“…if mortgage rates don’t come down, home prices need to decline by 20% in order to reach prior affordability levels. IF rates do come down, home prices will drop less…While the Fed may be willing to allow U.S homeowners to suffer a little pain as indeed they have in recent quarters, a double-digit decline would risk consequences that few central banks would be willing to underwrite.” Bill Gross, April 2007

The recent bailout by Hank Paulson and Ben Bernanke WILL NOT WORK.  It doesn’t even begin to address the main reason why we are in this crisis; Housing prices have been dropping for 3 years.  In fact, the day after the bailout was introduced, mortgage rates increased from 5.375% to 6.25%, GREAT JOB GUYS!  

The other Government bailout plans “Hope Now” and TARP will not do much either.  Most of these plans encourage homeowners to stop making their mortgage payments. I am not kidding.  To qualify for a loan modification through these programs, you must be at least 2 (preferably 3) months behind on your mortgage.   Most borrowers in a position of limited or negative equity come to the realization that since their credit has been ruined by the missed payments, why bother keeping the house?  The goal of ANY mortgage bailout plan must be to help borrowers before they miss a payment. 

The solution to the current housing problem is the creation of a mortgage “superfund”.  The mortgage fund will be similar to Fannie Mae and the loans will be secured by the U.S Government. 

The Plan

-Borrowers will be able to transfer their current loan into the “Mortgage Superfund” regardless of loan-to-value. No cashout allowed.

-Mortgage rates will be fixed at 4.75% for 7 to 10years. Payments will be interest only. Loan Limit increased to $800,000

-Underwriting handled by Fannie Mae/Freddie Mac

-Purchas loans will also qualify.  Investment properties limited to 2 per borrower (3 properties total).

-Mortgage interest will not be tax deductible for those subscribing to the plan.

Example:

On a $300,000 loan at 6.50%, the payment would be approximately $1896 (P&I).  By converting the loan to an interest only at 4.75%, the payment would drop to $1187. Without dropping the principal balance, we managed to save this borrower $709 per month.  

This plan would increase home sales and save millions of homeowners from being foreclosed on.  Within months, home prices would stabilize and banks would feel comfortable lending again.  It may not even cost the Government anything, in fact, the Government could end up making money on the deal.  Since the Government took over Fannie/Freddie, it could be implemented TOMORROW…..What are we waiting for???  

As different as night and day!

Defined:

No Cost - No origination fees or discount points AND the broker pays ALL closing costs including the title, appraisal and bank junk fees.  The broker pays all the closing fees out of the Yield Spread Premium (Commission) paid to the broker by the bank. 

No Out of Pocket Expenses - In this transaction, the broker “rolls in” the origination points, discount points and all the title and bank fees.  This loan authorizes the broker to charge the borrower as much as they can for the loan.  Borrowers typically spend 3 or 4 years just paying off the fees. The borrower doesn’t have to cut a check up front, instead they finance them over the term of the loan.

Over the years, we have received thousands of calls from borrowers confused over the difference. Unfortunately, when they hear “no out of pocket” , they assume “no cost”.  Often, they don’t find out the difference until they get to closing. For example, we recieved a call today from a borrower that was promised a decent rate.  When asked how much the loan was costing her, she didn’t know.  Hey, it’s no out of pocket!  It seems absurd to me.  Would you go to a furniture store, pick out a couch, have it delivered to your house, and then ask how much it costs?  Obviously not. 

So, be careful, get a Good Faith Estimate UP FRONT and review your new loan amount.  Find out EXACTLY how much the loan is costing you and make sure it still makes sense.

There is a lot of confusion in the marketplace regarding whether a borrower is better served going to a mortgage broker or going to their bank.  The answer is simple…it depends.

So, the question you need to ask yourself is this, “Do I know which bank is currently offering the lowest rate in the Country?”  If the answer is no, call a mortgage broker or two.  Steve Walsh
The Mortgage Maniac

Watch the talking heads of any financial news network and you can’t help but notice that for every issue there are two sides, and for every prediction, there is one that counters it.  Predictions are really just educated guesses that can change on a dime when unexpected events occur. Don’t fall for their predictions, it can end up costing you thousands. 

-Steve Walsh

Mortgage Maniac