YOU Magazine - August 2009 - The Clock Is Ticking! Government Actions Mandate Time Sensitive Decisions
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Jason Hagen     Jason Hagen
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MSI Lending of Lexington
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August 2009



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The Clock Is Ticking!
Government Actions Mandate Time Sensitive Decisions


The Clock Is Ticking! - Government Actions Mandate Time Sensitive Decisions

These are new times in the mortgage business. Government involvement comes to those who need it, those who want it, and those who didn't ask for it. Some of the government's actions bring rewards for those who act soon. If you are going to be seeking financing in the next few months, here are some things you need to know.

Show Me Some Money
Part of the Washington Stimulus Package from both last year and this year was the creation of an income tax credit for first-time home buyers. One significant change to the original credit this year was that the amount of the possible credit was increased to $8,000, up from $7,500 and that it does not have to be repaid.

Let's review the last part of this one more time. The tax credit extended does not have to be repaid. This means that if you qualify for an $8,000 credit, it is free money for you to choose what to do with at your discretion. If you have some revolving debt you want to pay off, so be it. Have a car loan less than $8,000, pay it off. Want to start a savings plan with the money because you have all your other ducks in a row? Congratulations, you are on your way!

There are some restrictions including maximum personal or household income and an expiration date of November 30, 2009 but if you qualify, get busy shopping. This is a great benefit we will likely not see again. The National Association of Realtors has reported that if Congress does revisit the tax credit, it will not likely occur before October.

Show Me Some Time
Effective July 30, 2009, legislation will go into effect that will mandate certain "cooling off" periods surrounding home loan applications. Dubbed HERA, or the Housing and Economic Recovery Act of 2008, the law mandates that certain trigger points of the mortgage application offer consumers time to evaluate whether a transaction is best suited for them.

The impact from this legislation is that additional time should be allotted to ensure on-time closings, in some cases as much as 15-30 days to provide ample time to meet all potential delays.

Starting with the initial application, three business days must pass before a lender can accept payment for anything besides a minimal fee for a credit report, which means that a lender cannot accept or collect an appraisal fee in this initial three-day time frame. During this time, the borrower is expected to review the documents to ensure that all fees and the annual percentage rate or A.P.R. are within reason and match what was disclosed upfront.

In addition, if at anytime in the application process a change to the A.P.R. occurs in excess of .125% for a fixed rate or .25% for an adjustable rate mortgage, a new Truth in Lending statement must be delivered to the borrower and three business days must pass before the mortgage can be funded.

Items that can trigger a change in the original A.P.R. can include but are not limited to locking a floating rate at a higher rate than on the original application, a change in the loan program, a change in the originally estimated closing date, and a change in fees or down payment.

Show Me Some Value
A property appraisal can no longer be ordered by anyone directly involved in the origination of a mortgage application where Fannie Mae or Freddie Mac will be the final investor in a mortgage. This is done to ensure that any final value in the appraisal will not be improperly influenced by any parties involved in the origination of the loan.

This is a result of the Home Valuation Code of Conduct (HVCC) that was adopted earlier this year. The impact of HVCC has been felt by consumers both purchasing and refinancing property as many appraisals are being ordered from Appraisal Management Companies, a third party appraisal clearing house, and the appraiser selected may not be directly familiar with a specific home's community or may be from out of the area.

One other complication has been delays of property inspections resulting from additional parties now required in the ordering process.

In order to best be prepared for the appraiser, it is recommended that both buying and selling agents involved in purchase transactions and homeowners in refinance transactions have information available for the appraiser to support a believed value for the transaction.

Show Me Some Great Rates
The Federal Reserve announced last November that they would start purchasing Mortgage-Backed Securities in an effort to inject liquidity into the mortgage markets and lower interest rates.

The immediate result was dramatic, causing rates to fall to the lowest recorded levels we have seen in our lifetimes. Available interest rates in the first quarter of this year were well into the mid 4.00% range for both 15 and 30 year fixed rates alike.

While current interest rates have climbed up since their low point, historically speaking, interest rates remain near all time lows and below the point set before the Fed made their announcement.

One very pertinent fact to this is that the buying of Mortgage-Backed Securities from the Federal Reserve is slated to stop on December 31, 2009. What is unknown at this point is what the immediate impact will be to mortgage rates when the Fed stops buying. Conventional wisdom would likely state that rates will rise as the market returns to a normal selling process for Mortgage-Backed Securities.

The biggest question though is in what time frame will any impact be felt? The best path to follow for taking advantage of lower interest rates is to ensure any new loan closes before the end of the year.

Show Me Some "Underwater" Rate Relief
When the Making Home Affordable Refinance Plan was first released, people that experienced declines in their property values below their existing mortgage amount were offered the ability to refinance. The ability to refinance though was limited to people whose new loan amount would not exceed 105% of the new appraised value. An example of this would be that if a home was to appraise at $100,000, a new loan amount of $105,000 could be originated on behalf of a homeowner.

Changes to the Making Homes Affordable Plan were recently enacted to allow for homeowners to refinance with a new loan up to 125% of the homes value. An example of this would now be that a homeowner could refinance a new loan to $125,000 with a home that would appraise at $100,000.

Show Me Some Payment Relief
People who find themselves in need of payment relief but are unable to refinance due to credit qualifications or property valuation may be eligible for a loan modification. A loan modification is an adjustment to the original terms of an existing mortgage to help someone obtain a more affordable payment.

A reduction in payment can be achieved through any single or multiple changes in the current terms including a change in rate, the length of time remaining on the note, the allowance of interest only payments and possibly a reduction in the principal balance of the loan.

When obtained through the Making Home Affordable Plan, the intent is to bring the qualifying mortgage payment(s) to 31% of a borrower's monthly adjusted gross income. To qualify for this plan, the mortgage must be owned by Fannie Mae or Freddie Mac.

Due to securitization of many mortgages in the last ten years, many mortgages are not owned by either agency but that does not mean that non-agency loans are ineligible for modification. In fact, many non-agency loans are being modified.

It is possible for distressed homeowners to modify their mortgage on their own, however the process has been described as very difficult and many legitimate modification companies have reported that people attempting to do it themselves have not obtained the best results possible.

If someone needs assistance in determining the best path to take, reaching out to their servicer or a professional modification company is suggested. A professional and legitimate modification company will offer a free consultation before proceeding to make homeowners aware of their options.

In either situation, people seeking a modification need to be prepared to offer a lot of documentation to prove they are experiencing hardship. One important point to remember is that while many people have been taken advantage of by illegitimate modification companies, many others are finding the use of a professional to be worthwhile.

Also, while the government is stating that people should not work with a modification company, both Fannie Mae and Freddie Mac are both run by the government and it is in the best interest of taxpayers to minimize reductions in existing mortgages owned by the agencies.

Regardless of Your Situation – Act Soon
Many government sponsored programs are now in place to assist people with both purchasing and refinancing their mortgage. However with the different deadlines in place, the time to take advantage of these programs is now.

Also, with additional legislative requirements impacting the loan process, proper expectations need to be in place before scheduling closing dates.

If you have any questions on how you can best take advantage and operate within the current programs and guidelines in place, contact the professional that has supplied you with this copy of YOU Magazine.




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