PARAMOUNT MORTGAGE - LENDER'S BLOG

Fannie issues warning to anyone "walking away"

 

(04-13) 04:00 PDT Washington -- The country's two largest sources of mortgage money have a blunt warning for anyone thinking about joining the growing "walkaway" trend, where homeowners stop making payments and months later send the house keys back to their lender: You will feel the pain.

On March 31, Fannie Mae sent out new guidelines to lenders intended for walkaways and other foreclosure situations. Fannie will now prohibit foreclosed borrowers from getting another mortgage through the giant investor for five years, unless there are "documented extenuating circumstances." In those cases, the mortgage prohibition is for three years.

Even after five years, borrowers with foreclosures in their files will be required to make at least a 10 percent down payment, and will need minimum FICO credit scores of 680.

Freddie Mac, Fannie's rival, counts foreclosures as major credit blots for seven years, and a senior official said the company is now aggressively pursuing some walkaway borrowers "to preserve our deficiency rights" where permitted under state law.

The walkaway trend is particularly noteworthy in former housing boom markets - including California, Florida and Nevada - where many homeowners find themselves upside down on their loans, owing tens of thousands more than the current market value of their houses. If they invested little or nothing in down payments, some owners reason, continuing to make payments - even if they can afford to - may be throwing good money after bad.

A number of Web sites have popped up claiming to cut the hassles of bailing out of a mortgage. One company promises that clients "will be able to live in (the) home for up to eight months with no mortgage payments," after paying $895 for a customized plan. The same site says it will provide clients with "legal credit repair" to "improve your FICO scores."

Another Web site claims that "your credit can be repaired and (you will) be able to purchase a house in as few as two years" - after paying a $495 fee. Still another company says walkaways can expect "up to one year living payment free" as the lender goes about filing for foreclosure. That company charges $995 for its how-to-do-it kit.

Fair Isaac Corp. of Minneapolis, developer of the FICO scores used in most mortgage transactions, is unhappy at any suggestion that a foreclosure could be minimized or wiped away in a short period of time. Its scoring model counts foreclosure as a long-standing and severe event, nearly comparable with bankruptcy, with negative consequences for all forms of credit that walkaways might seek to obtain. That includes credit card applications, auto loans, student loans - and even insurance and employment.

FICO spokesman Craig Watts said that the impact of a foreclosure on an individual's score depends heavily on the payment history, length and number of credit trade lines in a consumer's file, but "it is always significant."

Robin Stout Migala, consumer outreach manager for Freddie Mac, said in an interview that "there are so many bad reasons for walking away" from a home loan. Not only are borrowers' credit standings wrecked - forcing them into excessively high interest rates on any credit they can manage to obtain. But they also face other potential problems, including federal income tax liabilities.

Federal legislation enacted last year allows homeowners who negotiate loan modifications with lenders and have portions of their principal debt eliminated to escape income tax liability for the amount forgiven. Walkaway borrowers, by contrast, have nothing forgiven, and the IRS may demand income taxes on the balance they never paid, according to Migala.

Many borrowers facing foreclosure today have endured serious financial crises, said Migala - loss of employment, loss of an income-earning spouse, medical issues, predatory loan terms - that led to their inability to make their mortgage payments.

When they apply for a loan from either Freddie Mac or Fannie Mae, she said, the standard application form asks whether they have ever experienced a foreclosure or handed over their deed in lieu of foreclosure.

If applicants check "yes," the loan is immediately shifted to manual underwriting. Every piece of information is scrutinized by underwriters, who probe for the facts surrounding the loss of the house.

For borrowers who faced genuine financial hardships leading to foreclosure, underwriters are likely to be more sympathetic a few years down the road. But if you walk away, here's the deal: Don't expect to get a new home loan - certainly not one with favorable terms - for five to seven years.

That's no matter what some promoter promised you online.

By David Goldman, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The Federal Reserve cut interest rates by three-quarters of a percentage point Tuesday, but don't expect mortgage rates to go down too. In fact, home loans could be heading higher.

Consider recent history: The Fed issued an emergency cut of short-term rates in early January, and then trimmed more just a few days later - but the 30-year fixed mortgage rate has responded by bouncing up from 5.6% to 6.4%.

The Fed's main tool is control over the short-term fed funds rate, which determines what banks charge each other for overnight loans. Long-term mortgage rates are mostly tied to the 10-year Treasury yield, which is determined by bond traders worldwide.

"There is a long disconnect between the fed funds rate and fixed mortgage rates," said Keith Gumbinger, vice president of mortgage and consumer loan information publisher HSH.com.

Inflation drives long-term fixed rates. When the Fed cuts short-term rates, the intent is to lower borrowing costs for corporations so that they'll invest and hire. But this economic growth can lead to inflation.

That in turn leads bond traders to demand higher rates on their long-term bonds - and that drives up mortgage rates too.

"Mortgage rates are determined by how fearful the market is of inflation," said Gumbinger.

The Fed began a series of cuts to its key interest rate last September, taking the rate to 2.25%, from 5.25%.

ARM borrowers may get help. There is more of a connection between Fed rate cuts and short-term and adjustable rate mortgages (ARMs). In fact, homeowners with ARM loans could see lower rates from further interest rate cuts.

Adjustable rate mortgages are pegged to a number of different indexes, including the one-year Treasury yield and the international Libor, or London Interbank Offered Rate, which tend to move with the Fed funds rate.

With Tuesday's rate cut, the cumulative effect of the Fed cuts could entirely offset what would have been a significant rate reset for many homeowners.

For instance, a borrower with an adjustable rate of 4.5% could have faced a rate reset up to 7.5% before the Fed started cutting rates in September. Before the rate cuts, that homeowner would have seen an increase of $370 in monthly payments on a $200,000 loan.

But after Tuesday that rate could reset only a little higher. And for some, the rate might not go up at all - and may actually drop - according to Greg McBride of Bankrate.com. "The Fed rate cuts far are more significant to [borrowers with ARMs] in terms of staving off delinquencies on loans," he said.

National headlines got you down? It's understandable when day after day, we hear about the industry's crises. Our clients ask us about it, and before you know it, a self-fulfiling prophecy can start to take shape. Yes, the slowdown is affecting us, but not all states are feeling the pain equally.

In a presentation this week, Mortgage Bankers Association Vice President of Research and Economics, Jay Brinkmann shared some enlightening statistics. His data show that California and Florida are skewing that national numbers. ARM foreclosure starts in those two states combined add up to more than a third of the nation's total. And that is where we see the greatest drag on national home prices.

What does not get reported are the 40 states that continued positive growth in home prices in the 4th Quarter of 2007, including Missouri. So don't let the talking heads get you down. Things have been better, but the stats prove that we are doing a good job keeping our heads above water. When you provide accurate information, buyers and sellers can make decisions based on stats, not stories.

The other eye-opener is this fact: For the first time since 1990, the year-over-year change in the number of owner-occupied households dropped. The number of renters has been rising. What does this mean? When the market corrects itself, there's going to be a lot of pent-up demand from renters wanting to own a home of their own. Let's be ready.

Sources:       Mortgage Bankers Association

                    The Office of Federal Housing Enterprise Oversight (OFHEO)

by Ruth E. Battle
Paramount Mortgage Senior Vice President

In a highly unpublicized move, Fannie Mae published a new loan level pricing adjustment matrix. In layman’s terms, how does that affect consumers who are obtaining a mortgage?  There are three potential ways this move increases the cost of homeownership.

First of all, Fannie Mae is now charging an “Adverse Market Delivery Charge.” No folks, I didn’t make that name up. It is really what it is being called.  Basically, Fannie Mae will be charging and extra .25% fee on any loan delivered to them after March 1.  The bottom line is that lenders who deliver loans to Fannie Mae (which is practically all lenders in either a direct or indirect fashion) will pass this fee equal to one quarter percent of the loan amount to the consumer.  The fee will either be charged as such, or result in a higher interest rate to the customer so the lender can absorb this new charge.

This charge is a “tax” on any new loan. The money will help Fannie Mae “manage their credit risk,” per an announcement dated December 5, 2007.  While liquidity and credit standards have been under high amount of scrutiny these past several months, the entire market now has to pay for the risks taken by Fannie Mae in the past few years.  There is no expiration on this fee at this point.

The second way the new pricing adjustments will affect consumers is the adjustments tiered with credit scores.  If consumers have a middle credit score of under 680, it may result in additional adjustments – up to a 2% fee- based on the other terms of the loan. Again, this will be charged as a pass through fee or could be quoted as part of a higher interest rate.

The amount of down payment is also part of this equation. If consumers have less than a 30% down payment, the credit score pricing hit comes into play. ARM loans, terms greater than 30 years, cash out refinances and investment property transactions are also potentially affected.

The third area of adjustments is for those transactions with subordinate financing, i.e. a second mortgage. For many consumers over the past five years, a first and second mortgage was a hot product. It allowed customers to avoid mortgage insurance while accommodating low down payments. Now, it may not be so easy to refinance these types of transactions with the additional pricing adjustments and stagnant home values.

With these many changing rules and conditions, it is important for consumers to be  savvy about shopping for a home loan.  Lenders may express these fees differently, so shopping purely on interest rate may not give an accurate cost of financing.  I would recommend consumers request a good faith estimate and truth in lending disclosure to compare loans.  Consumers can refer to the A.P.R. (annual percentage rate) on the truth-in-lending disclosure.  The APR expresses the cost of credit in one number, taking into account rates and fees.  The lower APR expresses the best deal. Consumers can also note that FHA, VA and loans exceeding $417,000 are not affected by these fees.

by Kay Bell, Bankrate.com

Owning a home tops the dream list for most Americans, and for plenty of good reasons. It's a shelter for your family, a gathering place for your friends and a good long-term investment.

Tax breaks are also frequently cited as motivation for moving from renting to owning, and there are many ways a home can cut your tax bill.

But, as is often the case with the U.S. tax code, homeownership tax benefits are not always clear-cut. That frequently leads to some bad information floating around.

While myths, half-truths and misconceptions may abound, we've narrowed it down to five that, if you buy into them, could cost you.

Half-truths, misconceptions and just plain hogwash

1. Mortgage interest will reduce my tax bill.
2. All costs related to my home are deductible.
3. I must use home profits to buy a new home.
4. Putting my children on the deed is tax-smart.
5. If I take a loss on a sale, I can write it off.

Read the full story here>

KTVI Fox 2 News, Live morning broadcast interview on "Project Lifeline" with PMC President H. John Frank, Jr.

There's nothing quite like purchasing your first home. You're on your own. You have a substantial financial investment.

And you now have some different tax considerations.

You're probably well-aware that homeownership affords you several new ways to save on the annual Internal Revenue Service bill.

"Homeownership is one of the best tax benefits that the federal government gives out," says attorney Robin Gronsky, principal of Gronsky Law Offices in Ridgewood, N.J. "People count on it. It's how they calculate their out-of-pocket costs in owning versus renting."

What you're probably less sure of is exactly how to go about taking advantage of all your new house-related tax breaks.

Many first-time homeowners will definitely enter new tax-filing territory with the very first return they file after moving into their new abode. For other new owners, the filing changes might take a little longer to show up.

But all will need to know some basic tax rules that could make their homes a great tax -- as well as an actual -- shelter.

You survived the house search and the bidding process. Getting the mortgage on your new home was a piece of cake. But now you've got to file your tax return for the first time since you moved into your first home. Relax.

Read the rest of the story here >

Click here to watch the interview with Paramount Mortgage President John Frank

KSDK- With interest rates falling, this may be a good time to refinance your home mortgage.

John Frank, president, Paramount Mortgage offers some tips for homeowners seeking to refinance.

1. Know your current situation: It is helpful for consumers to be aware of their credit histories-and take care of any outstanding derogatory items. It is also good for people to examine on a monthly basis what he or she is comfortable putting towards housing expense without sacrificing other important necessities or lifestyle choices. Being aware of this will allow you to go to the next step successfully.

2. Work with professionals and build a team (realtors, mortgage bankers): Step 1 is an important exercise because professionals will work with your requirements (formulated in Step 1) and correlate that information to a proper sales price, loan amount and monthly payment. You may be surprised that you qualify for MORE on paper than what you though about previously. Insist on meeting face to face with these individuals- and treat it is as a job interview- they are working for you.

3. Request information in writing: All cost and fees incurred in the buying, selling and refinance process should be clearly stated in writing. Ask questions if you don't understand. As for mortgages, insist on a formal LOCK IN letter to outline the deal- BEFORE YOU GET TO THE CLOSING and have an unpleasant surprise.

4. Know what you are paying for: Review the fees listed on the written material. If it does not have a direct benefit to you or provide a truly necessary service- Question it!

5. Be familiar with red flags: These include prepayment penalties, floating interest rates, a delayed payment schedule, or any last minute change. These are not always necessarily bad, but need to be explored.

Watch the complete interview at KSDK.com

We have been getting lots of questions regarding the changes in the mortgage industry. Take a look below to see if we can help you answer yours.

1) What advice do you have for consumers looking to purchase a home or refinance their mortgage?

Know your current situation. It is helpful for consumers to be aware of their credit histories - and take care of any outstanding derogatory items.It is also good for people to examine on a monthly basis what he or she is comfortable putting towards housing expense without sacrificing other important necessities or lifestyle choices. Being aware of this will allow you to go to the next step successfully.

Work with professionals and build a team (realtors, builders, mortgage bankers) This is an important exercise because professionals will work with your requirements and correlate that information to a proper sales price, loan amount and monthly payment. You may be surprised that you qualify for MORE on paper than what you though about previously. Insist on meeting face to face with these individuals - and treat is as a job interview - they are working for you. Get to know the staff at Paramount Mortgage >

2) How will the Fed’s actions affect interest rates?

Any rate tied to prime rate, such as credit cards or home equity lines of credit will see an immediate change. However, the mortgage rates are not directly correlated with the fed’s changes. Mortgage rates are tied to the bond market, most notably the 10 year treasury. View today's Rate Lock Advisory >

3) Is this a good time to refinance?

Yes, but there are some considerations. First of all, how long do you plan on remaining in your current home? There are fees incurred by refinancing, so if you only plan on being in your home a short time, you may not recoup the fees. To ensure you can make that decision properly, request information in writing - All costs and fees incurred in the buying, selling and refinance process should be clearly stated in writing. Ask questions if you don’t understand. As for mortgages, insist on a formal LOCK IN letter to outline the deal - BEFORE YOU GET TO THE CLOSING and have an unpleasant surprise. Know what you are paying for - review the fees listed on the written material. If it does not have a direct benefit to you or provide a truly necessary service - Question it! Learn more about refinancing options >

4) What if I am currently delinquent on my mortgage payment?

The most important thing you must do is contact the company where you make your payment and let them know what is happening. Most companies are willing to work out payment arrangements and that could help you save your home. In addition, if you are 62 or older and own your own home, a reverse mortgage is a great way to prevent foreclosure or rectify delinquencies. Learn more about reverse mortgages >

5.) Are there any upcoming changes that will help consumers?

Yes, there is pending legislation to modernize FHA which may of great assistance to anyone looking to buy a home or refinance. Also Fannie Mae is also considering raising their loan limits as well. Since these are “insured” programs, they are viable providers of mortgage credit. Visit the FHA website for details >

Do you have more questions? Please call Paramount Mortgage at (314) 372-4300 - we are here to help you.

 by Chris Kissell, Sheyna Steiner, Laura Bruce, and Leslie McFadden - bankrate.com

When the Federal Reserve meets and changes rates we all have questions: What does it mean to me? Will my mortgage rate go up or down? Is this a good time to refinance? We've looked at five categories -- mortgages, home equity loans, auto loans, credit cards and certificates of deposit -- to determine if the Fed's moves made you a winner or a loser. Here's a look at mortgages:

Winner: Borrowers with good credit

The surprise decision by the Federal Open Market Committee to cut the federal funds target by 75 basis points likely reflects growing fears that the U.S. economy is weakening. Ironically, such worries may be good for people hoping to see lower mortgage rates.

Read the full story: Link