Mortgage Rate News

One of the more interesting housing market trends that is becoming visible as unemployment continues to grow, and things move slowly toward recovery is the fact that foreclosures are moving up the housing market scale. We’re beyond the point where most of the foreclosures where subprime loans were made to people who maybe couldn’t really afford homes. Now we’re into prime loans, where those facing foreclosure are at a different place in the housing market. These are folks who were, by and large, responsible with their decisions, but are now in trouble due to economic factors.

Indeed, the Wall Street Journal pointed out that this past June, 30% of homes were in the top third of local housing values. Three years ago, only 16% of those homes were in the top third of the housing values. WSJ goes on to report on how this might cause problems in a housing market that has been stabilizing:

The report shows that foreclosures, after declining earlier this year, began to accelerate in the late spring and that more expensive homes have more recently accounted for a growing share of all foreclosures. “The slope of that curve in recent months is much sharper than it was recently,” said Stan Humphries, chief economist for Zillow. Rising foreclosures among more-expensive homes could create added pressure for a housing market that has shown signs of stabilizing in recent months as sales of lower-priced homes pick up.

The bottom line is that employment needs to show substantial improvement before the housing market can truly begin recovering in any solid and sustainable way. This is part of the reason that there is a debate over extending the first time home buyer tax credit — and maybe expanding it. There is concern that without government help, the economy won’t be able to sustain the gains made so far by the housing market.

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Even though there are signs that the housing market is stabilizing, there are still a great many people in danger of foreclosure. If you are trying to figure out how you can stave off foreclosure, you might consider loan modification. Under the Making Home Affordable plan, there are provisions for those who are interested in saving their homes through loan modification so that they can afford their mortgage payments. Here are some of the requirements to qualify for a loan modification under making home affordable:

1. Housing costs must exceed 31% of your income. This is your income before payroll deductions. Housing costs include mortgage payment, homeowners insurance, property taxes, condo fees and other similar costs.
2. 3 month trial period. The new payment, which is adjusted — using interest rate deductions or loan term extension — so that it is 31% of your income or less, gets a trial run. If you make the new payment on time, then the payment is locked in for five years. Mortgage lenders can’t raise the rate any more than 1% per year. The rate caps out at the prevailing market rate at the time of the loan modification.
3. Unpaid principal less than $729,750.

Loan modification can be a great tool for those who are experiencing temporary difficulties, but are trying to get things back in train. It is important to realize, though, that loan modification will do little for those who couldn’t really afford their homes in the first place. Once the five years is over, home owners may find themselves in the same place. Loan modification works best for those who could afford their homes originally, but fell into difficulty due to the economic climate.

In the end, you will have to prove that you can make the new modified payments. In some cases it just won’t work. But for those who can use a loan modification to ride out the economic troubles and get back on their feet, this may be just what is needed.

As one might expect in these economic times, as people become desperate for help, scams are popping up all over the place. There are foreclosure prevention scams, in which the unscrupulous take money from the unsuspecting and promise to help them halt foreclosure, and there are a number of other scams at work. With all the attention lately on loan modification, it is little surprise that scams related to this practice are also on the rise.

Paying fees for loan modification

There are “companies” that offer to help you negotiate a home loan modifcation with your mortgage lender. You pay high fees (sometimes close to $2,000), and the company claims that it will help you save money — and your home — through home loan modification. However, many of the companies do no such thing. They reel in desperate homeowners, collect the fees, and then disappear. Homeowners are left in the same place, but with even less money to work with as they try to save their homes.

If you are interested in getting a home loan modification, you should consider visiting the Web site of Consumer Credit Counseling Service. This organization helps people figure out if they qualify for federal programs, and then offer some help when it comes to home loan modification and refinance. You can also go straight to your mortgage lender. Government incentives aimed at encouraging mortgage lenders to help homeowners — not to mention the concerns over foreclosure — are making these lenders much more amenable to loan modification and refinance.

In the end, you should be wary of companies that promise to help you for an upfront fee. Mortgage lenders may charge loan origination fees and closing costs for a refinance or loan modification, but these are not usually required to be paid up front; many lenders will roll these costs into the new terms of the loan.