According to a Reuters article released at the beginning of the month, mortgage rates throughout the United States had remained at or near record lows during the last week of May. Furthermore, the 30-year fixed rate came in at ½ percentage point lower than where it was at just one year ago. Additional reports indicated that home loan rates continued to make affordability high, while the demand for home loans fell to a 13 year low in May. Interestingly, during the weeks preceding this low, the demand for loans had spiked as buyers attempted to take advantage of the homebuyer tax credit that expired on April 30, 2010.

According to many experts, the drop in loan requests experienced in May is likely to be only temporary, as many of the increases in sales that typically take place during the spring simply took place a bit earlier as buyers attempted to take advantage of the tax credit. Furthermore, many experts agree that the low borrowing costs coupled with low home prices will likely put the United States housing market on a gradual path toward recovery during the second half of 2010. In fact, during the week that ended on June 3, fixed 30-year mortgage rates averaged a mere 4.79%. Although this is up by 0.01 percentage point when compared to the previous week, it is still a full ½ point lower when compared to the rates one year ago. Furthermore, this rate is still only slightly above the low of 4.71% that was reached last December (2009).

15 year home mortgage loan rates are also remaining quite low. In fact, a new record of 4.20% was set after the rate dropped an additional 0.01 percentage point. This rate is well below the 4.79% rate that was seen just one year ago.

“The economy grew at a slower rate than originally reported in the first three months of the year, according to the Bureau of Economic Analysis, which suggests inflation will remain tame in the near term,” said Frank Nothaft, who is the chief economist for Freddie Mac. “As a result, mortgage rates held at historic levels this week.”

These low rates are good news for buyers, real estate agents and the economy as a whole, as those who are interested in purchasing a home can potentially save thousands of dollars by taking advantage of these low interest rates. Real estate agents, on the other hand, are hopeful that these low rates will encourage people to continue to both sell and purchase homes despite the expiration of the homebuyer’s tax credit. This, in turn, will benefit the United States economy as it continues to work toward recovering from the recession.

Ok, so you have finally found that dream house you’ve always wanted. The price is right, and you’re ready to finalize the purchase. But wait! If you are not one of the fortunate few who can purchase the home with upfront cash, then you need financing, right?

Now comes the hard part, what type of mortgage would be a best fit for your particular circumstance? For the purpose of this article, let’s discuss fixed rate mortgages. Hopefully, you have already been approved for a loan by a lender. A preapproval letter from a lender should, in fact, have been in your possession before you even began house hunting.

By the way, forget about a prequalification letter from a lender. It’s meaningless. All that tells a seller’s agent is that the lender has verified that you are accepted based only on preliminary financial information, and NOT preapproved. Preapproval will only be granted if you pass a more detailed financial inspection.

Although negotiating a mortgage that best suits your financial means can be complex, there are a few basics that should be kept in mind:

• You will have lower overall monthly payments on a 30-year fixed rate mortgage then on a 15-year fixed rate mortgage.
• A 15-year mortgage will have higher monthly payments, but your home will be all yours in a much shorter time, and you will have saved many thousands of dollars interest.
• You can pay off your 30-year mortgage earlier as well by doubling up on your monthly payments, which will also save many thousands of dollars in interest.
• You should carefully scrutinize the terms of your loan to be sure that the lender did not include a “prepayment penalty “clause – prepayment penalties are illegal in Massachusetts. This clause will exact a dollars and cents penalty for an early payoff. This is something you do not want, for sure! For example, if you decide to refinance for one reason or another, the penalty clause would be in affect and cost you money you wouldn’t ordinarily have spent. There should be no penalties whatsoever for paying off a fixed rate mortgage ahead of time.

If you have fallen behind on your monthly mortgage payments and are faced with foreclosure, a mortgage loan modification may be a viable solution. What is a mortgage loan modification? Simply put, it is not a new loan; but an agreement between you and your lender to modify one or more of the terms of your existing mortgage thereby allowing the loan to be reinstated.

While each lender’s program is unique, typical modifications result in the negotiation of a lower interest rate, a fixed rate mortgage, and/or lower monthly payments. The end goal of both the mortgagor and the bank is a payment that the mortgagor can afford, thus facilitating keeping them in the home.

There are countless entities who offer mortgage loan modifications, however, your attorney will be best suited to negotiate the modification and explain its benefits and risks to you given the fact that a mortgage loan modification will result in new legal rights and obligations with respect to your existing mortgage.

With respect to legal fees, foreclosure costs, and late charges, lenders are permitted to capitalize legal fees and related foreclosure costs into the modified principal balance. However, late charges should be waived at the time of the loan modification.

Before contacting your attorney regarding a mortgage loan modification, it’s best to gather some preliminary information:

• the name of your current lender
• your current lender’s contact information
• the loan number
• a brief summary of the current state of the loan
• any documentation that supports evidence of an economic hardship

Preparing this information in advance will provide your attorney with all of the information necessary to negotiate a modification with your lender, thereby expediting the process.

Forbes recently released an interesting article on common mortgage scams, something that is appropriate for Buyers, and those interested in refinancing, to look over before they consider moving forward with a lender.

Scam artists may promise to save cash-strapped home owners from foreclosure but then, instead, steal their money or any remaining home equity. Such scams are becoming more prevalent, and some states are fighting back.

In Florida, one of the nation’s foreclosure capitals, State Attorney General Bill McCollum has filed suit against National Foreclosure Management, a mediation company, for allegedly defrauding troubled home owners. Fraudulent rescue companies in Illinois have been increasingly penalized, while in Massachusetts the for-profit practice of foreclosure rescue transactions has been banned.
Here are the most common ploys scammers use to prey on desperate home owners:

• Bait and switch. The home owner is presented with what appears to be an application for refinancing, but in reality it’s title transfer papers. Once the home owner signs, he loses his home.

• Upfront fees. Scammers ask for money to be used for locating rescue funding. Once the home owner pays, the scam artist disappears.

• Bankruptcy ploys. An attorney – or someone who pretends to be – persuades the home owner that filing for bankruptcy will save the house. The only one who wins is the person who pockets the fees he charges to file.

• Rent-to-buy. Fraudsters offer to buy the property with a provision that the home owner will pay rent while building equity. Once the title is transferred, the former home owner is locked out.

• Fraudulent refinance deals. A scammer offers to use his higher credit score to secure a refinance deal, but first the home owner has to hand over title to the house.

The Wall Street Journal did a recent piece on racking up points onto your credit score that is rather timely given the tightened lending practices that we are seeing out there. Here are some of their top points to consider when trying to improve your credit score, which can range from 300 to 850.

On a related note, if you are tired of receiving all of those credit card application sin the mail, stop into the Opt Out Prescreen website to get off the “list”.

The Federal Reserve is in the midst of considering a plan that would curtail the types of subprime products lenders can offer, prohibit certain misleading disclosures, and limit the compensation of mortgage brokers. What makes this news somewhat significant? The Federal Reserve’s plan is forward thinking, and despite being reactive, is perhaps one of the only positive news stories to break in recent months surrounding the turmoil over subprime lending.

Rather than wasting time pointing fingers at who is to blame for the current situation the entire country is in, or gaze in shock at the billions of dollars that large financial institutions are writing down from their balance sheets, the Fed is attempting to impart positive and sound change on the lending market. These potential rules would only apply to loans going forward, not the subprime adjustable-rate loans that became extremely popular during the recent housing boom.

Some of the highlights of the Fed’s new proposal are:

• Mortgage Brokers or creditors would be banned from coercing or influencing home appraisers to misrepresent the value of a home and would prohibit certain practices from loan servicers, such as failing to promptly credit payments to customers’ accounts.
• The Fed staff proposal targets high-cost loans secured by a consumer’s principal dwelling. The proposal states these loans shouldn’t be made without regard to a borrower’s ability to repay, without verifying the income and assets of the borrowers, with a prepayment penalty in certain circumstances, and without establishing that borrowers pay insurance and taxes on the property.
• The Fed looks to “generally” ban lenders from “directly or indirectly paying mortgage brokers in connection with consumer credit transactions secured by a consumer’s principal dwelling, unless the mortgage broker enters into a written agreement with the consumer” and provides certain disclosures. Creditors wouldn’t be banned from paying brokers if the compensation isn’t determined by the borrower’s interest rate.
• Lenders would be banned from structuring traditionally “closed-end” mortgage products as “open-ended.” Fed staff believes this is necessary to prevent lenders from trying to evade the new protections.
• Prepayment penalties on high-cost loans would be changed so that they expire at least 60 days before an adjustable-rate loan resets from its starter rate into a higher rate. Many prepayment penalties on subprime adjustable-rate mortgages ran right up to or beyond the reset date.
• The plan would ban seven marketing practices, including marketing loans as having “fixed rates” when the fixed rate is for only a limited period of time. Lenders would also be banned from “advertising claims of debt elimination if the product would merely replace one debt obligation with another,” according to the proposal.

The Federal Reserve’s proposal is aimed at eliminating many of the lending practices that proliferated during the recent housing and credit boom.The Fed has never used this authority this broadly before, and it has been under constant criticism this year for not acting more aggressively as lending standards deteriorated in recent years.

Thank you to the Wall Street Journal for inspiring this blog post.

You read about it every day, literally. You hear about subprime mortgages, a credit crisis, and tightening of the credit and financial industry. What do these things actually mean? Do you really know, or have your eyes glazed over after reading headline after headline (after headline…) about subprime mortgages? Let’s take a look.

Read the full story

There is a large, and growing group of people who are crying foul, that is, renters. It was only a matter of time before the economic tsunami of the “credit crunch” overwhelmed innocent victims, and we give Kelly Evans of the Wall Street Journal kudos for breaking the story.

Our Caution: We are highlighting, and commenting upon, a very well written piece of work by the Journal, however, we maintain that Boston city-center foreclosure rates are extremely low, and that the Boston downtown real estate market is strong, there are statistics to prove this. This piece is more a look at a pan-US situation (major downtown city-center areas excluded), and should not be looked at as speaking specifically to the Boston market itself.

Essentially, we’re dealing with two main threads that combine to be a potent force that is impacting renters in a housing and mortgage market that they chose (or rather attempted) to avoid.

1. Many single- and multi-family homes held by investors that were rented out are being foreclosed,
2. Homeowners falling behind on their mortgage payments are returning to the rental market, increasing competition for units.

What we end up with is a situation where renters are being evicted because the apartment or homes that they are renting are foreclosed because owner investors cannot keep up with the mortgage payments.

Often, the tenants’ first inkling of trouble occurs when they get a letter from the bank directing them to leave the premises.

“They just don’t know what to do — they leave town, move in with their mothers, end up in shelters,” says Janet Merrill, an attorney with the Massachusetts Justice Project, a Worcester legal-services agency that runs a hotline for low-income people.

Ms. Merrill’s group gets four to five calls a day from renters facing eviction resulting from foreclosure. One caller recently received a letter from a bank saying her six-unit apartment building had gone into foreclosure and ordering her to vacate her unit by October 31st.

In many cases, the homes and apartments entering foreclosure are owned by investors who got low-rate teaser mortgages and intended to hold the buildings for a few years and then sell them at a profit — before their mortgage rates rose. Now, with the housing market badly depressed in many markets, the owners can’t sell the homes or afford the higher mortgage payments. Many are defaulting.

In an ideal world, you’d like to see the market correct the situation on its own, but what we have here is a situation where rents that are needed to sustain a mortgage (one with terms that an owner investor cannot support) cannot economically be absorbed by the renter market. Pure economic supply and demand cannot properly adjust, at least in the short term, for such mistakes caused by the lack of foresight on the owner investor’s part, and the carelessness of a lender to finance such a situation where too much is dependent on the future, which is by nature, uncertain (i.e. the lender, nor the owner investor, could have accurately predicted that markets would soften, days on market would increase, and it would be difficult to sell a home with no loss.).

Much of the recoiling and tightening of mortgage standards, essentially the hoops that you have to jump through in order to get home financing at present, will continue to be adjusted as lenders recognize their carelessness and implement systems and mechanisms that should have been in place from the beginning.

With the recent launch of the Macallen Building in South Boston, the first LEED Certified Green Building in all of Boston, and rumors of more green buildings to come, the mortgage industry is following suit with their own green mortgage incentives.

The Wall Street Journal recently reported that lenders are the latest group to jump on the environmental-marketing bandwagon by pitching mortgage products that offer homebuyers bigger loans or discounts if they are making energy-efficient improvements — or if their new home meets certain efficiency standards. Last month, Citigroup Inc.’s mortgage division launched a program that offers $1,000 off closing costs with its energy-efficient mortgage through the end of the year. Also last month, Bank of America Corp. launched an Energy Credit mortgage, which offers a $1,000 credit toward closing fees for mortgages on new homes that meet efficiency requirements set by the government’s Energy Star program. J.P. Morgan Chase & Co.’s mortgage division recently began offering Expanded Energy Conservation Mortgages in some markets that give borrowers more credit, as well as $500 off closing costs, if they find a builder who will use a specific type of spray-foam insulation.

While energy-efficient mortgages have been available from many lenders for some time, they are receiving renewed attention. They allow borrowers to qualify for bigger loans because lenders permit the estimated savings on utility bills to be added to the borrower’s qualifying income. For example, energy-efficient improvements could save a homeowner $50 a month. The $600 extra a year could allow a person to borrow about $10,000 more on a 30-year mortgage, depending on the interest rate.

The new products and incentives are aimed at a market worried about increasingly high energy prices. And amid the turmoil in subprime lending, analysts say, energy-efficient mortgages can be a more secure way to qualify marginal borrowers, since these homeowners are saving money on utility bills.

Based on our recent conversations with Pappas Properties, the developer behind much of the green building trends in Boston real estate, there are almost 30 units still for sale at the 140-unit green Macallen Building. Some of these units are teed up and ready for purchase by Buyers who are awaiting the sale of their existing homes. Important to note, as we’ve stated before, the absorption rate for a green building (let alone the first of its kind in Boston) is going to be somewhat slower than normal as Buyers hold an environmentally conscious debate in their heads on green versus non-green living, and pony up for slightly higher prices per square foot that accompany LEED certified condo developments.

A few days ago, Michelle Singletary of the Washington Post wrote an op-ed piece entitled “A 400 Percent Return in 7 Days? Riiiight.” After briefly discussing the difference between pyramid promotions – which are illegal – and multilevel marketing schemes – which are not, Singletary moves on to describe a suspicious meeting she recently sat in on.

The speaker was a representative of Financial Independence Group, a multilevel marketing scheme that preys on homeowners. Basically, you have to pay to join, but you have the potential to earn 400 percent of your initial membership fee if you can convince five more people to join…and if two of those five refinance their homes through Financial Independence.

Of course, Singletary did some snooping around, and found out some things that seemed rather suspicious. For instance:

• Financial Independence claims not to be a mortgage broker, yet they send out applications requiring employment history and other information needed to process a loan.
• Financial Independence’s application also requires a $425 application fee!
• Members are encouraged to dunk their home equity into risky investments.
• Members can also earn “by giving wealth-building presentations.” (Read: by deluding other homeowners.)
• In order to find out more about membership, you have to become a member.
• The company has supposedly been in business for 10 years, yet Singletary couldn’t find any record of the company earlier than 2006.
• Although Financial Independence’s purpose is supposedly to provide financial advice to members, they refused to give Singletary the names and credentials of their financial advisors.
• In fact, every time Singletary asked for more specific information about the company, her questions were sidestepped or outright refused.

Reading this article, it is obvious how important it is for homebuyers and homeowners to know what to look for in a mortgage broker. As with any business that has the potential for lots of money, scams abound, and it is far too easy to get taken advantage of.

Here are a few ways to protect yourself from dishonest mortgage schemes and services:

• Always make sure the person you are giving your information to is licensed, whether they are a mortgage broker or a loan originator.
• Always check all the details of the deal you are being offered. If the mortgage broker sidesteps your question or redirects your attention to how happy the new loan is going to make you, get out fast!
• Avoid anything with an abnormally high price tag, such as home-buying seminars, membership applications, and financial “advice.”
• Always check brokers or other businesses out with the Better Business Bureau before committing to anything. Often even a simple Google search can dig up dirt on a shady company.

Whether you are buying a new home or refinancing an old one, doing your homework can help you make sure that you never get “taken” by an unscrupulous mortgage broker!

Thank you to Logan Chierotti, from www.ColoradoHomeHelper.com, for contributing this blog post.