David Soto - Illinois Home Loans & Mortgages

by Amir Efrati, Saturday, September 1, 2007provided by

As mortgage woes spread, what's a nervous borrower to do?

Mike Wilt, who lives in Uniontown, Ohio, is trying to figure that out. Mr. Wilt, a marketing director for a communications firm, is current on his $180,000 adjustable-rate mortgage -- the home's price when he paid for it. But he says he may soon start to fall behind, as he's been notified that his interest rate jumped to 11.5% from 8.5% in September, which will cost him an extra $400 a month.

When he tried to refinance back in March, Mr. Wilt was turned down for a loan with better terms because of his credit score; not even his boss's friends from a local bank could help. "The rules that got me into the original mortgage had changed," says the 31-year-old, referring to what he perceives as tougher lending standards.

More and more borrowers, many with adjustable-rate loans, are finding themselves in Mr. Wilt's shoes. Nearly one in five subprime borrowers, or those with poor credit, were 60 days or more past due on payments in June, according to First American LoanPerformance. But the problem is spreading to other homeowners: Also in June, 1.24% of second mortgages for so-called prime borrowers, those with better credit, were 60 days or more late, up from 0.54% in the same month last year. And some 4% Alt-A borrowers, who fall between subprime and prime borrowers, were 60 days or more past due in June, up from 1.25% in the same month last year.

The East Side Organizing Project in Cleveland, which performs foreclosure-prevention counseling for borrowers, has seen a marked increase in professionals using the group's services in the past two months, including Mr. Wilt, as well as teachers, accountants and lawyers, according to Mark Seifert, the group's executive director.

The government is signaling its concern. Earlier this week, federal and state banking regulators urged lenders and investors to restructure the loans of millions of borrowers at risk of foreclosure, though it is unclear what effect the joint statement will have. Last week, President Bush announced a policy change that would increase by 80,000 the number of borrowers who will qualify for new, better loans that are guaranteed against default by the Federal Housing Administration in 2008, bringing the total to 240,000.

Years ago, when homeowners got loans from local banks, borrowers who couldn't make their payments could try to negotiate with a familiar face. Now, with many loans "securitized," or packaged and sold as financial instruments, these conversations are getting a lot tougher. The upshot: Borrowers in trouble may need to pursue other alternatives, including counseling services or legal avenues. Here's a guide to some options:

Call the servicer. If you fear you can't make your payments, industry experts say, call the company that takes your loan payments, called the mortgage "servicer," to try to improve your situation. That could mean asking for more time to pay back the loan, getting a lower rate or switching from an adjustable rate to a fixed one.

Servicers are often allowed by the agreements governing loans to renegotiate terms, a process known as a "work-out" or "loss mitigation." In recent months, with property values declining in many markets, some companies are showing more of a willingness to work out an arrangement with struggling borrowers, according to housing counselors. Larry Litton Jr., chief executive of Litton Loan Servicing, which services 370,000 mortgage loans nationwide, says the company did 1,400 modifications in August, up from 500 the previous August.

Talk to a housing counselor. Counselors communicate with servicers on behalf of borrowers and can give advice on how to delay foreclosure. They are available in many cities, and their services often are free. In Iowa, for example, counselors typically first recommend filing a "demand for delay of sheriff's sale," which can halt foreclosure for six months to a year, says Jerri Scott, a counselor at the Iowa Citizens for Community Improvement. Counselors can also negotiate for a loan modification with lenders.

One possible downside to counseling: Borrowers who are in foreclosure are short on time -- in some states they have as little as 60 days before a sale takes place -- and many counseling agencies are already swamped. Neighborhood Housing Services of Greater Cleveland, for example, is booked into October.

Through their county treasurer's office, Mary and Joseph Goodman of Ypsilanti, Mich., negotiated a work-out in which their adjustable rate became a fixed rate, saving them from likely foreclosure this summer. The couple, who refinanced for their $210,000 home in 2004, say their broker neglected to tell them the rate would increase in 2005. Their treasurer had gotten help from the National Training and Information Center, which has a network of affiliates that do housing counseling and have access to specific work-out specialists at some lenders. The Department of Housing and Urban Development's Web site, http://www.hud.gov/, has a nationwide directory of counseling agencies.

File for bankruptcy. If talking to the servicer doesn't work, consider Chapter 13 bankruptcy, which can at least delay foreclosure and can force the lender and other creditors to negotiate a payment plan approved by the court.

Borrowers can file on their own or with a lawyer. The first option is cheaper, but some borrowers are making errors in the process and not getting approved, says Beth Osthimer, policy director for Neighborhood Legal Services of Los Angeles; then they often have to wait several months before they can reapply.

Hiring a lawyer can help ensure an accurate filing, but two years ago, following changes in bankruptcy laws, prices increased. In Los Angeles, for example, lawyer fees are as high as $4,000 per application, up from around $2,000. Plus, bankruptcy lawyers may have an incentive to push for Chapter 13 to get the fees, when in fact the filing might just prove a costly delay of inevitable loss of the home, says Justin Harelik, a Los Angeles bankruptcy lawyer.

A borrower's credit score will take a big hit after he or she enters into Chapter 13, but making timely payments can gradually raise it, says Tom Quinn, a vice president at Fair Isaac, developer of the FICO score used by creditors to assess borrowers' risk. Once a borrower is discharged from bankruptcy, he says, it stays on their credit report for seven to 10 years and will continue to "make you more risky" to creditors.

Sue. A growing number of private lawyers, with help from consumer-rights groups and legal-aid lawyers, are pursuing legal relief for borrowers who got loans they had little chance of repaying and, the lawyers argue, shouldn't have been granted.

Taking cases on a contingency-fee basis, these lawyers are giving borrowers the chance not only to stop foreclosure and rescind the loan, but also to seek damages for abuses in some cases. The aim is to prove that lenders granted fraudulent or "unconscionable" loans with terms skewed heavily in their favor, or to fight abuses by servicers such as phony fees that cause homeowners to default.

The number of lawyers specializing in this area is still small, and many already have packed caseloads. Melissa Huelsman, a Seattle lawyer who has focused on wrongful-foreclosure litigation since 2001, says her caseload has doubled in the past year to 50 active cases. She is mentoring several local lawyers.

Bill Purdy, a Soquel, Calif., lawyer, first looks for violations of federal statutes such as the Truth in Lending Act, a 1968 law that requires disclosure of key terms of the loan and its costs. "There are tons of illegal loans out there, but nobody's looking," Mr. Purdy says. Most cases settle out of court. But courts in states such as West Virginia and California have been most receptive to suits against lenders and servicers, says Margot Saunders of the National Consumer Law Center, which assists attorneys in such suits.

A possible downside to suing: in extremely rare instances, borrowers who lose a suit may get saddled with attorneys' fees for the lenders. For a list of attorneys specializing in lender/servicer abuses, check http://www.naca.net/, the Web site of the National Association of Consumer Advocates, or call your local legal-aid office or bar association.

Beware of "foreclosure rescue" scams. Federal and state prosecutors are investigating companies that offer temporary refinancing schemes in which borrowers get to stay in the home but go deeper into debt because the payments to the "rescuer" are higher than their mortgage payments.

David Soto -- Mortgage Blogs --- www.get-easy-loan.com

by Dawn Wotapka and Marshall Eckblad
Saturday, March 1, 2008provided by

In the nation's worst-hit real-estate markets, home sellers are suffering a new blow: They are being blacklisted by lenders.

As property values decline and credit markets contract, home lenders nationwide are growing ever more unwilling to finance home purchases in sharply declining housing markets, driving prices down further. In some cases, lenders have ruled out entire geographic regions and property types altogether, most notably high-rise condominiums in South Florida and Las Vegas.

Lenders including BankUnited, a unit of BankUnited Financial Corp., and Vertice, a wholesale lending unit of Wachovia Corp., have elected not to lend to some areas or properties because of declining prices. Countrywide Financial Corp., the nation's largest mortgage lender, considered a similar move last week before reversing course, and other lenders have tightened underwriting guidelines for slumping markets so as to make financing nearly unattainable.

There are "lists circulating" from banks, says Peter Zalewski, a broker with Condo Vultures Realty LLC, and those lists are pushing down prices when news of the black-marked properties spreads.

Moreover, the blacklisting isn't always obvious. "We don't call it blacklisting," said an official at a large bank. "We just don't write the loan."

The banks are acting to protect themselves in a steep downturn. But the drying up of loans threatens to create a self-perpetuating cycle.

"If mortgage credit dries up, then prices are going to fall more," says Morris Davis, a professor of real estate and urban land economics at the University of Wisconsin-Madison's School of Business and a former economist at the Federal Reserve Board.

Countrywide sent shudders through the ranks of mortgage brokers when it sent brokers an email recently under the heading "Urgent Product Elimination." The message announced the company would stop approving its Fast and Easy and Alt-A mortgages for all high-rise condominiums nationwide, effective almost immediately.

Countrywide's Fast and Easy loans don't require verification of income, brokers said. Alt-A loans are generally provided to buyers with good credit who lack full documentation.

Countrywide reversed its policy a day later without explanation, but the episode demonstrated lenders' reluctance to underwrite mortgages in the country's most uncertain real-estate markets. Countrywide didn't respond to multiple requests for comment.

Florida's largest bank, BankUnited Financial Corp.'s BankUnited FSB, drew up a "nonpermissible condominium project list" that identified addresses of 191 condominium developments in Florida and Las Vegas for which the bank won't provide financing. The list was reported by the South Florida Business Journal.

For more than half the properties listed in the memo, the bank cited "declining market value" as the reason it wouldn't provide financing. Melissa Gracey, a spokeswoman for BankUnited, confirmed that the list is still in force and said the bank's "very conservative" lending guidelines rule out mortgages for such properties.

In some cases, lenders have blacklisted not specific properties, but entire geographical areas.

In December, Wachovia's Vertice unit stopped writing mortgages for all condominiums in South Florida, says Kasey Emmel, a company spokeswoman.

Wachovia's main lending operation "continues to offer condo products in all markets, including Florida markets," says spokesman Don Vecchiarello.

Blacklisting isn't redlining -- the illegal practice of restricting lending on a socioeconomic basis -- so it doesn't run afoul of fair-lending laws, says Alexander Bono, a partner at Schnader Harrison Segal & Lewis, a law firm in Philadelphia. Banks are allowed "to identify a county when it's based upon something other than socioeconomic conditions" and then change its stipulations for lending there, Mr. Bono says.

Even when banks haven't officially ruled out entire markets, the stipulations they use before lending in such areas are becoming very stringent, and can leave mortgage credit all but off-limits.

"Companies won't lend" money for purchases in developments that aren't at least 60% filled, says Paul Miller, an analyst at Friedman Billings Ramsey & Co., a unit of FBR Capital Markets Corp. When vacancy rates in a development are higher than 40%, Mr. Miller says, "your condo fees go through the roof," since a development's minimum maintenance costs remain static, regardless of the number of residents. And if condo fees remain high -- as underwriting logic follows -- then homeowners may have a harder time making mortgage payments.

"We're very cognizant of the risks involved" with "condominium developments in particular," says Terry Francisco, a spokesman for Bank of America Corp.

Other larger lenders have also tightened standards for mortgages they write in declining regions.

In December,Fannie Mae, the nation's government-sponsored mortgage-lending behemoth, issued an announcement titled "Maximum Financing in Declining Markets."

"When a property is located in an area identified as declining," the announcement says, the lender originating the loan must reduce the maximum amount it could otherwise lend to that buyer by 5%.

In healthy markets, New York's J.P. Morgan Chase & Co. will currently lend borrowers a mortgage equal to as much as 90% of a property's value. For borrowers in states that have declining markets, however, the bank reduces that maximum, says Tom Kelly, a spokesman for the bank. J.P. Morgan then reduces that level even further for borrowers in the worst declining markets, Mr. Kelly says, though he declined to provide specifics.

CitiMortgage, a wholesale lending operation of another large Wall Street bank, Citigroup Inc., maintains a list of "declining market areas" that red-flags dozens of counties in more than 10 states. Citi reduces the amount it will lend for properties in those counties "by at least 5%," the document says.

"We routinely review our credit parameters, including maximum loan-to-value ratios, in declining markets," says Mark Rogers, a CitiMortgage spokesman.

One silver lining: For "all-cash buyers," Mr. Zalewski says, the lists are "heaven sent."

Buyers who have cash "can use that to negotiate," he says: "If you don't sell to us, who are you going to sell to?"

David Soto --- Mortgage Blogs ----- www.get-easy-loan.com

Scenarios when borrowing might make sense

You have erratic or hard-to-prove income: Because home equity borrowing is a secured loan and a number of lenders still base loan approval on credit score alone, you have a better chance of approval, providing your credit score is good. Plus a line of credit can act as backup between income infusions, usually at a lower rate than credit cards.

Your child is applying for financial aid at a private school: Need-based student aid decisions are determined partially on your assets, including primary residences whereas credit card debt is not reflected. Consolidating credit card or other outstanding debt using home equity dissipates the value of that asset, more accurately reflecting your financial picture. NOTE: This does not apply to FAFSA, the Free Application for Federal Student Aid, used at state schools.

You need to bridge a short financial gap: If you have a realistic view of your financial picture, and have determined you have the means and financial discipline to pay down the loan, there are benefits that could make home equity borrowing the smartest choice.

Advantages of home equity loans

Tax-deductible interest: Interest on the first $100,000 is tax-deductible, regardless of use. Additional interest may be tax-deductible if used for a business expense or another allowable purpose. Remember, you must itemize.

Lower rates than unsecured loans: Lenders carry lower risk holding your home as collateral, translating into lower interest rates than offered with unsecured loans.

Pitfalls of home equity loans

Not everyone can deduct interest. You must file an itemized tax return to claim the tax deduction on the interest paid. Your tax savings isn't dollar-for-dollar, says Katie Porter, associate professor of law at the University of Iowa and mortgage bankruptcy researcher. "For every dollar you get to deduct, you're reducing your income, which saves you -- depending on your tax bracket -- 20-25 percent on your taxes."

Shouldn't be used in place of making tough financial decisions: Taking on debt when money is tight is rarely a good idea. "It might be better to sell your car and get a cheaper one," Porter says, "than to put your house at risk."

You're taking on risk: "People need to be clear with themselves about the risks," says Porter. "Be very aware that your home and all the payments you have made toward it are the collateral. With unsecured credit, the interest rates are higher because it is the lender who is assuming the bulk of the risk. Securing your loan with your house as collateral means that you are assuming the bulk of the risk." You could lose your home.

It may limit your options: Your home's value may slide, leaving you owing more than you can get for your house if you try to sell. This is especially a problem for high loan-to-value (LTV) loans, in which the borrower can draw on up to 100 percent (and sometimes more) of the home's equity.

Understand the terms: Home equity lines of credit, or HELOCs, and many subprime loans often come with stiff prepayment penalties, sometimes equivalent to six months' payment. Adjustable-rate mortgages, or ARMs, frequently start off with a low teaser rate that increases after a set amount of time. Crunch the numbers on the ceiling amount; make sure you can afford your payments when the interest rises.

Plan for the unexpected: "Unexpected crises -- getting sick, getting hurt, losing a job, having spouse leave you -- almost all of us will experience this type of loss at one time or another and consumers need to build a cushion into their budget," says Porter. She further cautions, "If you tap into equity in good times, then you won't have money to tap in an emergency."

Don't ignore your other options

Lower interest rates can be enticing, but consumers should consider all other options before converting unsecured debt to a secured loan. Try these strategies.

Call credit card companies. See if you can work out a payment plan and negotiate lower rates.

Consider credit counseling. Choose a nonprofit credit counselor to negotiate on your behalf.

Cut back somewhere else. Get a cheaper car. Have a yard sale. Put your wallet on a diet.

David Soto --- Loan Officer ---- www.get-easy-loan.com

Article by: Dian Hymer

Homeowners preparing to sell their home usually call a real estate agent, or sometimes several, to make a presentation. Sellers should consider an agent's professional qualifications, recommendations and marketing plan. But, what sellers are most interested in knowing is: What's it worth?

There are various ways to establish the value of a property. For example, if you are insuring your home against fire, you'll need to know the replacement-cost value of your home, which is basically dependent on the size of the home and any other structures on the property, and the current cost to rebuild in the area.

However, in the context of a home sale, market value is the relevant variable, which may or may not be the same as replacement-cost value. Unlike replacement-cost value, market value is determined by the amount a willing and able buyer will pay for the property at a given point in time.

Typically, real estate agents determine an appropriate selling price range for a home by preparing a comparative market analysis, or CMA. This involves comparing the attributes of the property in question with other similar properties in the area that have sold recently. Adjustments are made to account for defects and for superior attributes that the subject property has in comparison to the others.

HOUSE HUNTING TIP: The accuracy of a CMA depends on how well the agent knows the area, and on the quality and quantity of comparable sale information that is available at the time.

In many areas of the country, the number of homes sold is down considerably from years past. But, if there is relative consistency in the housing stock, establishing a probable sale price is relatively straightforward. In new or relatively new home developments, there is little variability between one housing model and the next.

However, in established neighborhoods that were developed over a long time span, say 70 years or so, finding reliable comparable sales can be difficult. Berkeley, Calif., for instance, was populated with summer cottages in the early 1900s and has been developing ever since. Not only is there variability in the age of homes, some have spectacular views and some don't, and lot size varies as does the quality of construction. To complicate matters, some older homes have been remodeled nicely, some badly, and others have been let go to the extent that they are fixer-uppers.

Low sales volume in an area that lacks a standardized housing stock complicates matters. In some cases, there are not truly comparable sales in the area that have sold recently. In a changing market like we are currently experiencing, the most recent sales tell us the most about current market value. Sales from even three or four months ago can be out of date if the market is changing dramatically.

When there are no recent comparable sales, the only way to get a sense of a probable selling price range for a property is to look out of area or further back in time to find similar sold listings and make adjustments accordingly.

Sellers in this situation should be prepared to act quickly if they find that once they are on the market they've listed at a price that is too high given current conditions. A listing is most marketable when it is new on the market. Take advantage of the newness and adjust the price while the listing is still in the limelight. Once other new listings come on the market, buyers' attention is directed elsewhere.

THE CLOSING: Sellers who suspect their list price is too low once they're on the market should make sure their home is fully marketed before they accept an offer.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

David Soto - Loan Officer - www.get-easy-loan.com