Bad credit can occur for a variety of re….

posted in Mortgage by Admin on August 28th, 2009

Bad credit can occur for a variety of reasons.

Like Home Equity Loans, Home Equity Lines of Credit have fees that may be charged for taking out the loan.

The home equity line of credit is a device used by homeowners who want to borrow against the equity in their home.

Uncomplicated Explanation Of The Loan Modification Process

By Nick Adama

If you are up against foreclosure, or have a house payment that is too high, then you’ve probably thought about getting a loan modification. A loan modification is when the terms of a loan are permanently altered to allow a reduced payment.

The lower payment is delivered by either reducing the interest rate, stretching out the term, or lowering the balance to be more in line with the current market value. In most cases, a combination of several of these methods is used to lower the loan payment. There are other alternative ways to lower a payment with a modification also, but they all revolve around the term of the mortgage, the payoff, and/or the interest rate.

Here is a simple example of how a loan modification can reduce the payment, using each of the three options above.

Method #1 Reducing the interest rate

Lets assume the loan balance is $200,000 and the current interest rate is 7.75% and the payment amount is $1,750. Lets also assume this foreclosure victim has 20 years left on a 30 year note. The victim can no longer afford this payment because of a loss of income. They can afford a $1,250 payment, so the servicer agrees to reduce the interest rate to a fixed rate of 4.25% for the remaining life of the loan. This will give them a payment of $1,240, without the need to re-amortize the term of the loan or lower the payoff amount..

Method #2 Modifying the term of the loan

Lets use the same example above, only this time, we’ll assume the homeowner can afford a $1,500 payment. The loan amount will still be $200K and the interest rate will still be 7.75%. But in this case, the investor was not able to reduce the interest rate. This happens very often, because the investors on the loan are not willing to accept a lower rate. In this case, extending the term of the loan will make the payment affordable again and the investors will keep their 7.75% interest rate. The $200,000 payoff is re-amortized over a 30 year term to get a reduced payment of $1,430. Everyone is happy because the foreclosure was stopped and the new payment is affordable.

Method #3 Reducing the payoff amount

In order for a payoff amount to be reduced, the value of the property must be lower than the payoff amount. In some cases, servicers will lower the payoff amount without this stipulation, but it’s unlikely. To get the payoff amount reduced, you must prove to the bank that foreclosing on the property will cost more than lowering the amount owed to make the loan affordable again.

In this case, we’ll assume the home’s current market value has been determined at $179,000, but the balance is still $200,000. If the servicer forecloses on the property and tried to re-list it, their estimated loses will be 30% of the home’s value. So after foreclosing on the property and re-selling, they will receive around $125,000, if they are lucky. Most banks expect to lose 30%-60% on every foreclosure property, so this estimate is being very generous.

By letting the existing owner to keep the property, with a new affordable payment, they can continue servicing the loan and collect the full value, plus interest. This is a much better option for the lender, assuming the new payment is affordable. By reducing the payoff to $179,000 and keeping the same interest rate and 20 year term, the new payment is $1,470, which now fits into the homeowners $1,500 budget.

Applying All 3 Choices At The Same Time

When working on my personal clients, I generally try to get the lowest possible payment, which would mean lowering the interest rate and payoff, while extending the mortgage to 30 years. By negotiating all of these items, a lowered payment of $880 could be fixed for the life of the loan. An experienced negotiator knows exactly how to get the lowest possible payment in the shortest amount of time.

Negotiating with lenders is all a matter of having the right experience and being prepared. It’s not something most people can achieve without help, regardless of what many people may think. A loan modification is the answer to saving and affording your property. Negotiating your case wrong can not only cost $1000’s but it can cost you your home!

In the previous example, the difference between a good modification and a bad modification adds up to over $100,000 in extra payments over the life of the loan! So even if you are successful with a modification without help, it could still cost you over $100,000! If you don’t understand what you’re doing, or don’t have confidence in your ability to get an agreement, make sure you employ someone to help immediately. There is no time for “on the job training” when a single error could cost you your home!

Nick writes for the ForeclosureFish website and blog, which provide foreclosure help and information to homeowners attempting to save their homes. The site describes numerous methods to avoid foreclosure, including bankruptcy, loan modification, defending a home in court, and many more. Visit the site today to read more about stopping foreclosure while there is still time: http://www.foreclosurefish.com

Are These The Best Mortgage Deals?

By Koz Huseyin

Anyone who wants to get a mortgage will be looking for the best possible mortgage deals. Consider the savings you could be receiving. Imagine a savings of $10,000 or better. This is a large investment and you will be happy you did your research. Let us take a look at how to make these savings.

How do you explain the best mortgage deals? The best mortgages are the ones that give you the lowest rate. While this does hold partially true, it would be unwise to leave out the contrary opinion. Though mortgage rates are very important, it is equally necessary to look at other factors.

Consider that you may get the best rate, but the charges are very high. This may be more expensive than just accepting a higher rate. I will show you the answers soon.

You are probably trying to figure out how to find the best deals on mortgages. They are out there just waiting to be found.

Many, however, simply visit the bank where their accounts are, and find the package the bank representative suggests. This is just the beginning, more is needed and for that to happen more research is needed.

Since research is what is needed in this case, why not start it? You can go to the bank and receive an offer on an interest rate from that institution. Usually, this is the highest rate.

Research leads the way to finding a lower rate. This can be done with the help of advertisements and mortgage brokers or online. Take the time to research and educate yourself about mortgages so you can get the best deal.

You can find a number of good deals online fairly quickly. Unless you are looking at a publication with many ads focused solely on mortgages, the advertisements in magazines and on television do not provide all of the information you need to consider.

The web is valuable as several websites offer great information and can get you the best rates, or tell you where to find them.

Reading personal testimonials will help you avoid getting a bad deal and finding a good one. In the end you will get the best mortgage deals. Savings helps us to get more out of life.

The ability to apply online is a benefit that you should take advantage of. Don’t forget that with every application, a search request is entered on you FICO score, so you don’t want to apply randomly.

A great way to find a mortgage deal is to use a mortgage broker, who can help you in so many ways. These companies will have a business relationship with several other lending organizations. They can assist you in finding the best possible package.

Do you want to find the best mortgage deals? Visit best mortgage deals for the best deals.

How Financial Firms and Government Increase Foreclosure Rates

By Nick Adama

One of the factors that has had the greatest impact on the subprime mortgage frenzy and the deterioration of lending standards in the mortgage market was the transferring of risk. The securitization process of mortgage loans took responsibility for the performance of mortgages out of the hands of the lenders and put it in the hands of thousands of investors located in areas around the world.

The result of this was that lending standards virtually disappeared during the real estate boom of the early twenty-first century. With the Federal Reserve pushing interest rates to artificially low levels through massive amounts of inflation, all that cheap money had to go somewhere. And it went into the housing market through the mechanisms of subprime loans, inflated property values, and unfair lending practices.

The decade of the 1970s witnessed the beginnings of the push towards mortgage securitization, as lenders moved away from the practice originating and holding loans. Instead, mortgage companies would originate and immediately turn around and sell the loans. In this way, they could quickly generate more money for additional loans, while investors had residential real estate loans to provide monthly income.

However, the main profit source for loan origination companies also shifted with the advent of securitization. Banks had been in the practice of deriving profits through taking in money and lending it out at higher rates of interest than what they paid to get deposits. With mortgages being securitized in higher numbers, though, interest income was replaced with fee income.

Origination companies received their profits from the creation of these loans and the packaging and selling of them to other companies and investors. The investors in the mortgage securities, on the other hand, now received the interest income from the loans. Thus, the banks making the loans had little incentive to ensure the loans were good for the long term once the loans were made and they received their fees.

The practice of securitizing mortgages, though, also created incentives for banks to make loans that could never be paid back. Once the pool of credit-worthy customers had been exhausted, there was left a large number of people without stable income or good credit. But with all of the cheap money flooding into the housing market from the Federal Reserve, the subprime market was vastly expanded.

Homeowners and banks both share part of the blame in fueling the housing market bubble, but all that money came straight from the inflation caused by artificially low interest rates. Securitization allowed banks to hide the risk of the bad loans for a number of years as real estate prices kept rising. For a few years, it worked, but the flood of money began to slow down and property values stopped rising.

Once property values stopped rising and actually began falling, the entire subprime mortgage market collapsed under its own weight. Hundreds of lenders went out of business, Wall Street transformed from predatory investment banks into bankrupt bailed out institutions preying on the economy at large, and the securities created during the boom all began to smell very toxic.

The government, though, quickly stepped in to make the investment banks as whole as possible, by forcing other companies to take them over, providing inflation-created incentives, or simply handing over tens of billions of dollars to banks and financial companies. This was just the latest and largest in a long line of federal bailouts of the financial industry, but all of the investment banks relied on the federal backstop against failure.

Without the transference of risk to the rest of the world and the reliance on the federal government for artificially low interest rates and a guarantee against failure, the subprime market and housing bubble could not have reached the heights they did. But all of these factors created huge non-market incentives for unfair lending and borrowing, with the economy in general now suffering the fallout.

Nick publishes articles on the ForeclosureFish website to provide foreclosure help and information to homeowners in need of assistance. The site examines various options to save a home, including deed in lieu of foreclosure, filing bankruptcy, short sales, defending foreclosure in court, and others. Visit the site for an e-book explaining the basics of foreclosure and how to stop the process: http://www.foreclosurefish.com/

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