Mortgage Rate News

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One of the things that has many people steamed right now is the fact that, while personal bankruptcy is on the rise, big banks have been getting special help staying afloat from the taxpayers via the government. These policies started in the Bush Administration, and have continued in the present Obama Administration. However, Congress is trying to do something to prevent so much help going to prop up the financial system in the future. President Obama has been pushing Congress to engage in bank reform, but the deal is far from done — even as the House and the Senate wrangle about what should be done.

CNN Money offers three major points of controversy that could serve to derail bank reform:

1. Role played by the Federal Reserve: Here is what CNN Money reports about the difference in how the Fed is regarded:The House proposes stripping away the Fed’s consumer protection powers, leaving in place its banking regulatory powers. In fact, the House would make the Fed the principal overseer of financial firms tied to the global economy.

   The Senate, by contrast, would limit the Fed’s powers to mostly monetary policy. Sen. Chris Dodd, D-Conn., is proposing stripping the Fed of its banking regulatory authority and giving that power to a new consolidated agency.

2. What to do with companies that are “too big to fail”: This issue is an important one, since large companies found that they could avoid true accountability for their actions for being so large that their failure could bring down everything. Here is what CNN Money reports on how this might be handled:
   The White House and congressional Democrats want to create a mechanism for monitoring large financial firms, like American International Group (AIG, Fortune 500), and unwinding them with a new power called “resolution authority.”

   Both chambers would charge the Federal Deposit of Insurance Corp. with such unwinding. But some lawmakers from both parties are worried about giving such broad powers to the executive branch.

   A related - and contentious - debate is emerging over whether a government agency should have the power to break up companies that could threaten the economy before they do damage.

3. Consumer protection agency for finances: The White House wants an agency that oversees financial consumer protection in the case of financial products and services. Here is CNN Money’s take on this issue:
   The agency faces a more familiar problem for financial-related legislation in Congress: opposition from the minority party and big business. That push-back could be a deal breaker in the Senate.

   The agency would put new regulators in charge of keeping an eye out for consumers, while requiring more disclosure and scrutiny over some of the financial products, like mortgages, credit cards and auto loans, that contributed to last year’s crisis.

   A wave of populism propelled credit card legislation earlier this year. But Republicans are mostly united against the creation of the consumer agency, calling it an added layer of bureaucracy that could threaten bank soundness.

Clearly, there is going to need to be a delicate balancing act in order to make effective regulation that halts problems, but doesn’t cross the line of being overly restrictive to the markets.

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One of the more common occurrences related to mortgages is the need for Primary Mortgage Insurance (PMI). This is important to mortgage lenders who are concerned when you have less than 20% down. Some use a piggy-back mortgage to help avoid PMI, taking out a loan for 20% of the purchase price. While this piggy-back method can help you avoid paying Primary Mortgage Insurance, the higher interest rate charged on the piggy-back loan can sometimes negate the value, since the piggy-back loan is often for 3o years. (You can get rid of this loan by refinancing, paying it off early, or getting a shorter term on the piggy-back mortgage.) Before deciding that this is the way to go, it is best to run a few numbers and see whether getting a piggy-back loan would really result in a savings overall.

Here is what Investopedia has to say about PMI:

The PMI payment is usually paid monthly as part of the overall mortgage payment to the lender. Over several years of paying on the loan and once the borrower has paid enough towards the principal amount of the loan (to cover the 20%), they can contact their lender and ask that the PMI payment be removed. Many borrowers either forget or do not know that PMI can be removed once the accepted level is achieved.

It is a good idea to see where you stand every so often. While you may have to wait for an appreciation in home value to help you in your efforts, this is one way you can speed up the process. In the end, you should keep an eye on things, though, and make sure that the PMI payments are properly removed when you have enough equity in your home. The different can mean thousands of dollars saved over the life of your loan.

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Foreclosure definitely affects your credit score. Indeed, since it is such a huge loan, a form of credit, your mortgage can make a big dent in your credit score. If you lose your home to foreclosure, then you could see a drop of between 200 and 300 points. That is a huge ding — especially if your credit score was already struggling in the mid-600 range. Not only that, but a foreclosure will stay on your credit report for seven years.

In order to avoid having a foreclosure on a credit report, you might try to get your lender to agree to some other options, such as a deed lieu of foreclosure or a short sale. It is important to be careful in these instances, since there is still an impact to your credit score.

Deed in lieu of foreclosure

In this arrangement, you actually return the deed to the mortgage lender. You still lose the house — the lender owns it — but you are forgiven the balance of the mortgage. But when you negotiate this option, you will have to convince the mortgage lender not to report it as a foreclosure. Some lenders will report this as a foreclosure, and that will then impact your credit score. Even if your mortgage lender does not report the transaction as a foreclosure, if it has been preceded by months of late or missed payments, you will find that your credit score has been impacted by that.

Short sale

A short sale is when the lender agrees to let you sell the home for less than you owe on it. The difference is usually forgiven by the lender. Again, if you have late or missed payments as a result of falling behind, you can see damage to your credit score.

It is important to note that after any of these transactions, it will take two or three years before you can buy a home again.