Mortgage Rate News

Right now, there is a growing buzz surrounding the decision that some make to go ahead and walk away. Indeed, in some circles, foreclosure is beginning to be viewed as a smart financial decision. Even José Canseco (the retired baseball player) decided to simply walk away from his California property in Encino, letting it fall into foreclosure.

But for many of us, foreclosure is not a very attractive option. You have to find a place to live, and your credit score takes a major hit. For most people, foreclosure is an option of last resort. The good news is that if you talk to most mortgage lenders about your concerns — and you do it early enough, forbearance is a possibility.

What is mortgage loan forbearance?

One of the best explanations of mortgage loan forbearance that I have seen is from Businessweek:

A forbearance is not the same as loan forgiveness. Ultimately the mortgage payments have to be reinstated, and anywhere from three to six months of missed payments have to be accounted for. The very lucky—and reasonably well-off—can pay off the amount accumulated during forbearance in one lump sum. But for those who still find themselves in short-term financial trouble, most lenders offer specialized payment plans in which the borrower agrees to add a portion of the missed payments to the mortgage until the account is current.

Forbearance is a way for you to save your home from foreclosure if you are going through a rough patch. But you have to talk to your lender early. People who avoid their mortgage lenders for months and months while the notices and missed payments pile up will find that they do not have many options. On the other hand, those that are up front with their mortgage lenders, and who make it clear that they want to find a way to make it work, are more likely to have success in warding off foreclosure.

Tags: foreclosure, mortgage lenders, home mortgage loan, mortgage loan forbearance,
borrowers, jose canseco

One of the more controversial ways to raise money for a down payment is through what are known as down payment assistance programs (DAPs). These programs can provide you with a “gift” to help you get a down payment in the size that is required for FHA loans. (Note: Currently the FHA requires a 3% down payment on home mortgage loans its backs.)

Now, there are some guidelines that the FHA purports to follow when allowing gifts for home mortgage loans:

1. It has to be a true gift, with now expectation of payback.
2. The gift giver can’t have an interest in the transaction.

This means that getting down payment assistance from friends and family (my parents gave us a “housewarming” gift to go toward our down payment), truly charitable organizations and non-profits and government agencies are acceptable.

Unfortunately, DAPs are not all so benign. Many of them are actually “gift” and 100% financing” programs that are offered by the seller, who recommends a “non-profit” that can offer you the “gift.” In reality, these DAPs are little more than disguised loans, which buyers do ultimately pay back — with interest — through the way the home mortgage loans are set up.

While the FHA periodically announces that it is going after scamming DAPs (the IRS calls many of them scams — and so do I), very little is actually practically done. This is because enforcement is difficult, with sellers setting up “non-profits” as a way to funnel (dare we say “launder”?) the money so that it looks acceptable.

If you are looking into buying a home, watch out for these down payment assistance programs. Many of them are not true assistance programs. Instead, do you research and look for programs that have been approved by HUD. You can also check with your local and state governments to find programs that offer assistance to first time homebuyers and to those in need of help scraping together a down payment (but realize that there will be limits on how expensive a home you can buy). Or you can also raise funds from family and friends.

Tags: down payment assistance, DAPs, home mortgage loans, FHA home loans,
mortgage financing, mortgage lenders, 100% financing

Right now, the news is that Americans are gaining confidence in their personal finances. Spending was up in May (not surprising, since that’s when the economic stimulus payment checks started going out), and consumer confidence is showing some improvement. While I think it is too bad that we require a government handout to feel better about where we are at financially, there is no denying that it is helping stimulate some economic activity.

And in coming months, we may see even more economic activity. Over at Money Talks, this speculation has been made:

We live in an era where disposable income is king. Americans feel more urgency to pay down credit cards than to make payments on a home that is underwater. The fear of foreclosure is quickly replaced by the freedom of additional spending money. This newfound money will provide thousands of dollars a month to those consumers struggling to pay the extra $100 a month on gas. There are three things that you can always count on: death, taxes, and the resiliency of the American consumer.

We proved it last month: When we have disposable income, that is what is important to us. It’s why we work more than any other developed country (we even have less vacation time than workers in China!), and why we have more consumer goods than anyone else. We like having money — and we like spending it more.

Will this wave of foreclosures really cause us to change our idea of the American Dream? It used to be owning a home. But paying rent, in most cases, actually provides us the opportunity to have more disposable income every month. The idea of owning a home (and it can represent a huge drain on monthly income — with property taxes, mortgage payments, repairs, etc.) is becoming less attractive than it once was. And this housing market crisis is only underscoring the fact that homes can cost more than they are worth.

What do you think? Do you think that foreclosures will lead to an economic stimulus? Do you think that home ownership is becoming less desirable?

Tags: foreclosures, housing market crisis, home mortgage loan, mortgage loan blog,
disposable income, mortgage payments