The Pain of Closing Costs

July 21, 2008

Closing costs can be one of the trickiest things new home buyers face when purchasing a property. It is the hidden costs and surprise jack-in-the-box that pops up just as your hopes that the purchase is finally complete and have been set in place. Closing costs are the reason that many people turn to alternative methods for selling or buying a home, such as with For Sale By Owner or just listing it on a free advertising space online like Craigslist.

While it might seem silly to let your home sale be dependent upon a website like Craigslist, it can be a successful, and more affordable way to sell or buy your home by avoiding closing costs.

Closing costs are the fees that the seller and buyer pay during the closing process, including the costs that the seller will pay to both their realtor and the realtor that you use to find their home. The savvy home seller will factor these closing costs into the final price for their property, making the price increase. If you can find a home that is being offered through an alternative method of sale like For Sale By Owner, you can forego these closing costs and save thousands of dollars in realtor fees. Of course, on the other hand, you will not have the expertise and assistance of the realtor throughout your home buying or home selling experience.

In addition to the realtor closing costs, the fees that are put into a mortgage at the last hour can also add up. For this reason, the final cost of a new home might be significantly larger on closing day than the home buyer expected. The U.S. Department of Housing and Urban Development has been monitoring ways to regulate how lenders can put these additional fees into the mortgage as a way to safeguard future homebuyers from these unexpected increases. Since all of the little pieces add up, regulating the final closing costs can become yet another way the real estate and lending market will stabilize after all of the recent slumps and uncertainty.

If you are looking to refinance your home, you should call your existing lender first. By calling the lender with whom you already have an existing relationship, you will be able to streamline the process since they already have all of your information, saving a lot of paperwork and additional fees. You can save as much as 50% on title insurance if you ask for a reissue rate from your lender as well.

If you are buying a new home, try petitioning your existing home lender. They will be anxious to keep your business and assuming you have a good working relationship, you might get a better-than-market offer from them.

Pay attention to the fees associated with your final closing costs. There will be more than a dozen fees associated with your closing statement, including the application fee, appraisal fee, document preparation fee, recording, underwriting and more. Lenders are required to give a good-faith estimate on the closing costs within three days of the loan application. Look over these numbers to see what you can negotiate ahead of time to say money.

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The Fight over Mortgage Rules

July 20, 2008

Considering the current state of the real estate market, it came as no surprise that the Federal Reserve would swoop in to regulate and tighten allowances on mortgages for homebuyers. The overhaul of the mortgage lending system is in full swing with consumer groups and lenders on both sides of the arguments. The hope is that these regulations will put the current mortgage lending industry in a more stable and profitable situation in the long-run. Currently, the extension of credit to homebuyers that are incapable of fulfilling their end of the deal harm the lending company, the homebuyer and the real estate market in general.

Currently, many consumer groups are claiming that mortgage regulations are too lax with a variety of loopholes. These loopholes make it too easy to allow reckless lending, which in turn causes more and more instability in the real estate market. However, industry specialists and mortgage lenders argue that these more stringent proposals will become a larger burden on current and future lenders and will reduce the amount of credit they can extend. In essence, a restriction on the amount of credit available is exactly what the Federal Reserve is analyzing the need for. After all, the number of homebuyers who gained credit through unsteady means has put the real estate market in its current unbalanced slump.

Analysts are interested to see which way the Federal Reserve heads. More than 2,500 comments had been submitted on proposals that had prompted a review of the current mortgage lending situation. However, any revisions on the mortgage lending industry now will not help current homeowners who have already fallen behind on their mortgage payments and trying to avoid foreclosure. However, the idea is that with revised mortgage restrictions, they can prevent the current real estate crisis from occurring again in the near future. In particular, the aim is to prevent the real estate crisis on subprime mortgages.

The hope is to have responsible mortgage lending and home purchases to encourage stable lending and a stronger economy overall. However, the Federal Reserve wants to restrict mortgage availability with credit lenders while simultaneously offering plenty of credit to stable qualifiers.

There are four new rules for lending that the Federal Reserve will consider, including some of the following:

  • Preventing lenders from engaging in a practice that will make loans difficult to afford
  • Limiting prepayment penalties
  • Requiring lenders to establish an escrow account for taxes and insurance of the property
  • Verifying income and assets for all potential lending candidates 

These rules would make mortgage lending more stable across the board, although lenders state that these restrictions would make future lending more difficult. In addition, the regulations would disallow banks that pay brokers for steering homeowners into higher-priced loans, rather than the more appropriate loans they can afford. The brokers would also be unable to coerce appraisers into stating the home value for less than it currently is for the mortgage lending process. Unfortunately, these practices all contributed to the current demise of our real estate market situation.


Mortgage Rules and Regulations: More is Needed

July 18, 2008

The Federal Reserve is reviewing the rules and regulations for the mortgage industry. The proposed regulations come after thousands of people have requested a review of the requirements lenders follow when establishing credit for home purchases.

With the revised proposal and a look at revisions in the lending requirements, the Federal Reserve are trying to answer critics who have said that changes needed to be made years ago. Many lending experts have stated that if the Federal Reserve had stepped in when the instable lending situation was being created years ago, the unscrupulous lenders could have been stopped, stifling the real estate boom, but also preventing the currently poor lending situation.

Many experts have stated that if a range of rules had been put in place years ago, many of the things that are currently happening in the lending and real estate sector would not have occurred. In fact, a former Federal Reserve governor, the late Edward Gramlich pushed for a stronger regulation in the mortgage industry, to no avail.

However, despite the current proposed regulations that would be enforced with future mortgage lending, consumer groups say that more needs to be done. Some of these regulations include verifying the homebuyers income and establishing an escrow account for taxes and insurance. However, some consumer groups argue that more needs to be done to prevent foreclosure.

Some consumer groups say that the Federal Reserve should prevent lenders from establishing credit without looking at the borrower’s ability to pay. By looking at the ability to repay the debt on the credit extended, the lender can prevent a pattern of extending credit to homebuyers who cannot afford it. The rules and regulations would prevent the potential for misbehaving lenders who concentrate more on their bottom lines and commissions than the future financial situation of these loans. With housing experts claiming that our economy is experiencing one of the worst housing collapses in the last 50 years, the rules and regulations would prevent the situation from occurring again.

Prepayment penalties would be abolished with the current mortgage lending regulations. The rule would prevent lenders from increasing payments towards the mortgage at least 60 days before the monthly payments increased. In addition, hidden additional fees cause confusion for the consumer and are advocated to be removed as well.

However, there are arguments against these proposed regulations. At minimum, experts argue that there would be fewer homeownership as less and less mortgages could be approved. As many people have the majority of their equity in their homeownership, the reduced number of properties able to be purchased would affect current homeowners looking to sell their home as well as the portfolio for thousands of individuals.

The biggest mortgage regulation would fall towards subprime mortgages. There should be more clear guidelines on lenders who will evaluate how borrowers will be able to pay back their financial debt. The combination of these regulations will help to restore the housing market and economy overall, preventing future foreclosures and instability.


Are Foreclosures Slowing Down?

July 9, 2008

Although nearly 170,000 homeowners were able to avoid foreclosure in the month of May due to the help of alliance leaders, the number of foreclosures still continued to rise. With more and more mortgage assistance groups preventing foreclosures, the hope is that the overall number in troubled homes will drop. However, the foreclosure crisis continues to plague the real estate market and the economy in general.

Real estate industry experts are saying that foreclosures will continue to rise well into June 2008. Why? The impact of the mortgages interest rate has been slowly depleting the savings accounts and money from people who are just holding on, hoping for the market to turn around quickly. As more and more days pass with the stalled economy, these homeowners are finally admitting defeat and having to petition for a foreclosure despite their valiant efforts. However, more and more homeowners are turning to companies like Hope Now, a mortgage alliance firm to help with their payments.

Hope Now reported that roughly 60% of all the homeowners they work with on a daily basis have changed their payments completely. These repayment modifications have allowed these homeowners to remain in their home and survive without the subprime or variable interest rates they were fighting against. The remaining 40% of homeowners who came to them looked into simple modifications in their mortgage payments to make their financial situation improve.  Repayment plans are typically the most important and effective way for homeowners to renegotiate their mortgage. Repayments are the most common solution for homeowners who have fallen behind on their mortgage payments due to layoff or similar situation.

However, repayment plans are meant to be a temporary solution. For that reason, many real estate experts and housing market advocates are saying that simple repayment situations will not be enough to keep the homeowners from the future doom and gloom of the subprime mortgage rates. Repayment scenarios do not reduce the debt involved with the home. Instead, they give the borrower more time to repay the debt they have on top of their typical mortgage payment. In other words, repayment plans do not address the main problem of the mortgage, which is the interest rate and the conditions by which the mortgage was created, forcing them to sell their home.

Despite the trend of foreclosure experts assisting homeowners, foreclosures have continued to rise 7% in the same period of time these firms were providing assistance. Home industry experts forecast that foreclosures will continue to rise at 7% for the next 18 months as more and more homeowners fall victim to the slowed economy and reduction in jobs.

What are institutions like Hope Now doing for homeowners to help them with their payments? For those homeowners dealing with subprime adjustable rate mortgages, firms like Hope Now are petitioning the banks to freeze their introductory low interest rates on subprime ARMs for a minimum of 5 years to prevent foreclosures from dotting the landscape. As these introductory rates hold, the hope is that the homeowner will bounce back financially in order to meet their financial payments in the future.