Your bank sends you a letter, telling you that the limit has been reduced on your home equity line of credit, or HELOC. That news is unwelcome enough. What the letter doesn't tell you is this:
Your credit score just got whacked.
A frozen HELOC doesn't always spell credit-score doom. Under some circumstances, freezing a HELOC might not change the score much; under others, the credit score can tumble enough to derail one's financial plans.
Falling home values are prompting lenders to take new defensive steps to guard against loan defaults. They've started to freeze and cut back hundreds of thousands of home equity lines of credit.
One of the U.S.'s largest mortgage lender, sent letters in January to 122,000 customers, telling them they can no longer borrow against their HELOCs. At worst, outright freezes cause havoc for many borrowers. Even for borrowers being told they can only draw less than the amount initially authorizedMany lenders are freezing and cutting HELOCs even for borrowers with sterling credit and big equity in their homes, says Weston Sutherland, director of product management, FeeDisclosure.com. Borrowers generally see HELOCs as an inexpensive, flexible source of cash. Lenders have opened more than $2 trillion.
But if your line has been lopped, there may be steps you can take to fight back or cope with the problem. . A HELOC HELOC Home Equity Line Of Credit is secured by your equity in the home. Recent declines in housing values have trimmed home equity in many areas. That's why lenders are reining in HELOCs. They often reserve that right in the fine print of their deal. Lets say Jack Brown applied for a HELOC in 2005. He had a $300,000 mortgage balance on a house worth $400,000. Brown's equity was the difference: $100,000. A lender might have given him a HELOC for $100,000: 100% of his home equity. Suppose that Brown now owes a $40,000 balance on his HELOC. And his mortgage balance is $295,000. So he has $335,000 in home loans. But the lender now estimates that homes in Brown's area have fallen by 20% since 2005. In that case, the lender projects that Brown's home would be worth $320,000. That wipes out Brown's equity. On paper the lender would not be secured for all of the outstanding debt on the HELOC and there would not be enough collateral to justify further borrowing by Brown. Fighting Back The lender might send Brown a letter saying his HELOC has been frozen. If you receive such a letter, what can you do? You can accept the new limits. Maybe you simply don't need to borrow money. If an emergency comes up, perhaps you have cash reserves That could cost less than dipping into a HELOC. Their rates currently average about 6%. If you don't have enough cash, you can appeal some HELOC freezes. Call the lender's customer service department and ask if it has an appeals procedure. "You generally will need to demonstrate that the value of your home hasn't declined or hasn't fallen by much," said Keith Gumbinger, vice president.
CONTACT BOGRIS APPRAISAL LLC
www.bogrisappraisal.com
201 773 3282
to thaw your frozen line of credit.Bogris Appraisal LLC is frequently appointed in probate and condemnation proceedings and also used by banks and real estate concerns to determine the market value of properties like yours.
Bogris Appraisal LLC offers competitive fees comeasurate with the assignment.
The appraisal may help your frozen HELOC to thaw. Suppose Janice Green has a house she bought years ago. Her mortgage balance is $350,000. Say Green also has a $100,000 HELOC. She has not borrowed against it, but all of it was frozen. Green might get an appraisal showing her house is worth $500,000. So she'd have $150,000 in home equity. On the strength of that, her lender might restore her $100,000 HELOC. Or it might make, say, $50,000 of that line available to her. A $50,000 HELOC, plus her $350,000 mortgage, would give her $400,000 of debt on a $500,000 house. Even now, many lenders are comfortable with an 80% Loan-to-value ratio (LTV)Favored Owners Bottom line: People who bought homes at the peak of the market may face stiff challenges. Many owners now find the ratio of their home loans plus HELOCs vs. home value has soared. If your home is leveraged over 80%, you likely will find it hard to get more home equity debt. The situation is better if you bought your house before the market peak. You may have ample home equity. If you have solid credit and reliable income, you can borrow against your house. "This is a good time to shop for home loans," McBride said. If you're qualified, you can get attractive terms for a HELOC, no matter what some lenders might tell you.
It’s been happening for months now. People are trying to get some cash out of their HELOCs, probably because the economy is getting worse. As the twitter nation says…Fail!
It seems banks have decided that houses aren’t worth what they used to be and HELOCs are being suspended. Banks are sending out letters sometimes, but in other cases you find out when you call them and they tell you your HELOC is frozen.
Here’s what they will probably tell you. Your house has dropped in value by more than 10% in the last few months, or your credit score has declined. Many people think that the bank has all the power and that you cannot fight them. Not so fast, you need to read the fine print. Some contracts require the bank to provide proof as they are engaging in an adverse action. If they cannot prove that their reasons are sound, they may be forced to reopen your credit line. Many banks may be hoping that consumers don’t challenge their decision to freeze credit lines, but some banks have clear language allowing them to engage in this practice.
* No income restrictions.
* Down payment as low as 3.5 percent of the purchase price.
* Down payment may be 100 percent gift from relative.
* Loan size now expanded to $729,000.
* Co-signers are allowed.
* Purchase or refinance.
* Do not need to be a first-time home buyer.
* Credit score to 580 acceptable.
* One- to four-family homes qualify.
For more information on FHA loans, go to http://www.hud.gov/buying/loans.cfm.
After months of low rates some of which broke long-time records, mortgage interest rates shot up drastically during the week ended June 4.
Freddie Mac released the results of its Primary Mortgage Market survey this morning, showing that the 30-year fixed-rate mortgage (FRM) for the week averaged 5.29 percent with 0.7 point. This is the highest rate for the 30-year FRM since the week ended December 18, 2008 when the average was 5.19 percent. The new number is an increase of 37 basis points over last week's average 4.91 percent with 0.7 point.
The 15-year FRM increased 25 basis points from the previous week to average 4.79 percent. Fees and points were unchanged at 0.7. The 15-year was last at these levels during the week ended February 12 when the average was 4.81 percent.
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) was also up, but not as dramatically. The average last week was 4.85 percent with 0.6 point compared to the previous week when it averaged 4.82 percent also with 0.6 point.
The one-year Treasury-indexed ARM jumped to 4.81 percent from 4.69 percent. Fees and points remained at 0.6 point.
"Yet, there are signs that the housing market may be moderating. Housing affordability rose in April to the second highest reading since January 1971 when records began, according the National Association of Realtors® (NAR). As a result, pending existing home sales rose for the third consecutive month by 6.7 percent in April and represented the largest monthly increase since October 2001. Three of the four regions experienced increases, led by a 33 percent jump in the Northeast, the NAR reported."
There were also substantial increases in the weekly yields reported by Fannie Mae on Monday. For the week ended May 29, the 30-year FRM increased from 4.49 percent to 5.02 percent. The 15-year FRM averaged 4.42 percent compared with 4.04 percent a week earlier, and government guaranteed FHA/VA mortgages jumped from 5.34 percent to 5.88 percent. The one-year ARM increased only slightly from 3.42 percent to 3.48 percent.
All Fannie Mae yields are reported net of servicing fees.
Through the Recovery Act, the Treasury Department will now for the first time provide state housing agencies resources from which they will in turn provide cash assistance to developers of qualified affordable housing developments to fill the Low Income Housing Tax Credit (LITC) gap. The program will increase the supply of newly constructed or recently renovated affordable housing units for families - affordable housing that otherwise may not have come to market due to current economic conditions.
“Affordable housing is key to every American’s economic security,” said Treasury Secretary Timothy Geithner. “As the recession has worsened, unemployment has risen, and working families have suffered a loss of income, which has caused a downward economic spiral for too many American families and made it more difficult for those families to find affordable housing. With this new program, we are not only creating new jobs through new construction, we are ensuring the availability of affordable housing, which is good for the nation’s economic stability and the economic security of millions of American families.”
The economic and financial crises have presented significant challenges for the construction industry, particularly residential construction. Housing starts have fallen 80% from the peak level seen at the beginning of 2006. Houses currently under construction are at a 12-year low, down 60% from the peak in the first quarter of 2006. This collapse has led to severe job losses in the residential building and specialty trades sector related to housing, with employment down by nearly one-third - a loss of close to 1 million jobs. Such losses not only indicate the significant problems in the residential construction sector, but also suggest that the need for affordable housing has risen markedly during the recession.
In addition to Treasury’s new program, HUD will be awarding $2.25 billion in grants to state housing credit agencies through the Tax Credit Assistance Program (TCAP) to complete construction of qualified housing developments. The TCAP program will ultimately provide affordable housing to an estimated 35,000 low-income households.
“The intended purpose of the American Recovery and Reinvestment Act is to jumpstart the nation’s ailing economy, with a primary focus on creating and saving jobs in the near term,” said HUD Secretary Shaun Donovan. “These programs are an important step in achieving the goal of putting American people back to work while at the same time providing quality, affordable housing options for low-income families. We are proud of the collaboration between Treasury and HUD that enabled us to announce these programs together.”
One of the by-products of the economic crisis has been the freezing of the investment in Low Income Housing Tax Credit, the federal government’s program for the development of affordable rental housing. Tax credits provide an incentive for investors to participate in the program, which in turn provides equity to developers to build multi-family rental housing for moderate and low income families across the nation. Developers depend on the equity generated as a result of the incentive provided by the tax credits to fill project financing gaps. In the current financial crisis, credit is tight, and as a number of traditional equity investors have left the market, the value of tax credits have plummeted. The result is that as many as 1,000 projects containing nearly 150,000 units across the country are on hold.
The Treasury and HUD programs will help jumpstart the market for construction of affordable housing by providing these combined $5 billion in funds for states to finance the acquisition and construction of buildings for affordable housing, which will create thousands of jobs in the construction and specialty trades sectors, from laborers to architects and engineers around the country. The funds will also provide housing for a broad cross section of individuals and families affected by the downturn of the housing market.
For more information, visit www.treasury.gov or www.hud.gov.
By Ilyce Glink, Thursday, April 23, 2009.
With 30-year interest rates well below 5 percent, and 15-year interest rates between 4 percent and 4.5 percent, it's time to start seriously thinking about refinancing your mortgage.
But before you high-tail it to the nearest mortgage lender and fill out a mortgage application, there are eight things you should do:
1. Check out the interest rate you have on your current loan. When interest rates dip, the natural inclination is to start filling out loan applications left and right. But too many times, homeowners are focused solely on the new interest rate instead of how much they'll save by refinancing. While you may get water cooler-bragging rights, you should refinance only if it's going to save you money.
2. Find out how much your home is really worth. There's no way to sugarcoat it: Home values have sunk around the country an average of about 20 percent in the past year. In some places, such as Las Vegas, Miami, Phoenix and the San Francisco Bay Area, the decline has been twice as steep. It's vital to assess whether your home still has any equity (the difference between what you owe and what the home is worth) or if you are "underwater" with your mortgage (meaning that you owe more to your lender than the property is worth. Whether you have equity will determine what kind of refinance is open to you.
3. If you're underwater with your mortgage, assess how far underwater you are. While federal requirements have changed with regard to refinancing loans owned or serviced by Fannie Mae, Freddie Mac or FHA, if your loan is more than 105 percent of the value of the property, you may not be able to refinance without bringing cash to the table. (You may still be eligible for a loan modification, however.)
4. Get a copy of your credit history and credit score. Since the credit crisis began, lenders have raised the credit scores required to get approved for the best loan programs and best interest rates. The best place to go for a copy of your credit history and credit score is AnnualCreditReport.com. It's the only place where the three credit reporting bureaus provide a free copy of your credit history each year, plus you can pay $7.95 for a copy of your credit score. Choose the Equifax credit score, since it's the one closest to the score used by most lenders. (You can also go to MyFico.com, and purchase your credit history and FICO score for $15.95. You may also find their online community to be helpful in terms of suggestions on how to raise your credit score.)
5. Start identifying potential lenders. Shopping around for a loan takes a little more planning and effort than it used to, as lenders have jacked up the fees they charge to underwrite and process the loan. Your best bet is to talk to a national lender, a credit union (if you belong to one or can join one), a local mortgage broker (call your real estate agent if you don't know one and ask for several recommendations), and perhaps an online lender.
6. Find out if your second lender will subordinate to your first lender. If you have a first and a second mortgage (also known as a home equity loan), find out whether the second lender will subordinate to the new first lender. That will allow you to refinance your first mortgage, while leaving your second loan in place. Many second lenders will not agree to this, and if yours doesn't, you may not be able to refinance at all unless you pay off the second loan. One possibility is to refinance your first mortgage with the lender who owns your second loan.
7. Focus on the big picture, not just the interest rate. While the interest rate you'd get is important, it's also important to calculate how much you'd pay in fees, and how long it will take to pay yourself back the cost of the refinance with your monthly savings. For example, if you're going to save only $50 per month, and it costs you $5,000 to refinance, it'll take you 100 months -- or more than eight years -- to pay back the cost of doing the loan. You won't start saving until well into the eighth year of paying down the mortgage. So, unless you're cutting the term of the mortgage significantly (going from a 30-year to a 15-year), or you're able to pay off the costs in a relatively short period of time (say, less than a year or 18 months), it may not pay to refinance.
8. Get your paperwork together ahead of time. Before the housing crisis, you could almost do a refinance over the phone. In fact, you could call the loan officer you worked with regularly and put in your order for a refinance. You could do a no-cost refinance without providing much in the way of proof of earnings, or account statements or copies of tax returns. The forms would be delivered to your home, and then you'd sign them and send them in. Today, you've got to have your paperwork in order before you can refinance. Gather your W-2, a current paycheck, copies of your last two federal and state tax returns, copies of your bank accounts, retirement accounts, and other assets. Then call the lender.
***
"Reprinted with permission of Inman News"
SHOULD you care about how much money your appraiser makes?
That question is at the heart of a dispute in the mortgage industry, pitting independent appraisers against established banks, which in recent years have built vast networks of affiliated appraisers, through appraisal management companies.
Appraisers who work on behalf of these companies typically receive less pay than those who do not. Some appraisers say the lower fees mean consumers are less likely to get a high-quality appraisal, which could jeopardize their loans.
It is a claim with which banks strenuously disagree. “Obviously, it’s in a lender’s best interest to have the most accurate appraisal possible,” said Terry Francisco, a spokesman for Bank of America, “and it’s in the homeowner’s best interest, too.”
Borrowers, though, pay the same amount no matter who orders or conducts an appraisal. In the New York region, for example, an appraisal of a single-family home will cost around $300 to $500. But independent appraisers say that when a big bank orders an appraisal, it typically pays the appraiser about $200 of that fee and pockets the rest.
Mr. Francisco of Bank of America would not disclose the compensation of the bank’s affiliated appraisers. The bank employs 700 staff appraisers and relies on another 10,000 independent appraisers to do work on its behalf. All of the appraisers, Mr. Francisco said, are licensed and certified, and their work is inspected to ensure they comply with professional standards.
But that may not be a sufficient proxy for local market knowledge, said David Adamo, the chief executive of Luxury Mortgage in Stamford, Conn. Over the last several months, he said, he has seen appraisal management companies offer the work to low bidders and hire appraisers “from two counties away from the subject property.”
“They’re in a county they’re not familiar with, so they’ll use comparable sales from inferior or superior markets than the one the subject property is located in, just because it’s in the same town limit,” he said.
In some cases, he said, a home’s true market value might be underestimated. “And that prevents homeowners from refinancing, and saving money in today’s low interest rate environment,” Mr. Adamo said.
Zachary Kimmel, an owner of William Paul Appraisals in Tarrytown, N.Y., performs appraisals for big banks and smaller lenders and brokers who do not use appraisal management companies. He would not disclose how much he is paid, but he said appraisal management companies generally pay $200 per assignment. “Most of the mortgage work now goes through the big banks and appraisal management companies,” he said, “so now the lion’s share of our work is this cut-rate kind of thing.”
But appraisals have become more complex, Mr. Kimmel said, given the declining housing market and new requirements from Fannie Mae and Freddie Mac, the government agencies that buy mortgages from lenders. He said the increased work and the decreasing compensation could eventually affect the quality of appraisals industrywide.
Broad efforts, meanwhile, are being made to protect homeowners during the appraisal process.
As a result of an agreement last year involving Fannie Mae, Freddie Mac and New York’s attorney general, Andrew M. Cuomo, lenders selling loans to Fannie and Freddie must follow stricter guidelines starting in May to ensure that people involved in processing loans do not also choose appraisers. A lender’s in-house appraisal company may still do the work, but only if that appraiser is chosen by someone not helping to evaluate or underwrite the loan.
In the meantime, Mr. Adamo of Luxury Mortgage, said borrowers should ask prospective lenders pointed questions about how they select appraisers.
Program offers up to $5,000 cash to qualified first-time home buyers
The New Jersey Housing Mortgage Finance Agency (NJHMFA) is offering cash payments of up to $5,000 for qualified first-time home buyers to help defray closing costs or satisfy down payment requirements and help new buyers to get into the housing market.
The loan, offered as part of NJHMFA's "Prefund" program, would function like a cash advance against the $8,000 tax credit being offered to first-time buyers who purchase a home between April 8 and December 1 of this year. In its simplest terms, purchasers would be provided with the payment as a loan and would be required to repay the advance when they receive their federal tax credit.
"This is a powerful incentive that will allow potential first time home buyers to actually enter the market because this cash advance will help them meet down payment requirements or pay for closing costs that might otherwise be an obstacle to a first-time buyer," said Jarrod C. Grasso, RCE, executive vice president of NJAR®.
The cash advance is available to first-time home buyers who:
View the full details of the NJHMFA's First-Time Home Buyers Tax Credit Loan Program (TCLP).
Before I start let me state “ All real estate like politics is local”, what may be true for my geographic area, might not be so in other areas.
As an appraiser I note REO (Real Estate Owned, by bank or other creditor) activity in the market area, while the effect of REO/SHORT sales should be considered in the valuation process, it should be assigned least weight as this REO activity does not significantly impact value of properly marketed, move in condition dwellings. The typical REO or SHORTsale in this market will suffer moderate to severe deferred maintenance, may require extensive repairs and modifications to be made by prospective buyer prior to taking title in order to qualify for certificate of occupancy, or satisfy mortgage financing requirements, and cannot get homeowners insurance if it is to be unoccupied during renovations.
The typical buyer of these reo dwellings is a contractor or professional real estate speculator/operator able to close title with a cash sale, seeking to rehab and resell at profit. Other potential buyers would be “a handyman” someone with the ability, and willingness to move into a home and plan on the next year or so of making repairs and remodeling, trading sweat equity for a considerably below market price.
The generation that was willing to do that is pretty much moving on to assisted living centers.
Today’s generation buyer wishes to move in over the weekend, then send their kids to school, and drive off to work on Monday.
I await your thoughts.
Ask any good mechanic, and they will tell you to use the right tool for the job.
More sales associates are preparing broker price opinions, but when third parties are involved, you open yourself up to new liabilities. Here are the top risks you need to know about.
1. Not having a policy. Your broker should have a policy that spells out when it’s appropriate to prepare a BPO, what you can charge, who handles the fees, and who keeps records. Not having a policy is risky for you and your broker because state law could impose a penalty if BPOs are prepared improperly or mischaracterized. A BPO fact-finding group in Nevada found that in most cases, real estate professionals were preparing and getting paid for BPOs without their brokers even knowing about it. "There was no record-keeping," says Pamela Kinkade, a member of the Nevada BPO task force. "And that’s a big part of our law."
2. Using the wrong terminology. Appraisers determine property market value; sales associates preparing a BPO determine a recommended property price. Make sure that third parties aren’t calling your BPO a "market valuation," which is the work of appraisers.
3. Breaking state laws. State regulations governing BPOs vary greatly. Nevada, for example, permits real estate licensees to prepare BPOs for clients only in a sales transaction. Many states don’t allow fee-based BPOs. Some states require that BPOs include a disclaimer that they are not appraisals and are not to be used for lending purposes. Certain laws also require that only appraisers provide an opinion of market value, and that BPOs must be limited to determining a purchase or sales price. Be sure to investigate what’s legal in your state.
4. Being uninsured. If your E&O policy doesn’t specify that it’ll cover liability for BPOs, get a policy that does. "Most brokers have no coverage for liability arising out of the purpose for which the BPOs are being done," says Kinkade.
WHERE DOES IT SAY ANYTHING ABOUT THE DANGER OF GETTING VALUATION SERVICES FROM THE UNQUALIFIED, UNLICENSED, UNINSURED ?
Oh, one more thing in my state NJ, it is illegal for a real estate salesperson, or broker to prepare a BPO for any purpose other than setting list price.
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