owed more on their home than it was worth increased to 31.4 percent during the quarter, up slightly from 31.1 percent three months earlier, according to Zillow. In the year-ago period, 32.4 percent of all borrowers had negative equity on their loan.

The uptick in underwater homeowners occurred even though home prices have slowly started recovering. On Wednesday, the Federal Housing Finance Agency reported that national home prices rose a modest 0.6 percent during the first quarter, the first price gain since 2007.

Nevertheless, the percentages of homeowners who were underwater on their homes remained high as delays in the processing of foreclosures kept many delinquent borrowers on the balance sheets, said Zillow. Once a bank repossesses a home, the mortgage holder's negative equity is no longer considered part of the tally.

Most underwater borrowers, however, do not lose their homes. Nine out of 10 underwater borrowers are current on their mortgage payments and continue to make payments on time, Zillow said. Only one-tenth of these borrowers are seriously late on payments, by 90 days or more.

"[It's] important to note that negative equity remains only a paper loss for the vast majority of underwater homeowners," said Stan Humphries, Zillow's chief economist. "As home values slowly increase and these homeowners continue to pay down their principal, they will surface again."

Negative equity is still a big risk, however, since it makes homeowners more vulnerable to financial setbacks, such as a medical emergency, job loss or other unexpected expense. If they don't have their home's equity to fall back on, it increases their chances of spiraling down into foreclosure.

Having a high percentage of underwater homeowners is also bad for the economy because it can trap borrowers in their homes and prevent them from pursuing employment opportunities elsewhere, according to Humphries. That can make it more difficult for them to advance their careers and for companies to find skilled workers.

Where homeowners are struggling to stay afloat: Of the 30 large metro areas covered by the Zillow report, Las Vegas has, by far, the highest percentage of underwater borrowers at 71 percent. Home prices there are down a whopping 62 percent from peak, according to the S&P/Case-Shiller home price index. A quarter of Vegas borrowers owe more than double what their homes are worth.

Other big markets where more than half of borrowers are underwater include Phoenix (55.5 percent), Atlanta (55.2 percent), Orlando, Fla. (53.8 percent), Riverside, Calif. (53.4 percent), and Sacramento, Calif. (51.2 percent).

Cities with fewer foreclosures, including Pittsburgh, New York, Boston and San Jose, Calif., all had less than 25 percent of borrowers underwater.

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Filed under: News, Advice, Financing

Pay more now for a chance to save much more later? That's the idea behind paying "points" on a mortgage loan. But it doesn't necessarily make sense for every homeowner.

Mortgage points provide an opportunity for borrowers to lower their monthly mortgage payments by paying a lump sum at a loan's closing in exchange for a lower mortgage interest rate over the course of a loan.

Mortgage points are a smart option for borrowers who plan to stay in the same mortgage and not refinance for a relatively long period of time. But points are not recommended for borrowers who are likely to relocate or refinance in the not-so-distant future.

Borrowers pay points in order to lower their mortgage interest rates by a certain amount. The cost of one point is equal to one percent of the mortgage amount. In the case of a 30-year fixed-rate mortgage, paying one point will typically lower your interest rate by somewhere around one eighth of a percent, according to Tim Dwyer, chief executive officer of Entitle Direct, a title insurance company.

So if borrower A paid one point on a $200,000 mortgage with what would have been a 4 percent interest rate, she would lower her interest rate to 3.875 percent (4 percent -- 1/8th percent) for the cost of $2,000.

A good way of looking at points is to view them as an investment that "yields a return for the longer you stay in your house," mortgage expert Jack Guttentag writes.

If Borrower A stays in the same mortgage for only a few years before selling her home or refinancing, she may end up not saving enough in monthly payments to justify paying the $2,000 upfront. But if she stays in the mortgage for a longer period of time, she eventually breaks even on her investment and enjoys saving money every month from there on out.

"If the points are reasonable, I want to pay that upfront and enjoy the interest rate savings over 10 years because I know I'm not going to refinance," Dwyer says. But if "you're a young couple" and "you know you're going to have more babies, you know you're going to be moving out," then you should avoid paying points.

Banks may offer 10 or more point combinations on any given loan, Guttentag writes, and borrowers often don't end up selecting the option that aligns most with their interests, simply out of ignorance. You can use a point calculator to find out how long it would take to break even using different point combinations.

In a perfect world, borrowers would pay points only if it benefited them in the long run. But, in fact, many borrowers pay points out of necessity. Why?

Lenders will only allow borrowers' monthly mortgage payments to equal up to a certain percentage of their monthly income. Often they will only approve loans for borrowers whose monthly mortgage payments would not exceed 28 percent of a borrower's monthly income.

Paying points allows a borrower who otherwise wouldn't qualify for a loan because of income limitations to lower his or her monthly payment to the extent that the bank is willing to make the loan.

Some banks offer "negative points," a rebate paid by lenders toward a borrower's closing costs. "Negative points" lower closing costs for a mortgage, but raise its monthly interest rate. They can be a good option for borrowers who are hard-pressed to cover closing costs with zero points or who intend on moving or refinancing in a few years.

Follow Teke Wiggin on Twitter (@tkwiggin), follow @AOLRealEstate, or connect with AOL Real Estate on Facebook.


See also:
Mortgage Jargon in Simple Terms
Real Estate Terms and What They Mean
Don't Be Surprised by Expenses of Homeownship

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Filed under: News, Financing

By James O'Toole

The federal government is considering a new set of rules on mortgage origination that it says would make the process simpler and more transparent for borrowers.

The Consumer Financial Protection Bureau, created as part of the Dodd-Frank financial reform law, said Wednesday that the new rules will focus on mortgage points and fees, the current complexity of which can make it difficult for homebuyers to assess different loan offers. The rules would also include new standards for officials in charge of mortgage origination.

"We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them," CFPB head Richard Cordray (pictured above) said in a statement.

Mortgage origination is thought to have played a key role in the housing crisis, as so-called "predatory lenders" steered borrowers into complicated loans that they couldn't afford, which later went bust in large numbers. Originators are a focus of the Obama administration's mortgage crime task force, announced in January.

Among other things, the rules under consideration would prohibit incentive payments to mortgage originators who steer customers into higher-priced loans, following on a similar rule issued by the Federal Reserve Board in 2010.

Origination officials, such as mortgage brokers and loan officers, would be required under the new rules to go through training and undergo background checks. Origination charges that vary with the size of a borrower's loan would be banned.

The rules will likely be proposed formally this summer before being finalized in January of next year, the CFPB said.

Last month, the bureau outlined a set of new rules under consideration for mortgage servicers. These regulations would require clearer mortgage statements for borrowers and better disclosures about any fees or changes in a loan's interest rate.

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Filed under: News, Financing

By Martin Crutsinger

WASHINGTON -- Average U.S. rates for 30-year and 15-year fixed mortgages fell to fresh record lows this week, offering more incentive for Americans to buy or refinance homes.

Mortgage buyer Freddie Mac said Thursday that the rate on the 30-year loan fell to 3.84 percent, the lowest since long-term mortgages began in the 1950s. That's below the previous record rate of 3.87 percent reached in February.

The 15-year mortgage, a popular option for refinancing, dropped to 3.07 percent, also a record. The previous record of 3.11 percent was hit three weeks ago.

Cheaper mortgage rates haven't done much to boost home sales. Rates have been below 4 percent for all but one week since early December. Yet sales of both previously occupied homes and new homes fell in March.

Analysts suspect some of that weakness reflected a warm winter, which pulled sales that would normally occur during the spring buying season into January and February.

Still, many potential buyers can't qualify for loans or afford higher down payments required by banks. Home prices in many cities continue to fall, making those that can afford to buy uneasy about entering the market. And many who can afford to buy or refinance have already taken advantage of lower rates.

Mortgage rates are lower because they tend to track the yield on the 10-year Treasury note. Mixed news on the U.S. economy and Europe's debt crisis have led investors to buy more Treasurys, which are considered safe investments. As demand for Treasurys increases, the yield falls.

To calculate the average rates, Freddie Mac surveys lenders across the country on Monday through Wednesday of each week.

The average rage does not include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for 30-year loans was 0.8 last week, up from 0.7 the previous week. The fee on 15-year loans was 0.7, the same as last week.

The average on one-year adjustable rate loans also dropped to a record low of 2.7 percent last week, down from 2.74 percent last week. The fee on one-year adjustable rate mortgages was 0.6, unchanged from last week.

Copyright 2012 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

See also:
Home Sales See Best 1st Quarter in 5 Years, Realtors Report
Buying a Home Won't Get Much Cheaper
Avoiding Foreclosure: More and Better Options Available Now

 

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Filed under: Advice, Financing, Credit

By Ismat Sarah Mangla,
Money Magazine

Finding an affordable house is no longer a problem but qualifying for a mortgage can be. Here are six tips to getting a mortgage and a good rate.

1. Put your credit on ice.

The higher your credit score, the lower your rate: The best rates go to those with a 760 or more, says credit-score expert John Ulzheimer.

So keep that plastic in your wallet (and don't apply for new cards or other loans) for at least three months before you go loan shopping. One large balance -- even if it's paid off at the end of the month -- can ding your score by 20 points or more.

2. Ask for time.

Most sales contracts give you only 10 days to nab a loan or the seller can move on. Negotiate for an additional five to 10 days to give you some room to shop around.

3. Get at least six quotes.

Rates on a 30-year fixed conforming loan can vary at least as much as a quarter of a percentage point. Get quotes from national lenders at mortgagemarvel.com and find out what your local credit union or regional bank is offering as well. Inquire about fees; while lenders aren't required to give you a good-faith estimate of closing costs (which average 2 percent of the loan balance) until you actually apply, some will provide it if you ask.

4. Match the lock period to the loan.

You now need 60 days or more to close a loan, says Wharton professor and mortgage expert Jack Guttentag of mtgprofessor.com, and getting an extension on a lock will cost at least a couple of hundred dollars. Ask your lender how long it's taking to close loans like yours -- and don't lock for less.





















5. Opt for an ARM.

If you know you're not going to be in a house for more than seven years, adjustable-rate mortgages can mean big savings, says Guttentag. The monthly payment on a $300,000, seven-year ARM at the recent rate of 3.23 percent is $1,302, vs. $1,455 for a 30-year fixed at 4.13 percent.

6. Talk to a broker.

Those who need a jumbo loan or have an unusual situation (say, you're self-employed) will get the best deal from a mortgage broker who has access to and experience with a lot of lenders. Find a fee-only one at upfrontmortgagebrokers.org.

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Filed under: News, Financing

By Les Christie @CNNMoney

NEW YORK -- Not only can Costco shoppers find bulk-packs of chicken wings, 24-rolls of toilet paper and large-screen TVs at a discount, they can now land themselves a mortgage.

After a year of testing, Costco is rolling out a full-service mortgage lending program on its website in partnership with First Choice Bank, a New Jersey-based community bank, and 10 other lenders.

Costco's partners have issued more than 10,000 mortgages to members under the program. But Lauren Kutschka, Costco's manager of financial services, expects that number to swell as the warehouse retailer markets the service more aggressively to millions of members in its stores and in its weekly publication Connection.

"I went in to buy some bottled water, big bags of chips, cereal and some Nutri-Grain bars that I eat on my route," said Ray Sheets, a FedEx courier from Canton, Ga. "I saw a home loan brochure on my way out and picked it up."

Sheets went onto Costco's site, put in his information and quickly accessed offers from four lenders. The rates, closing costs and terms were listed up front. And the closing costs -- of about $2,500 -- were about a third of what he would have had to pay through other lenders, he said.

Within a few weeks, Sheets refinanced his $170,000, 15-year fixed mortgage carrying a 4.25 percent rate into a 30-year loan with a rate of 4 percent. The move lowered his monthly payment by nearly $500 to $811 a month.

Mortgages are just one of several financial products available to Costco's members. The warehouse club also offers health and auto insurance, as well as stock brokerage services, said Kutschka.

"We've always known that our members wanted more financial services," she said. "Right now, we offer recreational vehicle and boat loans, and we're going to add auto loans to that. We're also looking to offer student loans."

Costco had started offering mortgages a couple of years ago, but the service provider it was using didn't share enough details about how it was dealing with Costco's members, said Kutschka. So Costco started over from scratch, partnering with First Choice Bank to build a new mortgage lending portal.

Much like LendingTree, the site gathers quotes from various lenders. However, there is one key difference. Under the Costco program, the borrower's identity is revealed only after they officially select the lender, said John Alexander, business development director at First Choice.

With many other lead-generation sites, the consumer fills out an application and any lender can make an offer and begin sending marketing communications to the applicant without restrictions.

Costco members will still need to do their homework and compare offers, though, said Keith Gumbinger of mortgage information company HSH.com. Even after a year of testing, Costco's service is still new.

First Choice said it will police the other lenders to ensure they comply with Costco's policies, which include giving accurate rates and terms, and following up quickly on questions and requests. The technology enables Costco to monitor individual applications and make sure that they are handled properly and expeditiously.

Costco takes no profit on the lending itself, but it does get paid to market the service.

In Sheets' case, his lender, Bank of the Internet, sent a representative -- an attorney -- to his home to close on the loan, he said. She answered all his questions and explained all of the legal terms in the contract.

"There were no surprises," he said.

Gumbinger said the service may prove better for people like Sheets, who are refinancing than those who are purchasing homes.

"The mortgage origination process is still a hands-on, face-to-face process," he said. "It involves a comfort level and you don't get that with an online service."

That may be true in the initial stages of the borrowing process, but once a Costco borrower has chosen a lender, the level of service steps up, as in Ray Sheets' case.

Given the size of Costco's footprint and its ability to squeeze great deals out of vendors, Costco members should at least "include the site in their search plan," said Gumbinger.

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Filed under: News, Financing

The Consumer Financial Protection Bureau has announced its intention to crack down on discrimination by lenders against women and minorities.

On Wednesday the agency -- a centerpiece of President Barack Obama's attempt to reform the nation's financial system -- sent a letter to lenders, which it called "Fair Notice on Fair Lending." In the letter, the CFPB explains that the Equal Credit Opportunity Act "makes it illegal for a creditor to discriminate against any applicant because of race, color, religion, national origin, sex, marital status, age [or] receipt of income from any public assistance program." Credit availability "often determines an individual's effective range of social choice and influences such basic life matters as selection of occupation and housing." Without discrimination-free access to credit, in other words, many consumers will be prevented from accessing housing on equal terms.

The agency goes on to warn lenders of its plans to enforce existing regulations and to act against even those lending policies that may not be discriminatory in intent, but nonetheless have adverse effects on protected groups.

"It is important to recognize that this subtle but powerful form of discrimination creates damages that are no less direct than the kind of overt and blatant discrimination that, we hope and assume, is increasingly a relic of a bygone era," said CFPB Director Richard Cordray in a speech to the National Community Reinvestment Coalition, according to Reuters.

"Our economy is in the process of recovering from the worst financial crisis since the Great Depression," Cordray said. "We cannot afford to tolerate practices that either price out or cut off segments of the population -- such as women, the elderly, or communities of color -- from the credit markets."

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Filed under: News, Financing, Foreclosures

WASHINGTON -- The Obama administration is offering some relief to homeowners who have government-backed mortgages. Under a program President Barack Obama unveiled Tuesday, the government would cut the fees it charges to insure those borrowers.

The idea is that lower fees would persuade millions to refinance their loans while interest rates are near record lows. It's the administration's latest attempt to minimize the damage from the foreclosure crisis and help more people keep their homes.

Here's a look at the program:

Q: What has the administration proposed?

A: Borrowers with mortgages insured by the Federal Housing Administration could refinance at half the current fee. A lower fee would follow years of rising mortgage insurance premiums. FHA is also reducing an up-front premium when it initiates a loan. The FHA charges the fees on top of standard interest rates because it backs riskier borrowers.

Q: Who's eligible?

A: The administration estimates 2 million to 3 million homeowners. Most are first-time or low-income homebuyers. The FHA requires only a 3.5 percent down payment. And borrowers don't have to prove that they're employed. FHA borrowers can also refinance even if they're "underwater," or owe more on their mortgage than their home is worth.

Q: How much will those who get the reduced fees actually benefit?

A: The fee is now 1.15 percent of the mortgage balance each year. Those fees are unappealing to many borrowers who want to refinance. The plan would cut the fee to 0.55 percent. The current up-front premium would also be lowered, from 1 percent of the loan balance to .01 percent. As a result, a borrower who owed $175,000 on their mortgage could save about $1,750 in one-time fees and more than $1,000 per year in annual fees by refinancing. The borrower could save nearly $150 a month more if the interest rate declined from 5 percent to 4 percent.

Q: Can those who are eligible be excluded from other government housing programs?

A: Most of the other federal housing programs, including its signature refinancing and mortgage modification programs, target other types of homeowners. So there's little overlap with the FHA's refinancing plan. For example, the administration's refinancing and mortgage modification programs are for homeowners whose mortgages are owned or backed by government-controlled Fannie Mae and Freddie Mac, not the FHA.

Q: Will it work?

A: Possibly, if the reduced fees are well-advertised and borrowers are confident of saving on their mortgage payments by refinancing. If homeowners are wary of paying even a small amount to refinance, the program could fail to reach millions who are eligible. Economists said the lower fees are a modest way to help the troubled housing market but won't turn it around. "The only thing that will do that are low interest rates and job growth," said Susan Wachter, a professor of real estate at the University of Pennsylvania's Wharton School. Stan Humphries, chief economist at the real estate website Zillow.com, predicted that a separate plan to compensate military service members who were wrongfully foreclosed upon would be a big help to that group. It's unclear how many military service members would benefit.

Copyright 2012 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

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Filed under: News, Financing

WASHINGTON -- The U.S. Department of Housing and Urban Development charged Bank of America Corp. on Monday with discriminating against three disabled borrowers in Michigan and Wisconsin.

The nation's biggest bank is accused of violating the federal Fair Housing Act in 2009 and 2010. The act prohibits lenders from discriminating against disabled borrowers, among other provisions,

Bank of America imposed "unnecessary and burdensome requirements" on borrowers who relied on disability income to qualify for their home loans, the government said. The bank also required some disabled borrowers to provide statements from their doctors to get loans, according to the government.The cases involved individuals living in Oscoda and Lapeer, Mich., and Eau Claire, Wis.,

In a statement, Bank of America said it followed different but tougher Federal Housing Administration guidelines in all three cases and blamed "inconsistencies" in different laws regulating housing discrimination.

"There is no basis to allege that Bank of America has engaged in a systemic practice of discriminating on the basis of disability in connection with mortgage lending," the statement said.

The Justice Department is also reviewing the case.

HUD can impose sanctions of up to $65,000, but in cases brought by the Justice Department, civil penalties up to $100,000 may be imposed.

Copyright 2012 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

Also see:
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Filed under: News, Financing

Qualifying for a loan in today's tight credit market is hard. But add race to the mix, and a borrower's odds can go from bad to worse, a new report suggests.

In a study of loans created on Prosper.com, a peer-to-peer lending website where applicants are encouraged to include a personal photo, researchers found that black borrowers are 25 to 35 percent less likely to receive funding than a white borrower with similar credit.

The report, entitled "What's in a Picture? Evidence of Discrimination From Prosper.com," studied 110,000 loan applications from the popular lending website created between June 2006 and May 2007.

"By far the biggest factor was race," said Devin Pope, co-author and assistant professor at the University of Chicago Booth School of Business. Of the 110,000 loans studied, about 5,000 were home finance or repair related.

Part of the reason for the stark discrepancy, Pope told AOL Real Estate, is that the online lending market is less regulated than its brick and mortar counterpart, where discriminatory practices are more easily identified.

But that doesn't preclude racial discrimination from real-world borrowing entirely. In fact, a closer probe of mortgage lending practices during the housing run-up revealed that African-American and Latino borrowers were more frequently offered high-interest, sub-prime mortgages than their white counterparts, even when they qualified for better terms.

The investigation led to a historic settlement in which Bank of America agreed to pay $335 million to settle widespread claims of discriminatory lending at its Countrywide unit. The Department of Justice cited over 200,000 cases in which black and Latino borrowers were charged higher fees and interest rates without regard for their credit profile.
In 2006, at the height of risky home-loan servicing, 52 percent of loans to African American families were subprime; for Latino families, more than 40 percent were subprime, according to the Center for Responsible Lending, a consumer watchdog group. By the time the housing market rights itself, some 40 to 50 percent of subprime loans will have failed, said Kathleen Day, a spokesperson for the CRL.

Other Findings

While race was the largest factor in determining loan funding, the study also detected other biases on the peer-to-peer lending site. Older and overweight applicants were 5 to 10 percent less likely to get funding, while people who looked unhappy in their photos were 10 to 15 percent less likely to close on a deal. (Pope admits that the sample size for "unhappy" applicants was considerably smaller.)

Alternatively, female applicants were actually 10 to 15 percent more likely to receive funding for their projects.

UPDATE: While the data for the study was captured between June 2006 and May 2007, Prosper.com has overhauled its lending model since the survey was conducted, according to spokesperson Laurie Azzano. The platform now uses blind bidding, which no longer allows users to post personal photos, she said.




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