Do Mortgage Payments Increase?

Mortgage Q&A: “Do mortgage payments increase?”

While this sounds like a no-brainer question, it’s actually a little more complicated than it appears.

You see, there a number of different reasons why a mortgage payment can increase, aside from the obvious interest rate change. But let’s start with the obvious and go from there.

And yes, even if you have a fixed-rate mortgage your monthly payment can increase.

While that might sound like bad news, it’s good to know what’s coming so you can prepare accordingly.

Mortgage Payments Can Increase with Interest Rate Adjustments

  • If you have an ARM your monthly payment can go up or down
  • This is possible each time it adjusts, whether every six months or annually
  • To avoid this payment surprise, simply choose a fixed-rate mortgage instead
  • FRMs are actually pricing very close to ARMs anyway so it could be in your best interest just to stick with a 15- or 30-year fixed

Here’s the easy one. If you happen to have an adjustable-rate mortgage, your mortgage rate has the ability to adjust both up or down, as determined by the interest rate caps.

It can move up or down once it initially becomes adjustable (after the initial teaser rate period ends), periodically (every year or two times a year) and throughout the life of the loan (by a certain maximum number, such as 5% up or down).

For example, if you take out a 5/1 ARM, it’s first adjustment will take place after 60 months.

At this time, it could rise fairly significantly depending on the caps in place, which might be 1-2% higher than the start rate.

So if your ARM started at 3%, it might jump to 5% at its first adjustment.

On a $300,000 loan amount, we’re talking about a monthly payment increase of nearly $350. Ouch!

Simply put, when the interest rate on your mortgage goes up, your monthly mortgage payments increase. Pretty standard stuff here.

To avoid this potential pitfall, simply go with a fixed-rate mortgage instead of an ARM and you won’t ever have to worry about it.

Or you can refinance your home loan before your first interest rate adjustment to another ARM. Or go with a fixed-rate mortgage instead.

Or simply sell your home before the adjustable period begins. Plenty of options really.

Mortgage Payments Increase When the Interest-Only Period Ends

  • Your payment can also surge higher if you have an interest-only loan
  • At that time it becomes fully-amortizing, meaning both principal and interest payments must be made
  • It’s doubly expensive because you’ve been deferring interest for years prior to that
  • This explains why these loans are a lot less popular today and considered non-QM loans

Another common reason for mortgage payments increasing is when the interest-only period ends, an issue that was common prior to the last housing crisis.

Typically, an interest-only home loan becomes fully amortized after 10 years.

In other words, after a decade you won’t be able to make just the interest-only payment.

You will have to make principal and interest payments to ensure the loan balance is actually paid down.

And guess what – the fully amortized payment will be significantly higher than the interest-only payment, especially if you deferred principal payments for a full 10 years.

Simply put, you’ll be paying the entire beginning loan balance in 20 years instead of 30, assuming the loan term was for 30 years, because interest-only payments mean the original loan amount remains untouched.

This can result in a big monthly payment increase, forcing many borrowers to refinance their mortgages.

Just hope interest rates are favorable when this time comes or you could be in for a rude awakening.

Mortgage Payments Increase When Taxes or Insurance Go Up

  • If your mortgage has an impound account your total housing payment could go up
  • An impound account results in homeowners insurance and property taxes being paid monthly
  • If those costs rise from year to year your total payment due could also increase
  • You’ll receive an escrow analysis annually letting you know if/when this may happen

Then there’s the issue of property taxes and homeowners insurance, assuming you have an impound account.

Even if you’ve got a fixed-rate mortgage, your mortgage payment can increase if the cost of property taxes and insurance rise, and they’re included in your monthly housing payment.

And guess what, these costs do tend to go up year after year, just like everything else.

A mortgage payment is often expressed using the acronym PITI, which stands for principal, interest, taxes, and insurance.

With a fixed-rate mortgage, the principal and interest amounts won’t change throughout the life of the loan. That’s the good news.

However, there are cases when both the homeowners insurance and property taxes can increase, though this only affects your mortgage payments if they are escrowed.

Keep an eye out for an annual escrow analysis which breaks down how much money you’ve got in your account, along with the projected cost of your taxes and insurance.

It may say something like “escrow account has a shortage,” and as such, your new payment will be X to cover that deficit.

You can typically elect to begin making the higher mortgage payment to cover the shortfall, or pay a lump sum to boost your escrow account reserves so your monthly payment won’t change.

Fortunately these annual payment fluctuations will probably be minor relative to an ARM’s interest rate resetting or an interest-only period ending.

Ultimately, it’s usually quite nominal because the difference is spread out over 12 months and typically not all that large to begin with.

But it’s still good to be prepared and budget accordingly as your housing payments will likely rise over time.

The takeaway here is to consider all housing costs before determining if you should buy a home, and make sure you know how much you can afford well before beginning your property search.

You’d be surprised at how the costs can pile up once you factor in the insurance, taxes, and everyday maintenance, along with the unexpected.

At the same time, mortgage payments have the ability to go down for a number of reasons as well, so it’s not all bad news.

And remember, thanks to our friend inflation, your monthly mortgage payment might seem like a drop in the bucket a decade from now, while renters may not see such relief.

Read more: When do mortgage payments start?

Source: thetruthaboutmortgage.com

What Is a Mortgagee? Hint: It’s Not a Typo

Are You a Mortgagee or Mortgagor?

It’s mortgage Q&A time! Today’s question: “What is a mortgagee?”

No, it’s not a typo. I didn’t leave an extra “e” on the word mortgage by mistake, though it may appear that way.

Despite its striking appearance, it’s actually a completely different word, somehow, simply with the mere addition of the letter E.

Don’t ask me how or why, I don’t claim to be an expert in word origins.

Seems like a good way to confuse a lot of people though, and it has probably been successful in that department for years now.

You can blame the British English language for that, or maybe American English.

Anyway, let’s stop beating up on the English language and define the darn thing, shall we.

A “mortgagee” is the entity that originates (makes) and sometimes holds the mortgage, otherwise known as the bank or the mortgage lender.

They lend money so individuals like you and I can purchase real estate without draining our bank accounts.

It could also be your loan servicer, the entity that sends you a mortgage bill each month, and perhaps an escrow analysis each year if your loan has impounds.

The mortgagee extends financing to the “mortgagor,” who is the homeowner or borrower in the transaction.

So if you’re reading this and you aren’t a bank, you are the mortgagor. It’s as simple as that.

Another way to remember this rather confusing word jumble; Who is the mortgagee? Not me!!

Mortgagor Rhymes with Borrower, Kind Of

mortgagor

  • Here’s a handy way to remember the word mortgagor
  • It kind of rhymes with the word borrower…
  • Or even the word homeowner, which is also accurate if you hold a mortgage on your property

I was trying to think of a good association so homeowners can remember which one they are, instead of having to look it up every time they come across the word.

I believe I came up with a semi-decent, not great one. Mortgagor rhymes with borrower, kind of. Right? Not really, but they look and end similar, no?

Anyway, the real property (real estate) acts as collateral for the mortgage, and the mortgagee obtains a security interest in exchange for providing financing (a home loan) to the mortgagor.

If the mortgagor doesn’t make their mortgage payments as agreed, the mortgagee has the right to take possession of the property in question, typically through a process we’ve all at least heard of called foreclosure.

Assuming that happens, the property can eventually be sold by the mortgage lender to a third party to pay off any attached liens, or mortgages.

So if you’re still not sure, you are probably the mortgagor, also known as the homeowner with a mortgage. And your lender is the mortgagee. Yippee!

What makes this particular issue even more confusing is that it’s the other way around when it comes to related words like renters and landlords.

Yep, for some reason a landlord is known as a “lessor,” whereas the renter/tenant is known as the “lessee.” In other words, it’s the exact opposite for renters than it is for homeowners.

But I suppose it makes sense that both landlord and mortgage borrower are property owners.

What About a Mortgagee Clause?

mortgagee clause

  • An important document you may come across when dealing with homeowners insurance
  • Stipulates who the lender (mortgagee) is in the event there is damage to the subject property
  • Protects the lender’s interest if/when an insurance claim is filed
  • Since they are often the majority owner of the property

You may have also heard the term “mortgagee clause” when going through the home loan process.

It refers to a document that protects the lender’s interest in the property in the event of any damage or loss.

It contains important information about the mortgagee/lender, including name, address, etc. so the homeowners insurance company knows exactly who has ownership in the event of a claim.

Remember, while you are technically the homeowner, the bank probably still has quite a bit of exposure to your property if you put down a small down payment.

For example, if you come in with just a 3% down payment, and the bank grants you a mortgage for 97% of the home’s value, they are a lot more exposed than you are.

This is why hazard insurance is required when you take out a mortgage, to protect the lender if something bad happens to the property.

Conversely, if you buy a home with cash, as opposed to taking advantage of the low mortgage rates on offer, it’s your choice to insure it or not.

But more than likely, you’ll want insurance coverage on your property regardless.

In summary:

Mortgagee: Bank or mortgage lender
Mortgagor: Borrower/homeowner (probably you!)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Fannie Mae Increasing Max DTI to 50%, Upping LTVs for ARMs

Last updated on July 17th, 2018

There’s been a lot of talk lately about mortgage lenders easing credit standards as refinance volume wanes and purchase activity remains constrained by limited inventory.

Because more and more new entrants (many so-called disruptors) have joined the fray, and there’s a smaller pool of eligible mortgage borrowers, risk appetite is expected to rise in coming months.

In fact, a Fannie Mae survey released yesterday found that the share of lenders expecting to ease credit standards over the next quarter hit new all-time highs.

Fannie Mae Increasing Max DTI to 50%

  • Fannie is making it easier for borrowers
  • To get approved for a mortgage with a high DTI ratio
  • Via their automated underwriting system
  • Which should usher in more of these types of loans

First off, we’ve got Fannie Mae’s Desktop Underwriter (DU) Version 10.1 release slated for the weekend of July 29th.

The biggest change is that this version of DU will allow debt-to-income ratios as high as 50%, up from 45% currently.

For the record, you can get approved at the moment with a DTI as high as 50%, but Fannie requires additional compensating factors to support a DTI ratio between 45-50%, such as lots of assets and an excellent credit score.

With this release, that 50% DTI will be good to go because the DU risk assessment will automatically consider “a broad range of loan characteristics and borrower credit factors.”

In plain English, this means it’ll be easier to get approved for a mortgage with a high DTI ratio, and because Fannie is greenlighting it, banks and lenders will likely ease up and follow suit, ditching overlays in the process.

ARM LTVs Going Up

  • They’re also increasing allowable LTVs on ARMs
  • Pushing the max LTV to 95% for adjustable-rate mortgages
  • Which aligns with the fixed-rate mortgage rule
  • Similar increases will apply to multi-unit properties and investment properties

Along with the DTI change, Fannie will soon permit loan-to-value ratios on adjustable-rate mortgages up to 95%. That means you only need 5% equity to get an ARM.

The rule will align LTVs on ARMs with those on fixed-rate mortgages, which are deemed lower risk, across all transaction, occupancy, and property types.

For example, someone buying a two-unit owner-occupied property is currently limited to an LTV of 75% if they elect to use an ARM to finance it.

When DU 10.1 is rolled out, this max LTV will increase to 85%, so they’ll only need to put 15% down instead of 25%.

A four-unit owner-occupied property will see the max LTV rise from 65% to 75%.

Similar increases will be seen in a variety of scenarios, meaning more borrowers will be able to, well, borrow more.

I’m assuming the 97% LTV offering from Fannie will still only permit a fixed-rate mortgage, for obvious reasons.

It’ll also get easier to borrow if you’re self-employed, with Fannie’s newest version of DU more likely to require just one year of personal and business tax returns.

That should mean less headaches and paperwork, and potentially more approvals if two years of documentation don’t paint your business in as favorable a light.

Finally, Fannie will ease up on borrowers with disputed credit tradelines so that if DU approves the file, no more action will be necessary.

Less Redundancy, More Approved Loans

  • It looks like Fannie wants to make the home loan process easier
  • With less overlap and actual reliance on the automated system
  • Instead of still requiring paperwork on top of an automated decision
  • Hopefully this will speed up things up and reduce the paperwork burden on mortgages

In summary, it sounds like Fannie will be relying more upon its computer (algorithm) to do the underwriting going forward so that redundant documentation and scrutiny won’t be required.

If you think about it, why should you have to further explain stuff that’s already been taken into account and factored into the automated approval?

These changes, along with other recent enhancements, like more forgiving student loan payment calculations, should make it easier for more folks to get mortgages.

And it could just be the tip of the iceberg. We already discussed the idea of 10% down being the new normal, and the coming removal of tax liens and civil judgments from credit reports might bring even more borrowers into the game.

For the record, Fannie performed an analysis to see what approvals would look like without those derogatory accounts on credit reports and found that the impact would be “small,” and said lenders can remain confident in DU.

Still, cleaner credit reports might result in hundreds of thousands of newly-eligible mortgage borrowers out there.

And altogether, these underwriting changes may affect millions of prospective buyers and those looking to refinance.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Don’t Swipe Your Credit Card Before You Apply for a Mortgage

Posted on April 29th, 2021

Large Credit Card Purchases Really Can Tank Your Credit Score

  • While missed payments are arguably the worst offense
  • Even racking up a lot of debt can lower your credit score significantly
  • So it’s best to put the spending on hold a few months before applying for a home loan
  • That way there won’t be any unwelcome surprises when it comes time to pull your credit

You’ve probably heard at some point that making large purchases with your credit card(s) before applying for a mortgage is a no-no.

In fact, you may have read that on this very site, since I’ve warned about it on numerous occasions in multiple posts because it’s such a common problem.

You might be aware of this issue, but shrugged it off, thinking what’s a few points, right?

You already have excellent credit so it doesn’t matter if you purchase a new $5,000 couch with your AmEx card for the new digs ahead of time.

Well, think again. It really does matter, and it can do serious damage to your credit score.

I’m not just talking about 5-10 points. I’m talking enough movement to potentially take you out of the running for a mortgage altogether, or at minimum raise your mortgage rate.

My Credit Score Got Rocked After Maxing Out a Credit Card

my score

  • I maxed out one of my credit cards a few years ago
  • And my excellent credit score dropped about 50 points seemingly overnight
  • That’s enough to raise your mortgage rate depending on how low your scores drop
  • Or worse, disqualify you from obtaining a mortgage altogether if your credit wasn’t great to begin with

Let’s take a look at a very real example; my credit score back in 2016. Yes, I’m using my own credit score to illustrate this very real problem.

Fortunately, I didn’t apply for a mortgage during this period so it wasn’t an issue for me.

Instead, it was a moral blow as I saw my near-perfect credit score drop from over 800 to the mid-750 range, which incidentally is still excellent credit.

But for those who followed my path and did apply for a home loan, it could have spelled serious, serious trouble.

For most of that year, my credit score had been stuck in a range from the low 800s to around 820. This was good because it meant I wouldn’t have any issues qualifying for a mortgage based on credit score alone.

Not only that, but I would have received the most favorable rates and avoided as many mortgage pricing adjustments as possible.

Once you get your credit scores above 760 there aren’t many pricing adjustments (if any) to worry about, so you don’t need perfection.

However, when the holidays hit I started making a lot of purchases on my credit card. There was a promotion with Discover and Apple Pay that offered 23% cash back on all purchases so I hit it hard.

I basically maxed out my Discover card, which had a pretty dismal credit limit (maybe only $5,000 or so) because Discover is a pretty conservative lender.

When all was said and done, I think I had 1% available credit on the card, otherwise known as 99% utilization.

This is not a good idea, especially before applying for a mortgage because it will literally tank your credit score, even if you pay off the balance in full by your due date.

The problem is that the credit bureaus will take a snapshot of your credit balances on a certain date and then compute your credit score based on that information.

Chances are TransUnion flagged this maxed out credit card and docked my score accordingly, basically assuming I was going down a bad path by making a ton of charges in a short span of time.

This is usually a signal that a consumer is in trouble financially, assuming the behavior continues. And the bureaus basically sent out an SOS to new lenders to proceed with caution.

In the matter of a couple months, my credit score fell nearly 50 points. From peak to trough, it fell a total of 65 points.

I went from having stellar credit to having very good credit. Still, my score was below 760, which could cost you on a mortgage.

Tip: If you must swipe, consider spreading the purchases across several credit cards to keep utilization rates on a per-card basis low. This may be less damaging than maxing out a single card.

The Good News Is I Bounced Back Pretty Quickly!

  • Thankfully my maxed out credit card was a short-lived event
  • My credit score bounced back fairly quickly once I paid off the credit card debt
  • So you can resolve it rather easily, assuming you have time to do so
  • But the takeaway is not to chance it because you might not always have time!

Now the good news. Once I paid my credit card bill in full, and the bureaus took note of the new $0 balance (this isn’t immediate), my credit score shot up to its highest point in the past 12 months.

My 758 credit score went all the way up to 826, not too far from the perfect credit score of 850. It was also the highest it had been since Credit Karma began keeping track of it a couple of years earlier.

So despite the big hit early in 2016, I wound up in even better shape than I had been to begin with.

This was great in hindsight, but had I applied for a mortgage at any time during that 30-45 day window, I could have jeopardized the entire thing.

For someone with a lower starting score, they could have knocked themselves out of eligibility, or at minimum been forced to take on a higher mortgage rate as a result.

Don’t Make the Same Mistake I Did If There’s Even a Tiny Chance You’ll Apply for a Mortgage Soon

  • If there’s any chance you’ll purchase a home or refinance an existing mortgage in the near future
  • Put all your credit cards away and avoid any unnecessary purchases
  • It’s just not worth the aggravation or the possibility of a higher mortgage rate and/or denied application
  • Just be patient and you can go back to spending once your home loan funds

The moral of the story is to heed the warnings of avoiding large purchases before taking out a mortgage. It’s no joke.

For the record, the same can be said of spending your cash because you’re depleting your assets if you make large cash purchases.

And you may need more money than anticipated for the down payment, reserves, and closing costs.

This is especially true nowadays with many homes going for above-asking.

Make sure you set aside lots of money in a verifiable account (like a checking or savings account) several months before you begin making bids or inquiring about a refinance.

Also note that the more outstanding debt you have on your credit card(s), the higher your debt-to-income ratio (DTI) will be.

And this just happens to be one of the main reasons why mortgages get declined.

So racking up credit card debt can hurt you in two different ways at the same time if you’re not careful.

In other words, practice frugality before and during the mortgage application process and until the loan is funded.

Those purchases can wait and you’ll be better for it.

After all, mortgages can stick with you for decades – you’d hate for one ill-timed purchase to haunt you for years to come.

Interestingly, once you get your mortgage, you might be able to pay it with a credit card, not that it’s necessarily a good idea either.

Read more: 10 Things You Should Do Before Applying for a Mortgage

Source: thetruthaboutmortgage.com

New Fannie/Freddie Refinance Option Drops Adverse Market Fee, Offers $500 Appraisal Credit

Posted on April 28th, 2021

In an effort to undo some of the damage the Federal Housing Finance Agency (FHFA) basically caused itself, it’s throwing a bone to so-called low-income families to save on their mortgage.

It all spurs from the adverse market fee the very same agency implemented back in August 2020 to contend with heightened losses related to COVID-19 forbearance and loss mitigation.

The 50-basis point fee, which went into effect on September 1st, 2020, applies to all new refinance loans backed by Fannie Mae and Freddie Mac.

While it’s not a .50% increase in mortgage rate, the fee does get passed along to consumers in the form of either higher closing costs or a slightly higher mortgage rate, perhaps an .125% increase all told.

Either way, it wasn’t well received at the time, and still isn’t today, and this announcement is a somewhat bittersweet one, as it only applies to a certain subset of the population.

Still, the FHFA believes families who are eligible for this new refinance initiative could see monthly savings between $100 and $250 on average.

Who Is Eligible for Adverse Market Fee Waiver and Appraisal Credit?

  • Applies to homeowners with incomes at or below 80% of the area median income and loan amounts at/below $300,000
  • Must result in savings of at least $50 in monthly mortgage payment, and at least a 50-basis point reduction in interest rate
  • Must currently hold an agency-backed mortgage (Fannie Mae or Freddie Mac)
  • Property must be a 1-unit single-family that is owner-occupied
  • Borrower must be current on their mortgage (no missed payments in past 6 months, 1 allowed in past 12 months)
  • Max LTV is 97%, max DTI is 65%, and minimum FICO score is 620

Perhaps the biggest eligibility factor is the borrower’s income must be at or below 80% of the area median income.

This new refinance program specifically targets what the FHFA refers to as low-income families, which director Mark Calabria said didn’t take advantage of the record low mortgage rates.

Apparently more than two million of these homeowners did not bother refinancing, even though it would have been advantageous to do so (and still is).

He noted that this new refinance option was designed to help eligible borrowers who have not already refinanced save somewhere between $1,200 and $3,000 annually on their mortgage payments.

That’s actually a requirement as well – the borrower must save at least $50 per month in mortgage payment, and their mortgage rate must be at least .50% lower.

For example, if your current mortgage rate is 4%, you’ll need a rate of at least 3.5% to qualify.

Additionally, you must currently have a home loan backed by either Fannie Mae or Freddie Mac, and your property must be owner-occupied and no more than one unit.

I assume condos/townhomes work as well, as long as it’s your primary residence.

The adverse market fee is waived as long as your income is at/below 80% of the area median AND your loan balance is at/below $300,000.

If your loan amount happens to be higher, my understanding is you can still get the $500 appraisal credit.

You’ve also got to be current on your mortgage, meaning no missed payments in past six months, and up to one missed payment in past 12 months.

Lastly, there is a maximum loan-to-value ratio of 97%, a max debt-to-income ratio of 65%, and a minimum FICO score is 620.

Most borrowers should have no issue with those requirements as they are extremely liberal.

Is This New Refinance Option a Good Deal for Homeowners?

  • It’s an excellent deal for those who haven’t refinanced their mortgages yet
  • You get a slightly lower mortgage rate and/or reduced closing costs
  • And with mortgage rates already super cheap it could be a double-win to save you some money
  • Even though who don’t qualify for this new program should check to see if a refinance could be worthwhile

As Calabria said, many higher-income homeowners probably already refinanced, or are currently refinancing their mortgages to take advantage of the low rates on offer.

Meanwhile, lots of lower income borrowers haven’t for one reason or another, perhaps because they’re not aware of the potential savings or had a bad experience with a mortgage lender in the past.

Whatever the reason, those who haven’t yet and meet the income requirement can take advantage of a refinance without the pesky adverse market fee.

That means they could get a mortgage rate maybe .125% lower than other borrowers who aren’t eligible for this program.

Additionally, they’ll get a $500 home appraisal credit from the lender, assuming the transaction doesn’t already qualify for an appraisal waiver.

Either way, eligible homeowners won’t have to pay for the appraisal, which is another plus to save on the refinance itself via lower closing costs.

It’s actually a great deal for those who haven’t refinanced yet because you might wind up with an even lower mortgage rate and reduced closing costs.

And because your new mortgage payment must be at least $50 cheaper per month, there’s less likelihood of it being a meaningless refinance.

All in all, this is good news for the so-called low-income homeowners who’ve yet to refinance, but bittersweet for everyone else.

Still, mortgage rates remain very attractive for everyone, so even if you have to pay the adverse market fee (and the appraisal fee), it could be well worth your while.

The FHFA said the new refinance option will be available to eligible borrowers beginning this summer, though it’s unclear exactly what date that is as of now.

Read more: When to a refinance a mortgage.

Source: thetruthaboutmortgage.com

Medical Collections Killing Refinance Frenzy?

medical

Everyone knows mortgage rates have plummeted in recent weeks, but what does that actually mean for those looking to refinance?

With tough guidelines in place and flagging property values, it could equate to a lot of spinning wheels and paperwork.

And one mortgage banker is arguing that erroneous medical collections showing up on potential borrowers’ credit reports are throwing another wrench in the deal.

“The tragedy is that the collection accounts, even those that have been paid in full, are lowering these individuals’ credit scores, often to the point that they either can’t qualify for a loan, or will have to pay higher interest rates if they do,” said Rodney Anderson of Rodney Anderson Lending Services.

According to Anderson, 45 percent of the 1,701 loan applications his company received between June and September involved borrowers with at least one medical collection.

And these collections can kill an applicant’s credit score (whether legitimate or not), even if the remainder of their credit profile is sound, eliminating the possibility of any mortgage rate relief.

Anderson noted that medical billing is “notoriously error-prone,” and as a result, has launched a petition to lessen the severity of medical collection-related credit dings, which he says can lower credit scores more than 100 points.

The petition essentially calls for a new federal law mandating the removal of a medical collection from a borrower’s credit report within 30 days of it being paid or settled, instead of it kicking around for seven years.

Medical billing is certainly an area that needs to be looked at, but the whole credit reporting industry is in need of some serious revamping, and could easily be blamed for a share of the mess were in now.

(photo: paulkeleher)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Bank of America Refinancing Under Making Home Affordable Program

Last updated on February 2nd, 2018

bankofamericarates

Bank of America said today it has begun processing refinance applications under the Treasury’s “Making Home Affordable” program, with nearly 200,000 customers contacting the company to determine eligibility.

“Combined with historically low interest rates, this program has generated significant interest from borrowers seeking the benefit of lower mortgage payments,” said Barbara Desoer, president of Bank of America Mortgage, Home Equity and Insurance Services, in a release.

“We are proud to be one of the first lenders to take loans from application to closing under the Treasury’s plan, providing the opportunity for more Americans to save money on their monthly mortgage payments and supporting efforts to stabilize the nation’s housing market.”

However, the bank seems to be focused on specific applicants, namely those with Bank of America or Countrywide serviced loans and no mortgage insurance on their current loans.

The bank said additional customers will be served “as systems become operational.”

In the next two weeks, the company expects to begin offering trial loan modifications under the Treasury Department’s “Home Affordable Modification” program, and has extended its foreclosure moratorium on potentially eligible loans until April 30.

Bank of America, since snatching up former top mortgage lender Countrywide Financial, services roughly one out of five mortgages in the United States.

I’ve been told by my friends in the industry that Bank of America has been offering mortgage rates much lower than the competition, effectively pricing out them out in the process.

The company is also planning to roll out a jumbo mortgage program focused on loan amounts between $730,000 and $1.5 million, with 30-year fixed mortgage rates beginning in the upper five-percent range.

Apparently there are profits to be made in mortgage.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Wells Fargo Hired 5,000 Employees to Handle Mortgage Workload

Last updated on August 9th, 2013

opportunity

San Francisco-based bank and mortgage lender Wells Fargo reportedly hired 5,000 employees to handle its ever-increasing mortgage workload, according to Bloomberg.

Wells Fargo CFO Howard Atkins said in an interview that the bank increased staff over the past couple of months to process its record haul of mortgage applications, which made it the top mortgage lender over Bank of America/Countrywide.

The company originated $101 billion in first mortgages during the first quarter, more than double the $50 billion in the fourth quarter and nearly half the $230 billion for all of 2008.

The correspondent/wholesale channel contributed $49 billion to that, practically double the levels seen in earlier quarters; home equity lines and loans, however, totaled just $1 billion.

All those applications led to the best mortgage origination quarter since 2003, contributing to the company’s record $3.05 billion net income in the first quarter.

But what happens once mortgage rates rise and refinance dries up, pushing volume back to more historical levels?

Sure it’s great that the bank took on thousands looking for work, but it seems to be only temporary employment.

And it’s wonderful that they’re upping their fulfillment areas, but what about staff in the company’s loss mitigation department?

“We remain focused on proactively identifying problem credits, moving them to nonperforming status and recording the loss content in a timely manner,” said Chief Credit Officer Mike Loughlin in a release.

“We’ve increased and will continue to increase staffing in our workout and collection organizations to ensure these troubled borrowers receive the attention and help they need.”

I doubt they’ve hired many employees in their workout and collection units, as they seem pretty focused on bringing in all those new mortgages with the low mortgage rates.

Shares of Wells Fargo were up $1.24, or 6.59%, to $20.05 in midday trading on Wall Street.

(photo: jasontester)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Obama Urges Americans to Refinance Mortgages

refinance now

During a Housing Refinance Roundtable today, President Obama urged homeowners to take advantage of the record low mortgage rates currently on offer.

He made the remarks while sitting with a number of families who were able to refinance their mortgages after struggling with unaffordable mortgage payments (what about all those who are too far underwater or hold jumbo loans?).

“What you’ve seen now is rates are as low as they’ve been since 1971,” Obama said. “Three-quarters of the American people get their mortgages through a Fannie Mae-Freddie Mac qualified loan.”

“And as a consequence of us being able to reduce the interest rates that are available, we have now seen some extraordinary jumps in the rate of mortgage refinancings.”

“We’ve already seen a substantial jump — 88 percent increase in refinancings over the last month. We’ve seen Fannie Mae refinance $77 billion of mortgages in March, which is their highest volume in one month since 2003. And rates on 30-year mortgages have dropped to an all-time low of 4.78 percent.”

He noted that the families who accompanied him at the event were able to achieve more sustainable monthly mortgage payments via refinancing, and estimated that the average family could save $1,600 to $2,000 a year if they took advantage of the offers currently on the table.

“So the main message that we want to send today is, there are 7 to 9 million people across the country who right now could be taking advantage of lower mortgage rates.”

He added that the Administration is also working to implement some “additional phases of the program,” such as its loan modification program for “responsible homeowners who made their payments” but fell behind because of job loss, sickness, etc.

“The main message we want to send today is, is that the programs that have been put in place can help responsible folks who have been making their payments, who are not looking for a handout, but this allows them make some changes that will leave money in their pockets and leave them more secure in their homes.”

Obama plugged the MakingHomeAffordable.gov website several times throughout his address to ensure homeowners actually knew where to go to get help.

He also warned against loan modification scams, urging homeowners to steer clear of companies that demand money for services upfront.

I’m somewhat curious if we’re helping the banks/mortgage lenders more than the homeowners here because private label mortgages seem to be at the root of the problem, not Fannie/Freddie loans.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Now You Can Get a 30-Year Fixed at 3.25%

low rate

We all know mortgage rates are low, but this is seemingly ridiculous.

The New Hampshire Housing Finance Authority is currently offering a mortgage rate as low as 3.25% on a 30-year fixed-rate mortgage.

And that’s with as little as 3.5% down (FHA loan). Of course, there are several strings attached. There are income and purchase price limits in place, and the property must qualify for the financing.

Only certain homes in certain areas are eligible, and underwriting is probably pretty darn strict, but it still illustrates how low interest rates have fallen in recent weeks and months.

But is the rate really as low as it appears?

While the NHHFA (possibly a made-up acronym) is pitching the 3.25% rate, the APR is actually significantly higher. In fact, it’s 4.158%.

What gives?

Well, there are a number of fees, including two mortgage points that must be paid to get that low rate.  The par rate is actually 3.50%.

So it’s not necessarily as low as it seems. But the APR does factor in private mortgage insurance, and likely everything else that you must pay at closing.

There’s a problem with APR though – it varies so much from lender to lender that it’s not always possible to get an apples-to-apples comparison when mortgage quote shopping.

[Mortgage rate vs. APR]

For instance, over at the Zillow Mortgage Marketplace, the best advertised quote delivered today was a rate of 3.875% on a 30-year fixed.

The APR was 4.018%, lower than the 3.25% rate offered by the NHHFA.

Why? Well, for one the mortgage discount fee is only 1.50%. And the loan-to-value ratio is 80%, meaning the borrower must come in with a 20% down payment.

The New Hampshire deal only requires a 3.5% down payment, and borrowers can even receive a grant so long as they bring in at least one percent of their own funds.

[Why are mortgage rates different?]

The fees on the Zillow quote are probably also smaller/fewer, which drives down the APR, but who knows exactly what’s being included.

Lowest Rate Not Always the Best Deal

So the takeaway here is that the lowest mortgage rate doesn’t always equate to the best deal.

And it’s only a matter of time before someone comes out with a 30-year fixed at 2.99% or something similarly outrageous.

Just make sure it’s actually a good deal for you. What I mean by that is that the super low rate actually benefits you.

If you don’t plan to pay off your mortgage or stay in your home long term, buying down an interest rate to a psychological level doesn’t make a lot of sense.

Sure, you can brag to your neighbors that you’ve got the lowest rate in history, but you may have wasted money obtaining it.

And a slightly higher rate may make more sense if your money is better invested somewhere other than housing, somewhere more liquid.

Finally, when you’re buying down your interest rate, be sure to find a certain point where the cost and the associated rate make the most sense (do the math!).

You probably won’t want to pay an extra or point or two to lower your rate just a .125 or a .25 of a point for bragging rights alone.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com