Getting a home-equity loan

1.Not knowing if your loan has a pre-payment penalty clause. If you are getting a "NO FEE" home-equity loan, chances are there's a hefty pre-payment penalty included. You'll want to avoid such a loan if you are planning to sell or refinance in the next three to five years.
2.Getting too large a credit line. When you get too large a credit line, you can be turned down for other loans because some lenders calculate your payments based upon the available credit--not the used credit. Even when your equity line has a zero balance, having a large equity line indicates a large potential payment, which can make it difficult to qualify for other loans.
3.Not understanding the difference between an equity loan and an equity line. An equity loan is closed--i.e., you get all your money up front and make fixed payments until it is paid if full. An equity line is open--i.e., you can get numerous advances for various amounts as you desire. Most equity lines are accessed through a checkbook or a credit card. For both equity loans and lines, you can only be charged interest on the outstanding principal balance.

Use an equity loan when you need all the money up front--e.g., for home improvements, debt consolidation, etc. Use an equity line when you have a periodic need for money, or need the money for a future event--e.g., childrens' college tuition in the future.
4.Not checking the lifecap on your equity line. Many credit lines have lifecaps of 18 percent. Be prepared to make payments at the highest potential rate.
5.Getting a home-equity loan from your local bank without shopping around. Many consumers get their equity line from the bank with which they have their checking account. By all means, consider your bank, but shop around before making a commitment.
6.Not getting a good-faith estimate of closing costs. See item number four above.
7.Assuming that your home-equity loan is fully tax-deductible. In some instances, your home-equity loan is NOT tax deductible. Do not depend on your mortgage company for information regarding this matter--check with an accountant or CPA.
8.Assuming that a home-equity loan is always cheaper than a car loan or a credit card. Even after deducting interest for income tax purposes, a credit card can be cheaper than a credit line. To find out, compare the effective rate of your home-equity line with the rate on your credit card or auto loan.

Effective rate = rate * (1 - tax bracket)
Example: The rate of the home-equity line is 12 percent,your tax bracket is 30 percent, your effectiverateis: .12 * (1 - .3) = .12 * .7 = .084 = 8.4 percent.
If your credit card is higher than 8.4 percent, the equity loan is cheaper.
9.Getting a home-equity line of credit when you plan to refinance your first mortgage in the near future. Many mortgage companies look at the combined loan amounts (i.e., the first loan plus the second) when refinancing the first mortgage. If you plan on refinancing your first, check with your mortgage company to find out if getting a second will cause your refinance to be turned down.
10.Getting a home-equity line to pay off your credit cards when your spending is out of control! When you pay off your credit cards with an equity line, don't continue to abuse your credit cards. If you can't manage the plastic, tear it up!

Refinancing your home

1.Refinancing with your existing lender without shopping around. Your existing lender may not have the best rates and programs. There is a general misconception that it is easier to work with your current lender. In most cases, your current lender will require the same documentation as other companies. This is because most loans are sold on the secondary market and have to be approved independently. Even if you have made all your mortgage payments on time, your existing lender will still have to verify assets, liabilities, employment, etc. all over again.
2.Not doing a break-even analysis. Determine the total cost of the transaction, then calculate how much you will save every month. Divide the total cost by the monthly savings to find the number of months you will have to stay in the property to break even. Example: if your transaction costs $2000 and you save $50/month, you break even in 2000/50 = 40 months. In this case you'd refinance if you planned to stay in your home for at least 40 months.

Note: This is a simplified break-even analysis. If you are refinancing considering switching from an adjustable to a fixed loan, or from a 30-year loan to a 15-year loan, the analysis becomes much more complex.
3.Not getting a written good-faith estimate of closing costs. See item number four above.
4.Paying for an appraisal when you think your home value may be too low. Have the appraisal company prepare a desk review appraisal (typically at no charge) to provide you with a range of possible values. Your mortgage company's appraiser may do this for you. Do not waste your money on a full appraisal if you are doubtful about the value of your home.
5.Using the county tax-assessor's value as the market value of your home. Mortgage companies do not use the county tax-assessor's value to determine whether they will make the loan. They use a market-value appraisal which may be very different from the assessed value.
6.Signing your loan documents without reviewing them. See item number nine above.
7.Not providing documents to your mortgage company in a timely manner. When your mortgage company asks you for additional documents, provide them immediately. They are doing what's necessary to get your loan approved and closed. Delays in providing documents can result in a costly delays.
8.Not getting a rate lock in writing. When a mortgage company tells you they have locked your rate, get a written statement which includes the interest rate, the length of the rate lock and details about the program.
9.Pulling cash out of your credit line before you refinance your first mortgage. Many lenders have cash-out seasoning requirements. This means that if you pull cash out of your credit line for anything other than home improvements, they will consider the refinance to be a cash-out transaction. This usually results in stricter requirements and can, in some cases, break the deal!
10.Getting a second mortgage before you refinance your first mortgage. Many mortgage companies look at the combined loan amounts (i.e., the first loan plus the second) when refinancing the first mortgage. If you plan on refinancing your first loan, check with your mortgage company to find out if getting a second will cause your refinance transaction to be turned down.

Why Are Mortgage Securities Important?

Mortgage securities can perform a number of valuable functions in emerging economies. Their introduction and use can improve housing affordability, increase the flow of funds to the housing sector and better allocate the risks inherent in housing finance.

In economies with pools of contractual savings funds, mortgage securities can tap new funds for housing. Institutional investors (pension, insurance funds) with long term liabilities are potentially important sources of funds for housing as they can manage the liquidity risk of housing loans more effectively than short-funded depository institutions. Although in some countries, these investors are also involved in loan origination and servicing, it is not their core mission or competency. Efficiencies can be gained through passive investment in mortgage securities by institutional investors, allowing depositories and specialist mortgage companies perform the other functions. An increase in the supply of funds can, all other things equal, reduce the relative cost of mortgage finance and improve accessibility to finance by the population.

Funding through the capital markets through issuance of mortgage securities can increase the liquidity of mortgages, thereby reducing the risk for originators and the risk premium charged by lenders. The ability to dispose of an asset within a reasonable time and value, a crucial factor to mobilize long term resources, is a service that capital markets, as opposed to banking systems, can provide. A frequently expressed reluctance of primary market financial institutions to offer housing loans is a lack of long term funds.[1] Access to the long term funds mobilized by institutional investors can reduce the liquidity risk of making long term housing loans, increasing their affordability and improving the access to funds for home buyers.

A third rationale for introducing mortgage securities is to increase competition in primary markets. The development of capital market funding sources frees lenders from having to develop expensive retail funding sources (e.g., branch networks) to mobilize funds. Securitization for example can allow small, thinly capitalized lenders who specialize in mortgage origination and servicing to enter the market. These lenders can increase competition in the market and can lower margins and introduce product and technology innovation into the market. The experience of Australia in the 1990s provides dramatic evidence of the power of capital-market funded lenders to change a market. The market entry of wholesale funded specialist lenders led to a reduction of 200 basis points in mortgage spreads during the 1994-1996 time period [Gill, 1997].

Increasing competition and specialization can in turn increase efficiency in the housing finance system. Greater specialization can lead to cost-savings and reduce spreads. The phenomenon of unbundling (Figure 1) has been associated with development of secondary mortgage markets. As the functional components of the mortgage process are unbundled, specialists emerge and obtain market share through scale economies in processing, access to information and technology and risk management.
[1] There is a degree of speciousness to this argument, however. In most countries, depository institutions have a core of long term deposits. Although the contracts may be short term, they are typically rolled over and can fund long term housing loans. An institution can provide a significant percentage of its loans for housing while accepting only a modest amount of liquidity risk. This statement frequently masks other reasons for not providing housing loans including high transactions costs, high perceived credit risk etc.).

Types of Mortgage Securities

What do we mean by mortgage security? There are a number of different types of instruments that can be used to tap the capital markets. In this paper we focus on 5 generic types.

a. Whole Loan Sales: Although not a security, the sale of whole loans can be an important way for primary lenders to raise funds and manage risk. Whole loan sales involve the sale of mortgages, either individually or more commonly in pools, to other lenders or investors. Examples of whole loan sales include the sale of pools in their entirety, participation or recourse basis, by savings and loan institutions in the US in the 1960s and 1970s.[1] Whole loans may be sold through brokers, relationships (e.g., the seller delivers loans on a regular basis to the buyer)) or wholesalers who aggregate loans from a variety of sources and sell them to investors.
b. Agency Bonds: These are bonds issued by agencies specialized in mortgage finance at a secondary (i.e., not the loan origination) level. Issuers include liquidity facilities which refinance primary market lenders (discussed below) and [the retained portfolio activities of] the mortgage GSEs in the US.[2] Their bonds are not specifically backed by mortgage loans but the assets of the issuers are almost entirely mortgages or loans backed by mortgages. The bonds are obligations of the issuers and can be straight or callable.
c. Mortgage Bonds: These are bonds that are issuer obligations and issued against a mortgage collateral pool. Investors have a priority claim against the collateral in the event of issuer bankruptcy. The issuer may be a specialized mortgage bank, as is the case in Denmark, Germany and Sweden, a commercial bank as is the case of Chile, Czech Republic or Spain, or a centralized issuer as is the case of France or Switzerland. The collateral pool may consist of all of the qualified assets of the issuer, as is the case with the German Pfandbriefe, a specified pool as in the case of US savings and loans and the recent issue by Halifax Bank of Scotland in the UK, or individual loans as in Chile and Denmark (the individual bonds are aggregated into large series). The bonds may be straight (non-amortizing) or pass-through (in which mortgage principal is “passed through” to investors as received from borrowers).
d. Mortgage Pass-through Securities: Pass-throughs (PTs) are securities issued against a specific collateral pool subject to cash flow matching. The balance on the PT is always equal to the balance on the mortgages in the pool and the cash flows received from borrowers are passed through to investors, with a delay and deduction for servicing and guarantee fees. Pass-throughs are typically not the liability of the issuer and feature credit enhancement through a variety of techniques described below. They may be issued by lenders or conduit institutions.[3] The best known PTs are the securities guaranteed by Ginnie Mae and those issued by Fannie Mae and Freddie Mac in the US.[4]
e. Mortgage Pay-through Securities: Pay throughs are multiple securities issued against a single collateral pool. They may be closed end, wherein there is a fixed collateral pool and all securities are issued at the outset of the transaction, or open end in which the collateral pool and securities can be increased over time (subject to constraints). These securities modify cash flows between borrowers and investors to meet the needs or requirements of investors. Examples of pay through securities include mortgage strips in which separate securities that are backed from either the principal and interest from a mortgage pool are sold, and collateralized mortgage obligations (CMOs) in which a number of securities that repay principal sequentially are issued. Most mortgage security issuance by banks in developed and emerging markets are pay-through structures.
[1] In participation agreements, the seller retains a portion of the pool and thus shares the risk with the purchaser on a pari-pasu basis. In recourse transactions, the seller retains some or all of the risk of default by agreeing to repurchase loans in default. The recourse may be limited to a certain amount or percentage of the pool balance.
[2] GSE stands for Government Sponsored Enterprise, a special class of institutions in the US. The GSEs are government chartered, limited purpose corporations that are owned by either their members or the general public. They enjoy a number of tax and regulatory privileges that translate into lower funding costs. The best known enterprises, Fannie Mae and Freddie Mac and the Federal Home Loan Banks are described in Lea, 1999.
[3] Conduits are centralized institutions that purchase loans from lenders and issue mortgage securities. Fannie Mae and Freddie Mac have conduit functions and there are over 20 major private conduits in the US as well.
[4] For more detail on mortgage security characteristics, see Fabozzi 1997, 2001.

Mortgage Securities in Emerging Markets

Despite its recognized economic and social importance, housing finance often remains under-developed in emerging economies. Residential lending is typically small, poorly accessible and depository-based. Lenders remain vulnerable to significant credit, liquidity and interest rate risks. As a result, housing finance is relatively expensive and often rationed. The importance of developing robust systems of housing finance is paramount as emerging economy governments struggle to cope with population growth, rapid urbanization, and rising expectations from a growing middle class.

The capital markets in many economies provide an attractive and potentially large source of long term funding for housing. Pension and insurance reform has created large and rapidly growing pools of funds. The advent of institutional investors has given rise to skills necessary to manage the complex risks associated with housing finance. The creation of mortgage-related securities (bonds, pass-throughs and more complex structured finance instruments) provide the multiple instruments by which housing finance providers can access these important sources of funds, better manage and allocate part of their risks.

The use of mortgage-related securities to fund housing has a long and rich history in the developed world. Mortgage bonds were first introduced in Europe in the late 18th century and are a major component of housing finance today [EMF, 2002]. Mortgage pass-through securities were introduced in the US in the early 1970s and along with more complex structured finance instruments now fund more than 50% of outstanding debt in that country [Lea, 1999]. Today, mortgage-related securities have been issued in almost all European and developed Pacific Rim countries.

There have been numerous attempts to develop mortgage securities to secure longer-term funding for housing in emerging economies. The view has been that such instruments can help lenders more efficiently mobilize domestic savings for housing, much as they do in the developed world. In addition, mortgage securities are also pursued to develop and diversify fixed-income markets as a supplement to government bonds for institutional investors.

Despite the strong appeal of financing housing through the capital markets, there are significant barriers to the development of mortgage securities in emerging markets. Their success is dependent on many factors, starting with a strong legal and regulatory framework and liberalized financial sector and including a developed primary mortgage market. Perhaps not surprisingly, the experience in developing mortgage securities in emerging markets has been mixed. This paper will review the experience of introducing mortgage securities in emerging markets and explore the various policy issues related to this theme.

The organization of the paper is as follows: First, we review the rationales for introducing mortgage securities to fund housing; Second, we list the many pre-requisites that underlie successful introduction; Third, we explore the role that government can play in developing these instruments, from both a theoretical and functional perspective. Fourth, we examine the experience of issuing mortgage securities in emerging markets through short case studies of their use. From this examination we then summarize the lessons learned from these experiences, both in general and with specific reference to the proper role of government. Finally, we offer observations on the way forward to increase the use of mortgage securities in emerging markets.

The note will also discuss the various forms of state related support (guarantees, liquidity support, mandatory investment, tax breaks, and issuing privileges) that have been offered in order to secure the credibility and affordability of nascent mortgage securities, but that may also raise significant concerns about contingent liabilities and market distortions. The regulatory dimension of mortgage securities and securitization companies is an important determinant of their success and will be addressed as well.

A Holiday Rush On Refinancings

You may be thinking about the holidays, but thousands of your fellow homeowners have been thinking about refinancing, rate reductions, cash-outs and money-saving debt consolidations.
For the past two weeks, they have been bombarding lenders with applications for mortgage refinancing -- driven by the most attractive rates in more than a year. Refinancings were up in mid-December by 60 percent over the corresponding period last year, and they accounted for more than half of all new mortgage applications -- the highest proportion since the spring of 2004.
Thirty-year fixed rates slipped below 6 percent two weeks ago, and although they have rebounded slightly, they are still nearly a percentage point below where they were last summer. Fifteen-year fixed-rate loans in the mid-to-upper 5 percent range are readily available to applicants with solid credit.
Could a holiday-season refi be in the cards for you? Maybe, but it probably depends on whether you fit into one of several categories where today's rates make a lot of sense:
? You have an adjustable-rate mortgage that's scheduled to reset into higher payments in the six months ahead. Your loan might be a payment-option mortgage, an interest-only mortgage originated in 2003 or 2004 with a three-year reset, or simply an adjustable tied to short-term Treasury rates that's already costing you more than the fixed-rate alternatives.
? You have a "piggyback" first-and-second mortgage package that was originally intended to let you purchase your house with a minimal or zero down payment while avoiding mortgage insurance premiums. But now the floating-rate second is above 8 percent and you want to bail.
? You need cash for a home improvement, a business investment or a vacation home now available at a bargain price. Even though the fixed rate on your first is below 6 percent, the opportunity to cash out thousands of dollars and refinance into a larger replacement mortgage is compelling, even if the rate is a little higher.
So many current homeowners fit into these categories that Anthony Hsieh, president of LendingTree.com, the online network of 200-plus mortgage companies, predicts that this month's refi boomlet could stretch into 2007 -- provided, of course, that rates remain close to 6 percent.
"This has legs," he said in an interview. "This is no head fake; it's for real" because mortgage money at 6 percent offers such exceptional problem-solving opportunities.
For example, Douglas G. Duncan, chief economist for the Mortgage Bankers Association, estimates that $1.1 trillion to $1.7 trillion of adjustable-rate mortgages are scheduled for payment resets in the coming 12 months, and that $600 billion to $700 billion is likely to be refinanced by homeowners eager to avoid higher monthly outlays.
Some of these loans are "nontraditional" mortgages that combine low initial payment periods with drastically higher payments after several years. For thousands of those borrowers facing big payment jumps -- 50 percent, 100 percent or more -- a refi into a fixed-rate mortgage is a no-brainer, according to Duncan.
Other people who purchased during the housing boom years using popular "3/1" adjustables in the mid-4 percent range for the initial three years now face significantly higher payments because short-term interest rates today are much higher.
Consider this example provided by LendingTree: Say you bought your house in late 2003 with a $200,000 "3/1" adjustable at 4.375 percent with a margin of 3.75 percent and a 20 percent down payment. Your principal and interest payments have been $998.57 for the first three years. But now you face a reset into a 7.53 percent rate on your $197,000 balance -- and a monthly payment hike of $383.
Your alternative: Refinance into a new 30-year, fixed-rate, $197,000 mortgage at 6.1 percent. Sure, your payment will be about $195 higher than your current 4.375 percent rate, but not what you would pay if you stuck with your current loan's post-reset rate.
Here's another scenario: Say you have a great rate on the $200,000 first mortgage that you took out in 2002 -- 5.5 percent. But you need $25,000 cash for kitchen remodeling or a business investment. On the one hand, you hate to get rid of a once-in-a-lifetime 5.5 percent rate. However, you have the opportunity to pull out the $25,000 with a refi, add it to the $192,500 balance on your current loan, and walk away with a new $217,500 replacement mortgage at 6.1 percent fixed for 30 years.
Your new monthly payment: About $184 higher than your current.
A gift from Santa? Hardly. Cash-out refis cost money. But your 6.1 percent fixed rate -- not far above 40-year record lows -- should still look good years from now.

By Kenneth R. Harney

A new way to pay off your house

Accelerator loans, common in Australia and the U.K. but new to the U.S., use special accounts that encourage borrowers to apply all extra money toward their mortgages. The savings can be big.
A different type of home loan, called a mortgage accelerator, has migrated to the United States. It uses home-equity borrowing and a borrower's paychecks to shorten the time until a mortgage is paid off, potentially saving tens of thousands of dollars in interest expense.
Not to be confused with biweekly programs that shorten a mortgage through extra payments, the mortgage-accelerator program is based on an approach common in Australia and the United Kingdom, where borrowers deposit their paychecks into accounts that, every month, apply every unspent dime against the mortgage loan balances.
In Australia, more than one-third of homeowners use mortgage-accelerator programs. In the U.K., it's about 25%. In the United States, (among the firms) now offering these mortgages (is) CMG Financial Services, whose offering is called the Home Ownership Accelerator.
The premise is that borrowers finance a purchase or refinance existing property using home-equity lines of credit. Borrowers then directly deposit their entire paychecks into the credit accounts. Monthly expenses, other than mortgage payments, are funded by draws against the lines of credit, whether those are through automatic bill payments, checks, cash withdrawals or credit cards. Even if borrowers end up not paying anything extra on the principal during a month, they still capture some interest savings because the average balances are less than they would have been with conventional loans.
Here's how it works
As an example, let's say your mortgage payment on a conventional fixed-rate mortgage is $2,000 and your monthly net income is $5,000. With the mortgage accelerator, even if you spend the $3,000 difference, your average mortgage balance for the month is $1,500 less than it was with the conventional mortgage. That's because the entire $5,000 is deposited in the loan account and you made draws of $3,000 for living expenses spread over the month. At a 7.75% loan rate, that saves you about $10 in interest expense that month.
Now, $10 here and $10 there does add up over time, although both loan programs have annual fees of $30 to $60, but the accelerator part of the mortgage lies in having all your net pay going against the mortgage and an assumption that you have a positive monthly cash flow -- meaning you don't spend as much as you make. A simulation calculator on CMG's Web site has stock assumptions that you may have 10%, 20% or even 25% of your net pay left over each month that you can apply to your mortgage balance.
Help for the undisciplined
Of course, all borrowers already have that money available with a conventional mortgage and without the cost of refinancing. A borrower would simply need the financial discipline to use all that money as an additional principal payment.
For the undisciplined, the mortgage-accelerator program makes the additional principal payments automatically. That's the real hook to this program: Unless you spend the money by drawing against the line of credit, your paycheck goes toward paying off the house.
Where a mortgage-accelerator loan program gives a homeowner additional flexibility, however, is in having a line of credit available if there is an emergency need for cash. If you make additional payments on a conventional 30-year fixed-rate loan, you can't borrow that money without taking out a home-equity line of credit or a home-equity loan. With the mortgage-accelerator program, you already have the line in place. That gives homeowners confidence that they can be aggressive in paying their mortgages and still have money readily available if a financial emergency crops up.
Homeowners could cobble together a payment plan similar to a mortgage accelerator on their own by taking out a conventional home-equity line of credit, but a mortgage product specifically structured for this approach to consumer finances has advantages.
Mortgage-accelerator loans have interest-only minimum payments during the first 10 years, although that goes against the idea of paying off a mortgage as fast as you can. After 10 years, the line of credit decreases by 1/240 each month over the remaining loan term (20 years multiplied by 12), forcing principal repayment until the loan is paid off.
Another argument for this approach to financing is that your idle cash is saving you the mortgage interest rate versus earning a low passbook-savings rate. Though short-term investing alternatives that pay higher rates do exist, the savings are automatic with the mortgage-accelerator program.
Now for the fine print
A home-equity line of credit is a variable rate, and the interest rate will fluctuate with changes in the underlying pricing index. Lifetime caps limit a homeowner's exposure to higher interest rates, with CMG's Home Ownership Accelerator limiting that risk to 5% over the starting rate…
Brooke Barnett, an "ownership accelerator specialist" at Rancho Funding, a San Ysidro, Calif., mortgage broker that offers the CMG loan program, calls the program ideal for financially savvy homeowners who spend less than they make each month.
The savvy part -- being able to earn the mortgage interest rate on idle cash instead of the low rates paid on checking and savings accounts -- attracts customers who take a big-picture view of their finances. Money that isn't going toward expenses is reducing the balance on the mortgage and, by doing that, reducing the interest expense.
Barnett suggests that a Home Ownership Accelerator loan could also be used in lieu of taking out a reverse mortgage. With enough equity in the property, a homeowner could avoid minimum payments over time using negative amortization up to the amount of the home-equity line of credit.
Closing costs on a mortgage-accelerator loan are about equal to the closing costs on a conventional 30-year fixed-rate mortgage. Like any refinancing decision, those costs are a factor, and the longer you plan to be in the house the easier it is to justify refinancing your mortgage loan.
The lenders expect homeowners to be less rate-sensitive about these accelerator mortgages because of the interest savings available through the program. The product is new enough in the U.S. market that it will take some time to validate that expectation.
Interest savings are still available the old-fashioned way by making additional principal payments on a conventional fixed-rate mortgage. Bankrate.com's mortgage payment calculator allows you to make additional-principal-payment assumptions on your mortgage, and you can then compare the interest savings against the results of the (CMG) calculator.
Excerpted from an article by Don Taylor, Bankrate.com
By Bankrate.com (Excerpts)

IF YOU ARE CONSIDERING REFINANCING YOUR HOME MORTGAGE:

Home ownership is an awesome, exciting achievement. Before you decide to refinance – also known as borrowing against the equity in your home - consider the consequences. If you refinance your mortgage without fully understanding the risk, you could:
• be the victim of aggressive sales tactics that make you feel that you need to make a decision before you are ready and before you understand ALL the terms;
• get a loan with terms that are different from what you asked for and thought you were being offered;
• end up paying property taxes and insurance separately rather than spreading out those payments through the year; or
• you could wind up with a “balloon payment” that you never asked for! (That’s a large payment amount due all at once.)

Don’t risk your most valuable asset. Ask yourself these questions BEFORE YOU SIGN ON THE DOTTED LINE:

• Have I shopped around for other rates and offers?
o Government-backed loan programs: Did you know that the City of Shaker Heights has programs available to help with housing code violations, or that Cuyahoga County partners with local lenders to get you low-interest refinancing?
o A regular community-based bank: did I rely on the advice of others for a quick financial fix, or did I take the time to talk to my local bank, the same bank where I have my checking account, or the credit union that I have trusted for years?
o Be cautious: is this loan offer the best option for me? Click here to download the “refinancing checklist” [coming soon to this page] to find out if you are getting the best deal, and to ensure that you are aware of ALL of the terms of the loan before you close the deal.

• Is this the best deal for me?
o If you have a checking account, talk to someone at your bank first about refinancing options.
o Belong to a credit union? Many credit unions have good refinancing options for members; check with them prior to using an unknown entity to refinance your most valuable asset. If you live, work, or worship in Shaker, you may eligible to join the Shaker Heights Credit Union. Click here [http://www.shakercommunity.com/] for more information.
o If you work with a mortgage broker, review the “refinancing checklist” [coming soon to this page!] with the broker to ensure all of your questions are answered prior to the date of closing.
o You have the right to receive a copy of the “settlement statement” 24 hours before you close. This document is the roadmap for your transaction – it shows where all of the money will go (compensation to the broker, lender, title company, recording fees, other debts paid, etc.).

• Do I understand all the terms of my deal?
o Click here to download the ‘refinancing checklist” [coming soon to this page!] to make sure that you are an educated consumer, and that you understand all of the terms of your refinancing deal. Take the checklist with you to closing and demand that all of your questions are answered before you sign on the dotted line.
o If you want someone to review your loan papers before you sign, call 211, the County’s “Don’t Borrow Trouble” hotline, to get connected to a HUD-certified housing counselor that can review your loan documents and answer your questions BEFORE it’s too late.
o If it sounds too good to be true, it probably is. So ask questions and demand to see terms put in writing. Sometimes brokers try to get you hooked on a “teaser rate” for a loan. You should ask: “What happens if the interest rate increases?” A broker may tell you “don’t worry, we’ll help you refinance in another 6 months for a lower rate.” If promises are made to you, get those in writing, too. Lower rates may not be available in 6 months when your interest rate goes up.

• Is my mortgage broker and/or lender reputable?
o Click here for a list of recent enforcement actions taken against loan officers or mortgage brokers by the Ohio Department of Commerce, http://www.com.state.oh.us/dfi/enforcement.aspx.
o Is your lender: Ameriquest? Click here [http://www.ameriquestmultistatesettlement.com/index.htm] to learn about a class-action lawsuit that may affect your rights if you had a mortgage from Ameriquest between 1999 and 2005.
o Click here [http://www.cleveland.bbb.org/home/] to connect to the Cleveland area Better Business Bureau (BBB) to research whether any complaints have been filed against the company that wants to do business with you (i.e. mortgage broker, home repair contractor, etc.).

The Wellesley College mortgage program

Purpose of the Plan
The purpose of the mortgage program is to enable faculty and senior administrators to live proximate to the College to facilitate interaction among faculty and students.

Eligibility
The mortgage program is available to all tenured and tenured track faculty at an Associate or Full Professor level, physical education faculty with long-term renewable five-year contracts who work at least half-time (.5 FTE), and senior administrators who have positions equivalent to or higher than vice president.

For faculty members, the program is available upon confirmation from the Dean's office that the faculty member is currently tenured or is tenure-track at an Associate or Full Professor level and will be considered for tenure within two years of receiving the mortgage.

Refinancing, on a one-time basis, is available for eligible faculty and administrators who previously owned or privately financed their own residences, prior to being eligible to participate in the Wellesley College mortgage program.

Distance from the College
The Wellesley College mortgage program is applicable to the purchase of a primary residence within a 10-mile radius of the College.

Cost to Participate
The fee to participate is $1,000, which is due to Wellesley College upon submission of the Uniform Residential Loan Application.

Maximum Amount the College will Loan
The College currently will loan up to $800,000 in this program.

This amount is reviewed by the Board of Trustee’s Finance Committee and adjusted based on median house prices in the town of Wellesley. The new maximum loan amount will be changed as needed.

Please note that the College’s Board of Trustees has set 3 percent of the endowment as the maximum amount to be available for this program. Provision of mortgages is subject to the availability and funds on the part of the College and a satisfactory credit review of the potential faculty or staff member. Priority is given to 1st time home buyers.

PARTNERSHIPS – WHAT IS DENVER DOING

The creation of Denver’s Foreclosure Task Force was the first step locally to begin a comprehensive and collaborative evaluation on foreclosure problems. The Colorado Division of Housing 2006 Foreclosure Report stated that Denver along with Adams, Weld, Arapahoe, and Boulder Counties reported the highest foreclosure filings per household. Denver alone reported 1 in 47 households in foreclosure. Statewide, there were approximately 1 in 58 households in foreclosure compared to 1 in 75 in 2005. From 2005 through 2006 foreclosures increased 31% from 21,782 to 28,435 and between 2003 and 2006, foreclosures increased by 110% from 13,575.[1] From 2005 to 2006, Denver’s foreclosure rate increased by 14%. In the first quarter of 2007, Denver reported a total of 1,940 foreclosures, a foreclosure rate of 1 in 127; and the City is anticipating a total of 7,760 foreclosures by the end of the year. As reported by Colorado’s Foreclosure Hotline, 2,500 calls from Denver were generated to the hotline by citizens regarding foreclosure issues. The Foreclosure Task Force reviewed what Denver and the State of Colorado had already begun to do in order to identify other foreclosure measures and to support the progress of programs already in place. In 2005, the state concentrated on foreclosure fraud and began steps to legislate against mortgage fraud activities and to create enhanced consumer protections.

In July 2005, Colorado Attorney General John Suthers formed a Foreclosure Fraud Task Force to remove Colorado from the FBI’s list of top ten hot spot states for mortgage fraud activities. The state task force focused on public awareness, outreach, and key legislation during the 2006 General Assembly. The following bills were signed by Governor Owens, enacting new regulations and consumer protections:

· House Bill 06-1387: Sponsors of the bill were Representative Garcia and Senator Veiga. The bill modified and clarified law governing real estate foreclosures, including issues related to public trustees and foreclosure processes, including foreclosure proceedings, notice, cure periods, sales, withdrawal and termination, and redemption timelines.
· House Bill 06-1161: Sponsors of the bill were Representatives Vigil and Massey and Senator Veiga. The bill established regulatory requirements which include mandatory mortgage broker registration including recordkeeping of complaints and disciplinary actions against mortgage brokers. In addition, the legislation created the Mortgage Broker Registration Cash Fund to collect fee revenue.
· Senate Bill 06-71: Sponsors of the bill were Representative Massey and Senator Veiga. The legislation established the Colorado Foreclosure Protection Act and prohibits certain deceptive business practices and provides homeowners with additional protection measures from losing their home to predatory investors.
The Colorado Foreclosure Prevention Task Force created and launched the Foreclosure Hotline (1-877-601-HOPE) on October 12, 2006. The hotline connects borrowers with non-profit housing counselors to provide individuals with options when facing foreclosures. Counselors also facilitate communications between lenders and borrowers.
2006 Colorado Division of Housing Foreclosure Report

IDENTIFYING THE ISSUES

The high incidences of foreclosure has had negative impacts on many of Denver’s communities which are evidenced in neighborhoods by abandoned and derelict buildings, lack of attendance and sporadic involvement of children and their families in the public school system, the lack of stability and leadership in faith communities, noticeable changes in crime that are attributable to a stagnant economy, depressed home values, and a general decline in neighborhood morale in the City.

The Task Force scheduled discussions with various community partners and industry experts over a six week period to identify neighborhood, church, school, and economic impacts resulting from home foreclosure. The Task Force sought to answer various questions: what problems were causing the high rates of foreclosures, were there national findings correlated to community problems, and what were other cities doing to slow down or eradicate the problem of foreclosures, especially in communities at risk. In Colorado, the top reasons given for foreclosure include: employment and income, inflation, mortgage fraud, and lack of education regarding mortgage products. Economic cycles relative to housing, interest rates, employment, and political goals impact how the nation and its local communities address problems that affect the quality of life of its constituents. The Task Force heard many reports and looked at information provided by national organizations to help them identify what the problems were and their source. Many problems were associated with mortgage products, lack of education, and language barriers.

The New York Federal Reserve Bank reported that incidences of foreclosures can be tracked by loan types. Traditional fixed rate mortgages are no longer the majority of loans being sought. The Joint Center for Housing Studies of Harvard University reported that one in five mortgages is subprime. A national delinquency survey conducted by Mortgage Bankers Association showed that subprime fixed rates and subprime adjustable rate mortgages (ARMs) were the highest incidences of foreclosures by loan types.

Subordinate Mortgages

During the 2002 General Assembly, Senate Bill 549 (S549) amended the Virginia State Code Section 55-58.3 that covers the priority of refinance mortgage over subordinate mortgages. The text change permits that the “subordinate mortgage shall retain the same subordinate position with respect to a refinance mortgage” provided that three limitations are met. The three limitations of: 1) inclusion of specific bold or capitalized text; 2) limited first principal increase of $5,000; and 3) an interest rate that does not exceed the prior mortgage does help to reduce, but does not mitigate, the liability to the County’s promissory notes/deeds of trust that are in second lien position.

Housing Services does not recommend that subordinate liens that are payable to a public body of the Commonwealth be automatically re-subordinated. The primary reasons for this recommendation are twofold. The first is that County’s Down Payment/Closing Cost Program (proffer funding) specifically does not permit re-subordination. If a refinance is to occur the lien must be paid in full and this protects the County, the Affordable Dwelling Units (ADU) and the program participants from any predatory lending terms that could place the purchaser at risk of foreclosure (if a foreclosure occurs the ADU covenants are automatically released, the 15 year price restriction is terminated and the affordable physical unit is lost). This also permits additional citizens to be served as the funding re-enters the revolving fund sooner.

The second concern is to ensure housing/financial counseling prior to a refinance especially as it relates to such programs as the Homeless Intervention Program (state and local tax funding). These program participants are already are at high risk with marginal credit when they receive services as the program prevents mortgage foreclosures. There is a strong need for counseling prior to refinancing. In a recent case, the County declined to re-subordinate our lien position as the participant refused to seek financial counseling, was pursing a marginal mortgage product with risky terms due to poor credit, was not obtaining a significantly reduced interest rate (especially given the market comparisons), and, due to inaccurate appraisal data, was refinancing with $66,000 in negative equity. If the County had stayed in the subordinate position the HIP principal would have been permanently lost when this property went into foreclosure. In this case, the monies were repaid to the County and, since this is also a revolving loan program, additional citizens were served.

Relief for Negative Equity

Earlier this week the HKMA announced modest measures that should enable banks to be more flexible in refinancing mortgages for property owners in negative equity.

There is no doubt that the subject of negative equity is a highly emotional one. When you sit in what is supposed to be your “home” and it is worth less than the amount of money that you have borrowed, secured upon the property, it is difficult not to feel lousy. Although the decision to buy a home was entirely yours, you have reason to feel aggrieved because, you are told by what you read in the news, that the sharp downward adjustment in property prices was the result of shifts in the government’s housing policy. So, you conclude, the government, at least in part, is to be blamed and the government should do something to look after you.

Regardless of the validity of this argument, there is, and should be, a great deal of sympathy for the many members of our community who have found themselves in the difficult position of their own homes being in negative equity. Regardless of the validity of this argument, it is commonly accepted that the government has a responsibility to look after members of the community who find themselves in difficulty. But this must be subject to the important proviso that whatever is done should not undermine the long-term interests of the community as a whole.

Let me focus on mortgage lending, which is an important issue to us as the supervisor of the banking system. It is in the long-term interest of the community that the banks exercise great care in the management of the risks of the largest component of their loan book. A failure to do so by a bank may adversely affect its profitability and undermine the confidence of its depositors, to such an extent as to affect its viability. Banking problems are highly contagious and may therefore undermine the general stability of the banking system. This will jeopardise the interest of depositors and the efficiency with which the banking system performs the role in intermediating funds – a role that is essential to facilitating economic growth and development. This is why we have the 70% mortgage policy that has served us well over the years. This is why we have the guidance on debt-to-income ratio for mortgages. This is why we emphasise so much the need for banks realistically to assess the risks of their loans. This is why we keep such a close eye on mortgage lending. If it had not been for this collection of policies and guidances, the problem of negative equity would now have been much, much worse.

But, of course, not all mortgages in negative equity are so risky as to justify the charging of significantly higher interest rates. If the debt-to-income ratio of a borrower is fairly low and if the debt servicing record is good, the risk involved, it can certainly be argued, is not significantly higher than that for a mortgage that complies with all the guidelines. This is, of course, a matter for the lenders to judge, on the basis of information specific to borrowers available to them. But our attention has been brought to the plight of the many worthy cases that have been prevented from taking advantage of the competitive environment among banks to refinance their mortgages at lower interest rates. This was specifically attributed to our policy on 70% mortgages. Thus, a mortgagor in negative equity to the extent of having a loan-to-value ratio of 110% would need to come up with a repayment of 40% before he or she can refinance the mortgage at a more competitive mortgage rate.

We have a lot of sympathy for these cases, even in our capacity as banking supervisor with a keen interest in sustaining the profitability of banks. The simple reason is that, taking a longer-term view, the access of these families to lower interest rates would increase their ability to continue to service their mortgages through and beyond the upturn phase of the economic and property cycle. Depriving them of this access may indeed increase the risk of their defaulting, as they persevere through the current period of difficulty. We have therefore introduced an exception to the 70% mortgage policy and allowed the refinancing of mortgages in negative equity to be exempt from it, but on the condition that the refinanced amount does not exceed the value of the property. The mortgagor with a loan-to-value ratio of 110% will now need to come up with only 10% (instead of 40%) to have the mortgage refinanced at a lower interest rate.

We hope that this is helpful. But the extent with which those in negative equity will benefit from this depends on the willingness of the banks to refinance them, and the final decision has to be taken by the banks on the basis of the merits of each case. Incidentally, this does not mean an end to the 70% mortgage policy. The arrangement applies only to mortgages in negative equity, which in any case already exceed the 70% guideline of loan-to-value ratio. New mortgages continue to be subject to the guideline. And the arrangement also has the added advantage of enabling the banking system as a whole to reduce its exposure to mortgages in negative equity.
Type rest of the post here

Mortgage Insurance Premiums

An individual is allowed to claim an itemized deduction for the amount of qualified residence interest paid or accrued during the year. For this purpose, qualified residence interest means any interest paid or accrued during the taxable year on any acquisition indebtedness or any home equity indebtedness with respect to any qualified residence of the taxpayer. Acquisition indebtedness means any indebtedness which is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer and is secured by such residence (or any refinancing of such indebtedness). The aggregate amount treated as acquisition indebtedness for any period may not exceed $1,000,000. Home equity indebtedness means any other indebtedness secured by a qualified residence that does not exceed the fair market value of the residence (reduced by the amount of acquisition indebtedness with respect to such residence). The aggregate amount treated as home equity indebtedness for any period may not exceed $100,000. Prepaid interest (“points”) paid by an individual with respect to acquisition indebtedness (but not to a refinancing) generally is deductible in the year paid.

Any person who in the course of a trade or business, receives during any calendar year $600 or more of interest from any individual, must report such receipts to the Internal Revenue Service and furnish the individual with a copy of such statement.

Description of Proposal

An individual would be allowed to claim an itemized deduction for the amount of qualified mortgage insurance premiums paid or accrued during the year. For this purpose, qualified mortgage insurance premiums would mean amounts paid for private mortgage insurance (PMI), Federal Housing Administration (FHA) mortgage insurance, Veteran Affairs (VA) mortgage insurance, and Guaranteed Rural Housing (GRH) mortgage insurance with respect to acquisition indebtedness (or any refinancing of such indebtedness). The deduction would not be allowed with respect to any mortgage insurance paid with respect to home equity indebtedness. The deduction would be allowed for purposes of the alternative minimum tax.

PMI and FHA programs generally require monthly or annual periodic insurance premium payments. The FHA program also has an up-front fee. The VA and GRH programs have only up-front fees. With respect to PMI, the deduction would be allowed for the periodic mortgage insurance premiums made during the taxable year. If an individual makes an up-front payment of his or her PMI premiums, such amount would be amortized and deducted over the term of the mortgage. With respect to FHA insurance, the deduction would be allowed for the periodic mortgage insurance premiums made during the taxable year and the amortized portion (over the term of the mortgage) of any up-front fee paid at the origination of the mortgage. At the time a mortgage is repaid (either through refinancing or through repayment of the balance) any unamortized portion of the up-front PMI or FHA payment would not be deductible. With respect to VA and GRH insurance, the deduction would be allowed for the up-front fee paid at the origination of the mortgage in the year such fee is paid or accrued.

The deduction would be allowed in full if the taxpayer has adjusted gross income (AGI) of $100,000 ($50,000 in the case of a taxpayer filing married separately) or less during the taxable year the deduction is to be claimed. The deduction would be phased-out, in 10 percentage point increments for each $1,000 or fraction thereof ($500 or fraction there of in the case of a taxpayer filing married separately) that the taxpayer’s AGI exceeds $100,000 ($50,000 in the case of a taxpayer filing married separately).

The Secretary of the Treasury would be authorized to issue regulations that would require persons who receive qualified mortgage insurance premiums to make a return reporting the amount of such receipts to the Internal Revenue Service and the person making such payments. It is intended that such reporting be done by the person who receives the premiums from the homeowner (i.e., generally, the lender or person servicing the mortgage). The return shall be in such form, be due, and set forth such information as the Secretary may require. Reporting shall not be required until such regulations are finalized.

Veterans’ Mortgage Life Insurance

What Is Veterans Mortgage Life Insurance (VMLI)?
Veterans Mortgage Life Insurance (VMLI) is an insurance program that provides insurance coverage on the home mortgages of certain severely disabled veterans.

Who Is Eligible?
VMLI is only available to veterans with severe service-connected disabilities who:

· received a Specially Adapted Housing (SAH) grant from VA for assistance in building, remodeling, or purchasing an adapted home; and
· have title to the home; and
· have a mortgage on the home.

Note: Eligible veterans must apply for the coverage prior to their 70th birthday.

What Coverage Does VMLI Provide?
VMLI will pay up to $90,000 of the outstanding mortgage.

The insurance is payable only to the mortgage lender, not to family members.

VMLI coverage is available on a new mortgage, an existing mortgage, a refinanced mortgage, or a second mortgage.

How Much Does VMLI Cost?
VMLI premiums are determined by:

· The insurance age of the veteran; and
· The outstanding balance of the mortgage at the time of application; and
· The remaining length of the mortgage.

VMLI premiums must be paid by deduction from the veteran’s monthly compensation.

How Do You Apply For VMLI?
You can apply for VMLI by completing VA Form 29-8636, Veterans Mortgage Life Insurance Statement, and submitting it to the Department of Veterans Affairs Regional Office and Insurance Center in Philadelphia. Veterans can contact the Insurance Center for an application or visit the website to obtain an application and learn more information about the VMLI program.

Washington Mutual, the nation's no.1 mortgage lender

TIM AND PENNY COOK HAD settled in for a quiet Friday evening in their Seattle condo with their two-month-old son. "We were new parents, and we were just looking forward to getting some sleep," Tim says of that March night.

Fat chance. Just before dinner they heard a knock at the door. Penny answered, but there was no one there. Strange. Then she spotted a notice tacked to the door. It was from a foreclosure company hired by their mortgage lender, Washington Mutual. Penny snatched it and rushed inside. "It's a notice of default!" she blurted to Tim. "They want to foreclose on our house!"

Tim, a network engineer at Microsoft, was shocked. How could this be? They had never missed a payment. They even had proof: canceled checks showing that Washington Mutual had received and cashed each of their payments before it was due. Still more frustrating, Tim had already faxed those canceled checks to WaMu after late fees had started popping up on the couple's statements. What was going on?

Penny could only imagine the worst. "I was beside myself all weekend," she recalls. "I thought, 'We're going to be kicked out on the street with our little baby.' It was devastating."

The Cooks contacted the bank's foreclosure department, which, in turn, asked the couple to re-fax the seven canceled checks and wait 20 days for it to look into the problem. "Six weeks later," recalls Tim, "they suddenly said they only had three of the checks we faxed, but we were 'welcome' to provide the rest of the documentation."

The Cooks were running out of time. By then it was May, and a notice in a local publication announced that their home was to be auctioned off July 19. Just as frightening, their credit rating was getting hammered. Bank of America froze their home equity line of credit. American Express slashed their charge card limit in half. And with their credit in tatters, the Cooks had to put off plans to buy a car and refinance their mortgage. "We were getting all kinds of solicitations from people who deal with bankruptcy and foreclosures," adds Penny. "It was embarrassing."
By Anne Kadet

IF YOU ARE CONSIDERING REFINANCING YOUR HOME MORTGAGE

Home ownership is an awesome, exciting achievement. Before you decide to refinance – also known as borrowing against the equity in your home - consider the consequences. If you refinance your mortgage without fully understanding the risk, you could:
• be the victim of aggressive sales tactics that make you feel that you need to make a decision before you are ready and before you understand ALL the terms;
• get a loan with terms that are different from what you asked for and thought you were being offered;
• end up paying property taxes and insurance separately rather than spreading out those payments through the year; or
• you could wind up with a “balloon payment” that you never asked for! (That’s a large payment amount due all at once.)

Don’t risk your most valuable asset. Ask yourself these questions BEFORE YOU SIGN ON THE DOTTED LINE:

• Have I shopped around for other rates and offers?
o Government-backed loan programs: Did you know that the City of Shaker Heights has programs available to help with housing code violations, or that Cuyahoga County partners with local lenders to get you low-interest refinancing?
o A regular community-based bank: did I rely on the advice of others for a quick financial fix, or did I take the time to talk to my local bank, the same bank where I have my checking account, or the credit union that I have trusted for years?
o Be cautious: is this loan offer the best option for me? Click here to download the “refinancing checklist” [coming soon to this page] to find out if you are getting the best deal, and to ensure that you are aware of ALL of the terms of the loan before you close the deal.

• Is this the best deal for me?
o If you have a checking account, talk to someone at your bank first about refinancing options.
o Belong to a credit union? Many credit unions have good refinancing options for members; check with them prior to using an unknown entity to refinance your most valuable asset. If you live, work, or worship in Shaker, you may eligible to join the Shaker Heights Credit Union. Click here [http://www.shakercommunity.com/] for more information.
o If you work with a mortgage broker, review the “refinancing checklist” [coming soon to this page!] with the broker to ensure all of your questions are answered prior to the date of closing.
o You have the right to receive a copy of the “settlement statement” 24 hours before you close. This document is the roadmap for your