Susan Templeton

Making Home Affordable 105% Loans were introduced just this spring and the program has simply not been meeting the public need. Will 125% be the magic bullet?

Homeowners seeking to refinance their Fannie Mae or Freddie Mac Mortgages quickly found that the new 105% loans were helping a minority of people teetering on the edge of collapse. While it may seem obvious to people in trouble, the limit was increased to 125% Loan to Value recently. But the new DU Refi as it is called is falling short! Here's why:

1. Many homeowners simply cannot meet the required 33% debt to income limits necessary to refinance their loans due primarily to a job loss or cutback or other change in their financial situation. You see, many people purchased or refinanced their homes with much higher housing ratios: in many cases over 45%. So unless your income went up, the chances of a lower ratio will be slim even with a fixed interest rate.

2. A careful look at the rates on the much touted 'DU Refinance' Programs our lenders are offering are just not so hot. Given you have to be in 'financial distress' to qualify; incredibly these products sport pricing adjustments (points) for lower credit scores and higher debt to income limits -- making them pretty pricey! NOT the great low rate you were hoping for. The interest rates, after all those adjustments may be no better than that 8%- to 10% rate your note is going to adjust to anyway! And since you clearly need a lower rate to afford to keep your home...well, what's the point?

3.The third, and possibly biggest reason for MHA failures to date is due to the lower property values all across the country. Homeowners seeking to refinance their Fannie Mae or Freddie Mac Mortgage are so underwater on their mortgage to home values, 105% has been deemed pretty irrelevant. In places where property values have dropped 10% (most of the country is worse off than this now) it's on the line. If you originally had a 100% mortgage (or 80/20% combo) and you haven't paid much principal down...you can see you can see how a 105% loan would not cover the 10% lower value. It's not rocket science!

Will 125% Loan help more people stay in their homes who are now in crisis? Good question. The race to modification has overwhelmed most lenders who are unskilled in this arena. That's putting it mildly. In most cases, if your loan is already being modified (due to financial distress) your lender will first test your case to see if they can apply the new Stimulus 125% loan program so they get to make more money. Naturally this is in their interest!

In all cases, to qualify for this program, you must:

1. be in financial distress

2. demonstrate income to support the new mortgage, and

3. have a Fannie Mae or Freddie Mac Loan now. Your lender can verify that fact --just call the number on your bill and ask if you have a Fannie or a Freddie loan.

Now that this higher LTV (loan to value) is allowed, even if home value has gone down 25%, depending on how much you borrowed, you may still qualify to refinance up to 125% of the current value of your home within a new first mortgage. If you have a second mortgage now, it stays in place and must fall within that total of 125% loan to value. (Depends on Fannie or Freddie how they handle this) The second mortgage holder is being asked to 're-subordinate' their lien after the new first mortgage is recorded. These things, like modifications are taking time to accomplish. So patience is a very important aspect of working out a loan modification program, be it via this program or a straight modification.

Please bear in mind that if you borrowed more than you could afford to begin with, a higher loan amount certainly won't solve your problem. Homeowners who have lost that much of their home's equity are making some tough decisions. Unless you are really in love with your home, many homeowners are saying, hey--why get stuck with this high mortgage when we can buy a home for 30% less right now in our town? Yes, folks are still walking away from their homes in droves.

Home Owners BEWARE: the Stimulus Refinance program is ONLY GOOD FOR FIVE YEARS. If you are offered a Refinance, the fixed terms will only be for five years and after that --either the loan will adjust again (read the fine print of your offer) or you will have a balloon note that you may have to refinance again in five years if you intend to keep your home. While the average homeowner only stays in their home five to seven years this may work fine for a lot of people.

OK, admittedly we are promoting private modification over these quasi government programs. Why? (I won't say what I think of the bank's hired guns.) The process is frustrating and time consuming but we have witnessed very solid results on behalf of our clients. The private modification seeks to fix your rate for as long as 40 years (so far). We have seen some very flexible terms offered, allowing folks to negotiate what they can actually afford to pay now, while projecting their own financial recovery down the road.
Huh. Affordable mortgages...how novel?

The SBA 504 Program Has Been Revamped to Allow Refinancing Business DEBT!

The U.S. Small Business Administration has agreed to allow the 504 loan program (normally to buy real estate for an owner operated business) to allow those businesses to refinance existing business loans used to purchase real estate and other fixed assets.

The changes were authorized in the American Recovery and Reinvestment Act legislation and are considered 'permanent'. Now business owners can restructure debt to improve cash flow and support job creation...the goal of the changes. 'Bout time!

Recently, the government reduced the 504 program fees and temporarily raised to 90% the guarantee level on many of its 7(a) loans and extended the reach of that program to include real estate purchases.

The 'limited debt refinancing' will apply if the debt is to facilitate business expansion and the debt refinanced does not exceed 50% of the projected cost of the expansion. The SBA defines expansion to include any project that involves the acquisition, construction or improvement of land, building or equipment for use by the small business borrower. Owners must occupy the majority of their premises but may have tenants/sub-lessors.

SBA administrator Karen G. Mills said, "Lower interest rates mean lower payments and less money going out the door each month in debt repayments. That means more cash on hand to keep their doors open, their employees working and to even expand and create more jobs."

Naturally good debt management history is essential to qualify for the SBA refinance, so let's hope it 's just in time for many struggling business owners! Call your local Small Business Administration lenders, the Community Development Associations and your Chambers of Commerce today for lenders participating in your area.

Hint: There are SBA brokers or Certified Development Companies (NGOS's) who will help you structure your application for the SBA and recommend a banking partner. The SBA funds 40% and we find a local or regional bank to fund 50% while your own 'chip' in the loan must be a minimum of 10% equity.

What a boon to the many entrepreneurs in our area!! I am hosting a local event on the 504 program at biznik next month if you are interested!

Have you been getting as much spam lately as I have? SHEESH. I get at least 40 spam emails a day now. However, not to point the finger too stridently: I must admit my own part in e-spamming! Recently, I decided to email the women in my network an invitation to a party and one registered my email as spam (mea culpa).

Upon closer reflection, I realized I had blithely cruised my database for women. How rude to assume my business contacts would want to socialize with me? So that was my comeuppance: business contacts are not always up for social or other causes. And in our business, financial matters being so personal, a lot of people you have been through heck getting them qualified for a loan or purchase contract might not want to squirm next to you on a social sofa. As a southern female that was one lesson I should have remembered. Like no white shoes before Easter for goodness sakes!

Another reason people are so wary of 'invitations' is practical: SPAM has a way of getting into your hard drive and playing havoc and suddenly sending out rude jokes to your friends from your email address. Fake greeting cards often carry viruses. These companies featured on sites like Facebook and Twitter are often scams. "MyLuvCrush" has been slapped with a $500,000 fine by the WA State Attorney General for sending out fake 'admirer' emails. This happened to be a home grown version. The ones based in other countries are impossible to stop.

SO, if you are overwhelmed by spam here's some pointers: First, forward the offending email to the Federal Trade Commission's abuse department: spam@uce.gov then delete it.

Use Catchall Email accounts: If you want to know how a list-bot got your email address start using different 'alias emails' when you sign up for social media sites: for example, if you set an email as your 'catchall account' (in your email box settings on your domain host) you can tag emails to the source: for example I signed up on Twitter as twitter@mydomain.com. Then if I get spam to that address, I can track it back to the source and deal with it: i.e., either it was sold by that site owner or my posting there was somehow compromised.

Woops? I did post my email openly early in my blog career and that seems to have started a rash of spams. Yes, it's too late to retract them once they are out but you can reset your account to filter out those 'tags' by returning to non catchall accounts. You can just call that site webmaster and ask politely how someone could get that unique email first...once they know their site was compromised they may be willing to correct the problem at least on their site.

Unfortunately spammers are spawning like rabbits on steroids these days but if you do report them by forwarding to the FTC and include them in the reply it is highly likely that particular abuser will get the message and take your email off their list...one can hope

Victory in Washington State: Our WA State attorney Genera's case against the creators of MyLuvCrush involved misleading advertising and has been resolved with a settlement. Here's a link to the news release: http://www.atg.wa.gov/pressrelease.aspx?&id=22284.

Some advice from our own SAG: Internet scams are increasingly common. The easiest option is to simply delete the email. Because these schemes are usually international and involve individuals who live other countries, we let the Feds handle investigations.

Below are some resources:
* The Federal Trade Commission: Forward illegal spam to spam@uce.gov
For other types of fraud, call toll-free 1-877-FTC-HELP (1-877-382-4357) or file a complaint online at www.ftc.gov
* FBI's Internet Crime Complaint Center: They have a form online at http://www.ic3.gov/complaint/
* Mail fraud - U.S. Postal Inspection Service. Call 1-800-372-8347 or file a complaint online at http://www.usps.com/postalinspectors/fraud/welcome.htm.
* Phonebusters, the Canadian anti-fraud call center: 1-888-495-8501, www.phonebusters.com
* Internal Revenue Service: For phishing and other scams related to tax returns, etc. Forward the e-mail or Web site URL to the IRS at phishing@irs.gov .
* Attorney General's Office: Washington residents who believe they are victims of a scam can file a complaint online at www.atg.wa.gov or call 1-800-551-4636.

In order to track the origin of an e-mail, investigators need the full header. One way to ensure that your message has the full header is to send the e-mail as an attachment, rather than simply forwarding.

Here's HOW to send emails as attachments: (use Help to search 'forward email as attachment' )

In MS Outlook
You can forward a message without double clicking to open it in a new window. Highlight the e-mail in the message list of your inbox and follow the directions for your particular mail client:
1. Create a new message
2. Drag and drop the phishing e-mail into the body of the new message.
This ensures the original message is contained as an attachment with the appropriate Internet headers.
Or
1. Open the phishing e-mail message*
2. Select View > Options. The Internet headers will appear. You can copy these as you normally copy text 3. Forward the original message with the copied message headers pasted into this message

In Outlook Express
You can forward a message without double clicking to open it in a new window. Highlight the e-mail in the message list of your inbox and follow the directions for your particular mail client:
1. Create a new message
2. Drag and drop the phishing e-mail into the body of the new message.
This ensures the original message is contained as an attachment with the appropriate Internet headers) Or 1. Open the phishing e-mail message* 2.
Select File > Properties > Details. The Internet headers will appear.
You can copy these as you normally copy text 3. Forward the original message with the copied message headers pasted into this message

In Netscape/Mozilla/Thunderbird Mail
1. Select View > Headers > All
2. Select Message > Forward As > Inline

If you are using an alternative to these e-mail clients, please consult your provider for instructions on how to forward messages.

....and HEY HEY HEY....be careful out there!

More Hype Down the Pike: There are more rumors than you can shake a stick at about the proposed HUD 2nd mortgage tax credit loan necassary to achieve the much touted $8000 tax credit as 'just in time' cash to close. The problem lies between two government agencies: HUD and the IRS and their many participating FHA lenders. Firstly, how, may we ask, is an unproven borrower, who has yet to be paid their annual income, to know what their tax burden will be during a year --when they may just as well get a raise or loose their job? OK, the Feds are trying: Read the FHA Letter and then get the latest word from the IRS here. Something tells me these guys are not getting together on this. Or they will come up with a great theory that no lender will touch.

Meanwhile, the very folks who should be benefiting from assistance are more confused than ever by some folks (among US?) suggesting they will have the funds at closing. I'm guessing a fair number of folks who borrowed their tax credit in 2008 will be pretty peeved about right now since they get to pay their $7500 back to Uncle Sam.

REALITY CHECK:Me being the curious sort, I called and asked our FHA lenders what they knew. They have not received any instructions from HUD yet, and they set the rules. HMMMM. In fact, I can safely say I did not detect much enthusiasm emanating from the very persons employed to deliver the goods. Why? As it is proposed, a lender can only make $200 on the second loan. Hardly enough to cover their paperwork. A very low interest rate (under 3%) is been bandied about. Consider this: Asking a lender to front $8000 for an unknown length of time based on an unknown borrower's ability to qualify in a year or two with next to zero down payment is hardly appealing. For $200 it's hard to imagine a third party would loan that much money with such high risk factors.

WHADDABOUT that $15,000 proposal before Congress? Senator Johnny Issacson of Georgia, a former Realtor, has suggested scrapping income limits and giving a much higher tax credit for all buyers, not just first time buyers. For investors, you me, the buying public! What are the chances congress will get that one past the fairness police? https://www.thinkbigworksmall.com/public/showArchiveVideo/1/4960

NEED I suggest: Sellers who are promoting the tax credit as 'cash to borrowers to close' risk running into our Federal truth in lending laws. Bigtime.

More Loan Yes Yes's! ...

Making Home Affordable and Stimulus Refi Programs are now the hot buzz words in mortgage land. But exactly what are they and who qualifies for help?

Folks in financial distress need to know they have options. But how do you find out what those options are? Most banks and mortgage lenders are just finding how what to do about the high percentage of folks coming in for whom we have no classic answers. And we just hate saying "No" or worse yet: "I don't know!" Fortunately, the Obama administration has seen fit to refine the original Bush 'Hope For Homeowners' program. Since the original Hope roll out was something of a disaster, the current plan looks pretty sweet by comparison although real results are yet to be seen.

Where Do You Start?The phone number on your Mortgage Statement will direct you the accounts payable department. If your loan is in some state of default your case may have been escalated to the not quite so nice folks in 'loss mitigation', glorified collection agents hired by your bank to make you pay...or else. These contractors have a similar goal: keep you in the highest possible loan instrument so the bank makes the most money ad infinitum.

Loan Modification...what is it? The basic premise is one of renegotiating the terms of your existing loan contract with your mortgage holder if your financial circumstances have changed or you simply cannot afford the new adjustable rate reset for whatever reason. The key word is 'negotiation'.

Who Are Loan Modifiers? Offers to"Reduce your interest rate to just 2% in just 10 Days" are obviously preying on the hopes of the desperate. Some scam artists have just taken money and done zilch--these crooks are being run out of our state on a rail, thank goodness!

What are the BEST Options? Depends entirely on your circumstances. Just don't wait until you are in serious trouble. You DON'T have to be behind on your payments to get the ball rolling. Your accountant or bookkeeper can help you look at the basic facts to explore what measures may be open to you. After all, if you have insufficient income to meet your current obligations you might need a Plan B.

Common Questions about Loan Modification:

1. Will My Loan Size Be Reduced? Unlikely since the Banks are running this show. A recently proposed bill to allow bankruptcy judges to adjust loan amounts was soundly defeated...no surprise there.

2. How Much Will My Interest Rate Be Reduced? There is no set rate as it depends, entirely on you, your budget, your grip on reality (how many holidays a year you need for example?) and your negotiator's skill. We have seen 4% or better and some variance on how long it's fixed with long term rates well under commercial fixed rates for the full term of your loan. However, this is NOT an easy refinance. You must file hardship letter and be prepared to prove you cannot qualify for a traditional loan first.

3. Will My Loan Terms Be Lengthened? Maybe. Again there is no 'set system'. The goal of modification is to come up with a solution that nets a payment you can afford over time to allow you to keep your home. We have seen 30 years to 50 years. No kidding. Naturally, the Bank wants you paying your mortgage as a god ling time so they eventually get their money.

The NEW Home Preservation Foundation is essentially a consumer clearing house: They refer you to a HUD a counselor Check out: http://www.995hope.org/ (originally labeled 'Hope For Homeowners').

NOTE: To date the BILLIONS of dollars spent setting up Hope for Homeowners has only resulted in 51 loans being negotiated, and only one of those was deemed legal. At least there is some transparency about the failure!

Here's how HUD counseling works: You call the hot-line and a counselor is assigned to you. The counselor explores what you can afford and will send their recommendation to the lender for either a repayment plan, modification or refinance. You submit wads of paperwork. Then they step aside and you either get an offer or you are left to fend for yourself with your lender. It can take literally 3+ months for a result. You are kept in the dark most of that time.

What About the Stimulus Making Home Affordable Refinance Programs?To qualify for these, you must have a Fannie or Freddie Loan (not designed for Sub-prime or FHA or VA or Private Loans) So in essence this program is only about bailing out the conventional Fannie/Freddie banks.

Check the site: http://www.makinghomeaffordable.gov/loan_lookup.html


Private Loan Modification: Washington state has officially formalized the Loan Modification process in concert with our Department of Financial Institutions, the governing body of mortgage banks and brokers. We now have a clear set of what can be done by whom (licensed brokers, loan officers or attorneys) and for how much. $1,500 is a typical broker's fee in Washington for what can be a three month negotiation process (depends on many factors). Private modifiers are accountable to you, not your bank! Private modifiers are not limited to 5 year terms like the MHA plans.

Some legal firms offer loan modification as part of their bankruptcy practice. Expect legal fees in line with their other professional services.

ARE Modifications Successful? Our anecdotal evidence suggests that private loan modifications are working because your personal negotiator is not motivated by commission or the bank's interest. Since the Banks getting PAID to modify your loan with the Stimulus funds they are motivated and hiring staff to help clear the backlog of applications. That's right...The bank receives up to $5,000 for successfully modifying your loan for the five year Stimulus plan.

Some Much Needed Levity Enjoy this You Tube on "Hope the Early Years" and a sneak a peek at Timothy Geithner's home on the block (still). He's probably considering these very options himself! https://www.thinkbigworksmall.com/mypage/tbws/9614/1018553

Related links: http://www.financialstability.gov/ http://www.making home affordable.gov/

Happy Stimulus! Loannetter