John Topa, FHA Mortgage Specialist

"Foreclosure" is the legal process by which a bank repossesses a home from a borrower and, according to RealtyTrac, 1 out of every 100 homes were in some stage of the foreclosure process in 2007.

This figure is astounding because foreclosure is expensive to both homeowners and banks. Both parties have an interest in avoiding foreclosure but the process has to start with the homeowner -- banks are just too big to start it themselves.

Every mortgage statement has a 1-800 phone number on it. If you're about to fall behind on your mortgage payments, make a phone call first. When you call the toll-free number, a customer service representative talk about your repayment options, or help you design a work-out plan to get your mortgage back to current.

Banks know that more than 80 percent of all foreclosures result from one of the following:

• Job loss/reduction in salary
• Medical issues
• Divorce
• Death

These are life events that draw compassion from banks. They understand that bad things can happen to people.

However, the other 20 percent of foreclosures are the result of an inability to sell, an unwillingness to pay, and budget mismanagement. These reasons are not as acceptable to the banks.

But when a homeowner fails to forewarn his lender of a missed payment, the lender assumes the worst. It puts the homeowner in the 20 percent category. This makes a work-out plan much less likely and can quickly lead to foreclosure and a loss of the home.

Lenders want to avoid foreclosure as much as homeowners do. If you're a homeowner and you're facing trouble with your mortgage payment, give your lender a call in advance and try to work it out.

If you never call, you can't possibly get help.

www.FirstSunriseMortgage.com

One of the most popular questions that home buyers ask real estate and mortgage professionals is "How much home can I afford?"

It's a normal question to ask, but it's not the most effective way to plan your finances.

Banks will almost always approve you for a home loan in excess of your household budget.

The more appropriate question is: "How much do I want to spend on housing each month?"

By focusing on a home's payment instead of its list price, home buyers exert more control over their short- and long-term financial goals. List price is only one piece of the monthly payment puzzle.

The cost of owning a home month-after-month is the sum of multiple expenses:

1. The mortgage payment
2. The real estate taxes on the property
3. The condo/management fees to an association (if applicable)
4. The cost of homeowner's insurance
5. The cost of mortgage insurance (if applicable)

In other words, because monthly payments are combination of costs, buying a home based on its list price does very little to help plan a budget. A home selling for $300,000, for example, may cost a homeowner anywhere from $1,800 to $3,000 monthly.

This is why "How much do I want to spend on housing each month?" is a better starting point than "How much home can I afford?".

Home affordability comes from more than just the list price.

Private Mortgage Insurance (PMI) is an insurance policy paid to a lender in the event that a homeowner defaults on his home loan.

These defaults are up 35 percent over last year, according to an industry group -- bad news for all homeowners requiring PMI with their mortgage.

Much like home insurers adjust premiums after a worse-than-expected Hurricane Season, PMI insurers are raising mortgage insurance rate for all homeowners, regardless of credit history.

And it comes at a time when PMI is in higher demand.

Because second mortgages are not as available as in recent years, using PMI is the only way for some homeowners to get approved for home loans with a less-than-20-percent downpayment.

PMI rates are higher than they were six months ago and additional defaults make it likely that PMI rates will rise again in 2008. As PMI rates increase, so does the cost of homeownership for people whose lenders require it.

Source
Mortgage-Insurer Defaults Hit Record
Associated Press
December 31, 2007. 12:30. P.M.
http://biz.yahoo.com/ap/071231/mortgage_insurers_defaults.html?.v=1

Federal Reserve Chairman Ben Bernanke testified to Congress Wednesday, alluded to further rate cuts to support an ailing U.S. economy.

Already, the Federal Reserve has lowered the Fed Funds Rate by 2.250% since September 2007.

The graph at right comes from the Wall Street Journal and it highlights a very important correlation between the Fed Funds Rate and mortgage rates.

The correlation is that there is no correlation.

Since the Fed began cutting rates five months ago, mortgage rates on 30-year fixed mortgages are higher, as are jumbo mortgage rates. ARMs, however, are lower.

Especially noteworthy is how 30-year fixed rates started to spike as the Fed cut rates through January. Another half-point cut in March could have a similar impact.