The latest on help with refinancing, how to avoid foreclosure, interest rates and more
According to Interest.com's latest national survey of home equity rates, the average cost for a $30,000:
- Home equity loan climbed to 7.96% from 7.94%, where it had held for four weeks. But it had been edging down for the previous seven weeks. It is up almost one-fifth of a percentage point from 7.79% one year ago, and much higher than the 7.06% of two years ago.
- Home equity line held at 8.17%. This rate is one-fifth-point higher than the 8.07% of last June. Two years ago you could get a HELOC at 6.24%.
You can check here for home equity loan rates in your area.
New Jersey is the latest state developing a refinancing program to help homeowners trapped in unaffordable, high-cost loans save their homes.
The program is called "Rescue" and hopes to have enough money to refinance 300 homes with 40-year, fixed-rate mortgages.
Homeowners who earn up to 140% of their countyâs median income will be eligible for that help. How much the loans will cost has yet to be determined, but the state hopes to have its program up and running by July 1.
A report by Credit Suisse suggests that lenders have been taking more risk -- perhaps too much risk -- with borrowers whose credit is just a step above subprime.
Referred to as Alt-A in the lending business, these are home buyers have credit scores of 620 to around 680 or 700 and accounted for 20% of all home purchases last year, up from 5% in 2002.
The study found that more than half of Alt-A buyers borrowed the full purchase price of their home, making little or no down payment. More than a quarter of all Alt-A loans carried a one-year teaser rate that will begin rising this year, pushing monthly payments up as well.
That goes a long ways toward explaining why the percent of delinquent Alt-A loans has more than doubled over the past year.
Twenty-nine families in Missouri have sued Ameriquest Mortgage Co., accusing the California-based lender of abusive sales tactics.
The suits say that Ameriquest lured them into refinancing their homes by promising them they could get better rates, a lawyer involved with the case told the St. Louis Post-Dispatch.
But after the new loans were finalized the families found they owed thousands more because of prepayment penalties and other fees, and their interest rates went up, not down.
One plaintiff, Harold Bowyer of Festus, refinanced a $107,100 mortgage with a 7.7% interest floor and a 13.7% ceiling. He was told the new loan would have an interest rate of 6% or 7%.
After the after the new loan closed, Bowyer learned that the amount he owed had risen to $122,550, including $6,519 in fees. The interest rate floor was 10.15% and the ceiling was 16.15%.
We'll be doing a little less remodeling this year according to the National Association of Home Builders.
That's not surprising. Americans have been pouring money into their homes, spending an additional 8% in 2005 and 6% in 2006. This year the association says we'll add only a little more to that amount. So little, in fact, that spending will actually fall 1.5% when adjusted for inflation.
Kermit Baker of the Joint Center for Housing Studies at Harvard says homeowners are worried that stagnant or falling home values mean they won't get their remodeling dollars back when they sell later.
"They don't want to over-invest relative to neighboring house prices," Baker says.
Lenders are constantly promising to help homeowners struggling to make their mortgage payments. But how helpful are they when borrowers call? We've seen conflicting accounts.
Bethany Sanchez, director of community and economic development for Metropolitan Milwaukee Fair Housing Council says consumers she works with are constantly complaining about hostile loan servicers.
"Servicers are being recalcitrant and not helping borrowers work through their issue," Sanchez tells the Milwaukee Journal Sentinel.
But when Ed Hauser lost his job, his lender temporarily cut his payments in half.
"They were absolutely fantastic with working with me," Hausauer told the Buffalo News. "They presented a plan and if I was unable to do it, they would come up with another."
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We're still taking cash out of our homes at a significant rate.
Freddie Mac, the government-chartered corporation that buys loans from banks and mortgage companies, says 82% of homeowners who refinanced from October through March, borrowed at least 5% more than they owed on their old mortgages.
Homeowners who took money from their homes over the past six months had seen their property about 25% since taking out the loan they're replacing.
Cash-out refinancing has become a more popular way to tap home equity since home equity loans became so expensive -- they're currently averaging around 8.25%, far more than a new 30-year fixed-rate mortgage, which is averaging 6.2%.
Many banks and mortgage companies aren't sitting back and waiting for customers to default. They're calling or writing letters at the first sign of trouble with offers to rewrite unaffordable loans.
EMC Mortgage Corp., a subsidiary of Wall Street bank Bear Stearns, has received the most attention since the creation of a 50-person team of loss-mitigators and workout specialists dubbed the "Mod Squad."
Named after a hip crime-fighting drama from the late '60s, it plans to work in dozen of cities with individual borrowers, credit counseling agencies and community groups. It will offer everything from lower interest rates and refinancing to new payment plans that allow borrowers to makeup missed payments over a number of years.
Other lenders may be just as flexible if homeowners struggling to meet their payments will call and ask. It's never too early. The best time to call is before you miss a payment.
One idea for how the government can help homeowners facing foreclosure has come from Lyons McCloskey LLC, a loss-mitigation firm. And it seems to be getting a lot of attention in Washington and the financial community.
Lyons McCloskey says borrowers on the verge of losing their homes should be refinanced into government-guaranteed, fixed-rate mortgages at the same interest rate they'd pay any bank or mortgage company.
Rather than starting with how much the homeowner owes and then calculating the monthly payment, these loans would be based on the monthly payment each borrower could afford. The balance would be adjusted to reflect their ability to repay it.
The difference between the old mortgage's balance and the new one's would become what's called a "soft" second mortgage with little or no interest and no monthly payments. Most borrowers would not pay it off until their homes were sold.
The National Association of Realtors recently revised its projections for home prices. The Realtors first predicted the median sales price would rise about 1% this year. But now the association says it will fall 0.7% from $221,900 in 2006 to $220,300.
If that proves to be the case, it will be the first time home values post a year-over-year decline since the Realtors began keeping those stats in 1968.
But are the Realtors still being too conservative? Economist Edward Leamer, the director of the University of California, Los Angeles' Anderson Forecast thinks so.
He predicts the price of existing homes will decline between 2% and 3% this year, and expects that trend to continue for two to three more years.
With high-cost subprime mortgages harder for people with poor credit to obtain, Leamer says, "you're eliminating 20 to 30% of the demand for homes."
If you own an apartment or patio home in a community that depends on everyone paying their fair share for essential maintenance, you should know how many of your neighbors are falling behind on their monthly fees.
The growing number of homeowners struggling to keep up with their mortgages is also more likely to fall behind on their condo or association dues.
Take, for example, the Glen Waye Gardens condos in Silver Spring, Md. Twenty one of the 214 owners are more than 30 days behind on their monthly fees. Two have not paid since they bought their units, one in April 2005 and the other in September 2006. Both properties went into foreclosure.
The lost fees, which make up 5% of the association's annual budget of $1.3 million, have pushed the condo board to dip into its reserve funds to fix the roof and replace a water heater.
"When those things go bad, you have to spend on them. You have no choice," Vicki Vergagni, president of the community's board, told the Washington Post. "We've had to use way too much of our reserves."
When foreclosed homes hit the market at a discounted price, they can drag down property values all around them.
That's just one reason every homeowner should be worried about the number of foreclosures in their neighborhood and the potential fire-sale prices lenders will ask for them.
"They are cutting prices, but so far not a lot," Connie Zetterlund, a residential agent who specializes in sales of foreclosed homes, tells the Dallas Morning News. "But because of what is in the pipeline, I think we will be seeing some price cuts."
"When a neighborhood has so many foreclosures, they have to do something to sell the properties."
Indeed, James Gaines, an economist with Texas A&M University's Real Estate Center who tracks housing markets in the state, says "the price impact will start showing up this year.
"In subdivisions where foreclosures may run as high as 20% or more, we can anticipate not just a slowdown in price increases, but price declines and perhaps significant -- greater than 5 percent -- price declines," Gaines says.
Nevada has one of the nation's highest foreclosure rates because its lax laws and fast growth have attracted so many unscrupulous lenders.
As a result, there's no shortage of victims ready to support state legislators who want to make mortgage fraud a felony.
The Las Vegas Journal-Review says Carol Wolff sobbed as she told a hearing how she fell behind in her mortgage payments and ended up signing a contract with a lender who promised her another loan so "I could save my house."
In reality, the "mortgage consultant" secured title to her home, made her sign a lease and then kicked her out when the lease expired.
Daniel Ebihara, a lawyer with Clark County Legal Services, said what happened to Wolff happens all the time in southern Nevada.
"It's lies, fraud and misrepresentation," he said. "They learn how to do it in get-rich seminars held in hotel ballrooms. They get people to knowingly or unknowingly convey title to them by telling the people they will save them from foreclosure. No one is ever saved."