During tough financial times, news is king. A simple announcement from the media can instantly send the financial and mortgage markets racing in either direction. As the financial markets continue to adjust to the credit crisis, current and potential homeowners will have to adjust and react immediately as well. With this in mind, lets explore the top three news stories that affect both current and potential homeowners looking to make the most of today's buyers' market.
Headline #1: Mortgage Rates Plummet Thanks to the Fed
In late November, an announcement that the Federal Reserve and US Treasury would purchase up to $600 billion in asset-backed securities over the next year or so sent mortgage rates on many programs plunging below 6%. This is a bold step by our federal regulators towards a more stable economy. Not only will this increase the availability of credit, but it should help support the housing and financial markets as well. For new buyers and for homeowners looking to refinance, this is great news - especially borrowers with adjustable-rate mortgages.
Current Homeowners - those who have been on the fence about refinancing should investigate their options quickly. Remember, interest rates are incredibly volatile and extremely susceptible to news events that directly affect the economy, especially in today's marketplace. Whether you're looking to lower your interest rate or hoping to switch into another more stable program, applying now and locking in a lower rate will save you a lot of money. Make sure your mortgage professional has the knowledge and ability to access and follow the performance of mortgage-backed securities in order to get the best mortgage pricing available.
New and First-time Buyers - interest rates near historic lows, home prices at 2003-2004 levels in many markets, and a tax credit up to $7,500 for first-time buyers (anyone who hasn't owned a home in the last three years) all make for a great opportunity to purchase the home of your dreams at a major discount.
Cash-strapped Borrowers - low and no down-payment programs still exist through the government, including Federal Housing Administration (FHA), the Veterans Benefits Administration (VA), and the US Department of Agriculture (USDA).
For FHA loans, the down-payment requirement has increased this year, but it's still only 3.5% which isn't bad for a government-secured mortgage. With a VA loan, 100% financing is available to eligible veterans and, for non-vets, 100% financing is available in many communities through a loan guaranteed by the USDA. It's important to note that VA and USDA loans also do not require monthly mortgage insurance like FHA loans, creating even more savings for these special mortgages. If you're looking to take advantage of today's buyers' market, be sure to ask your mortgage professional about these special programs.
Headline #2: Rescue Program Offers Hope for Homeowners
In Washington, federal rescue and stimulus packages have made headlines for most of 2008. The intent of these programs has been both to stabilize the credit markets and to encourage lending to companies and consumers alike.
For the majority of struggling homeowners, however, these programs offer little relief from declining home prices, increased living expenses, and decreasing incomes.
Legislation passed earlier this year did contain a well-intentioned lending program called Hope for Homeowners (H4H) designed to help homeowners behind on their payments or who owe more on their mortgage than their home is currently worth. The $300 billion program aimed to replace the consumer's old loan with a new one set at 90% of the current value of the home. Lenders would absorb the difference or loss. In return, the consumer would pay higher than normal FHA insurance premiums, agree to share the remaining 10% equity with the government, and to split future appreciation on the home. There are, of course, other restrictions on how the loan should be structured and who qualifies, so talk to your mortgage professional to see if this option is right for your individual goals and needs.
Also, be prepared for some hitches and delays when it comes to H4H. Unfortunately, the program as it stands today is deeply flawed, and may offer very little hope for many distressed homeowners as it is currently applied. The main problem with H4H is that the program was introduced to the marketplace without requiring full participation from lenders. In other words, it is completely voluntary, resulting in a program that just doesn't meet the needs and demands of the homeowners who need it the most.
The Department of Housing and Urban Development (HUD), however, recently made some changes to the program that go into effect in mid-December. These changes are designed to engage (though still not require) more lenders to participate. It's hard to say how these changes will enhance H4H, so be sure to investigate any and all options and alternatives available with your mortgage professional.
Headline #3: Loan Modification Offers Alternatives to Foreclosure
Loan Modification is another "voluntary" program designed to help homeowners facing foreclosure. A favorite of the media, this program seeks to change the terms of a mortgage, including a reduction in the interest rate (permanently and temporarily), an extension in the term of the loan, a reduction in the principal balance, or some combination of the three.
There are two ways a consumer can approach getting his or her mortgage modified. The first is to reach out to the lender directly, detailing the situation and waiting for the lender to offer a plan. The second is to employ a professional to handle the negotiations on his or her behalf.
The primary benefit to employing a professional to assist you with a modification is knowledge and experience. They know what they're doing. A loan modification company or consumer credit company is accustomed to working with lenders to obtain a successful modification. The key for you then is to work with someone skilled in obtaining the best modification for your needs. Be sure to get a referral from your real estate or mortgage professional, or at least someone you know who has successfully gone through the process themselves. Whatever you do, do not be afraid to ask for and check all references because, unfortunately, there are scammers out there looking to take advantage of desperate homeowners during this extremely vulnerable time in their lives.
This doesn't mean you won't pay for the services of a professional. The typical costs for employing a loan modification company could be in the range of $3,000 to $5,000 depending on your situation and if you employ a company to negotiate for you as well. Items that can impact the fee can be the number of loans you need modified and the company you select.
Choosing a consumer credit counseling company may not cost you anything, but the expertise of the people you work with and the outcome itself may not be equal to employing a company that is dedicated solely to mortgage modifications.
One key point to remember is that the lender, while often willing to work with you, always puts its own interests first. This means that, while the lender may be willing to work with you personally to avoid a more substantial loss on its part, the solution offered may not be the best possible scenario available to you. Keep in mind, with a loan modification, you are asking the lender to take a loss, and you can bet that the lender will always try its best to minimize these losses.
Whichever path you choose, timing is of the essence. If you're struggling to make your payments or you've already fallen behind a few months, this is not the time to bury your head in the sand. Communication is the key to your success. This means answering the phone calls and opening up the letters from lenders. It means getting on the phone and calling your lender's loss mitigation department and following any advice they offer.
Unfortunately, accurate statistics are not currently available on the success rate of homeowner-negotiated transactions versus those who utilized the services of paid professionals. The best advice we can offer is to find out the right course of action for your individual needs. You've already taken the first step. You've read this article and you've learned the basic steps you need to take to save your home. Don't wait until it's too late.
For any questions about home financing, reach out to the individual that supplied you with this issue of YOU Magazine and find out how you might be able to benefit from the recent events that are quickly changing, for the better, the economic outlook of the months and years ahead.