ARM Ready to Re-set? What to Do

It is estimated that about 1.3 million sub-prime adjustable rate loans are due to re-set by the end of 2008. If you were a recent homebuyer who took advantage of low interest rates and are now stuck with either an option ARM or an interest only loan and your first rate adjustment is looming on the horizon, what should you do? Relief from your lender may be on the way as many of the lenders who are saturated with these loans fear that adjustments for a high percentage of these borrowers may result in REOs (foreclosures) on their books. Fortunately many lenders are now being proactive in working with borrowers who may be at risk to halt these adjustments before they occur. But as an adjustable rate mortgage borrower you must take steps to avoid potential problems yourself by being ready for the rate change that is coming. Many adjustable rate borrowers will be caught off guard by the increase in their mortgage payment, which could be as high as a 50% jump in some cases, don't be one of them. Here's what you can do now:

> Find out what index your adjustable rate loan is tied to. This is the variable or adjustable component of the loan. Refer to your copy of the loan documents, hopefully you have maintained copies, or you may contact your mortgage loan servicer to determine this information. Most adjustables are tied to some variation of the treasury index or the LIBOR (London Interbank Offered Rate) index. Then find out where that index currently stands.

> Next determine what the margin on your loan is. The margin is the fixed component of a variable or adjustable rate loan. Again refer to your copy of the loan documents or contact your mortgage loan servicer to find out this information.

> Adjustables do have either an annual interest rate cap (the best case scenario) or a payment cap (the worst case scenario). Interest caps usually run at either 2% annually or 1% semi-annually. If you have a payment cap, this is where negative amortization can come into play. If your payment cap does not permit you to amortize (or pay off) the loan, then the difference is tacked onto your loan balance and rather than declining gradually over time as one would expect, your loan size could actually increase from the original loan amount borrowed.

> Once you have both the index and the margin, you can add the two numbers together to determine your new interest rate. Then use the applicable loan caps referenced in your loan documents to determine the maximum amount your rate could change. You can use your current mortgage balance to calculate your payment using your own calculator or one of the many readily available mortgage calculators on financial or real estate related websites.

> Next comes the decision to accept the rate and payment change looming if you can afford it or you may want to consider refinancing if you intend to stay in the property for at least 4-5 more years. If you cannot handle the payment shock that is coming and selling your home is not an option, then your best course of action is to contact your lender immediately to let them know your status and allow them time to work out a new payment solution that will suit your income and will prevent your lender from having to take the property back as an REO and sell it at a trustee or foreclosure sale.

Mortgage Market: Subprime Mortgage Reports Show Increasing Troubles

This year has been a year of ups and downs for the housing market. In our continuing series, we chronicle news affecting the housing market and its major players.

A flurry of news this week suggests that the eventual toll of the subprime market collapse could reach much farther than anticipated, or dreaded.

Bank of America announced a drastic personnel cut of 3,000, along with a replacement in the C-suite. In addition to the layoffs, the bank also reported its net income declined $1.18 billion dollars, or 82 cents per share.

Merrill Lynch, the storied brokerage firm, reported its first quarterly loss in almost six years. The company lost $2.24 billion, or $2.82 a share. Revenue fell a staggering 94 percent, down to $577 million from $9.83 billion last year.

Existing home sales took a tumble in September, marking the worst housing industry slump in 16 years. The National Association of Realtors said sales fell 8 percent, while industry watchers had expected a 4.5 percent decline.

Analysts point to the turmoil that hit markets in August as the leading factor, resulting in a drying up of jumbo mortgages ($417,000 or more) crucial to high-cost areas such as California.

The seasonally adjusted sales rate translated to 5.04 million existing homes, the slowest pace on record. In addition, median prices dropped 4.2 percent from last year. The sales drop was the 13th sales decrease in the past 14 months.

Simultaneously, the National Association of Realtors announced an unexpected gain the sale of new homes. In September, these sales rose 4.8 percent. Analysts expected sales of new homes to fall 2.5 percent to be on pace with the August rate.

While the increase appeased some, many still pointed to the bad news: new home sales figures for September were still 23.3 percent below last year's rate.

With all these reports and announcements in mind, economists now say the mortgage market troubles could cost financial firms and investors up to $400 billion. The savings and loan crisis of the early 1990s, in comparison, cost financial firms and investors $240 billion (adjusted for inflation).

Make Sure Your New Home Purchase is a Perfect Fit

Source: Informa Research Services

Your home can say as much about you as your outfit. And just like shopping for a tasteful, classy wardrobe, shopping for a new home has its challenges. However, like choosing new clothes, there are a few helpful hints that will save you loads of time and trouble.

Choosing the Right Style
When choosing a mortgage, research the different types available and realistically consider which will fit your budget and lifestyle. Furthermore, gaining a complete understanding of precisely how the various mortgages work should help you make a better decision. For instance, even though the thought of lower monthly payments is tempting, unless you are anticipating a steady increase in your income over the term of your mortgage, an adjustable rate mortgage may not be the best option for you.

Furthermore, know your credit score and credit history. Months before you go look at any properties, check your credit history and make sure it is accurate. By federal law, you are entitled to a free credit report every 12 months from three designated consumer credit reporting agencies. These free credit reports can be requested by mail, phone, or the Internet through the Annual Credit Report Request Service (Source: annualcreditreport.com). If your credit history is less-than-perfect, you may consider consulting a credit counselor to help you manage and budget your finances to improve your credit score. You will find it troublesome to have to clear up inaccuracies on your credit report while trying to get approved for a mortgage for your dream home.

Finding the Right Size
Look for a home that suits both your family and your budget. Figure out how much you can afford and try to buy a property that is within your budget. The rule of thumb is that you should aim to spend about a third of your gross annual income on housing. Another way to figure out an approximate housing budget is to deduct your regular necessary expenses (such as food, utilities, car payments, etc…) from your gross income. This should help give you a good idea of how much you can afford to spend on monthly mortgage payments. You need to also remember that the cost of a home includes other costs such as maintenance and utilities which tend to correlate with the size of the home. Moreover, it might be wise to try to leave room in your budget to include saving for emergencies or other unexpected expenses.

The "Little Black Dress" of Properties
Lastly, despite the popular mantra of "living-in-the-moment," try to keep a property's future resale and equity in mind when looking for your new home. While a vogue home or location may be all the rage at this moment, choosing a classic, timeless home will pay off in the long run, especially if you intend on tapping into your home equity at a future date through a home equity loan or line of credit.

Buying and Selling Real Estate in this Market

Simply stated, if you are a buyer, you are now in the driver's seat in most markets across the country. And if you are a buyer who can put 10-20% down, along with having already obtained a mortgage credit pre-approval, then you are rock solid in the eyes of a seller. While it is certainly more difficult to obtain a loan approval today, if you have a credit score over 660, along with a job with good earnings ability, in addition to having money in the bank to cover both the down payment and reserves, then you are a seller's and listing agent's dream. The inventory of unsold homes is at record levels, which means a terrific selection of homes to choose from. For serious buyers this translates into lower prices due to little to no competition when making an offer as the days of multiple offers are long gone now. The primary caution for buyers is to be aware that home prices are unstable and might not have hit bottom in many areas yet so buying for the short term (of less than five years) is not advisable. As prices may be expected to continue to decline, it is best to find a seller who is willing to negotiate. If you are working with a buyer's agent then it should not be difficult to determine the concessions which have become commonplace in the market or area you are looking to purchase in. Of course individual sellers are not the only ones willing to negotiate today, perhaps no one has had a tougher time coping with excess inventory than builders. As all tides seem to have risen and now fallen together nationally, builders with nationwide exposure are feeling the pinch on many different fronts. Lastly, if you were a recent buyer who acquired your home before the explosive 2006 market year, then you may not be in for the dip in value that many of the 2006-07 buyers may be facing. So hopefully you were a buyer for the long run and not one of the notorious, now ill-fated, flippers who hoped to cash in and then cash out quickly. If you purchased your home as your primary residence with the intention of occupying it for the foreseeable future, you should likely come out of this market just fine as long as you can safely make your mortgage payment(s).

As for those hoping (or worse having) to sell their homes, they are in for a tougher road today. Accepting this fact is the first step in making progress towards a sale, that is having truly realistic expectations of where prices are and how you should begin to list the price of your home. In many markets across the country it is expected that if you need to sell your home in three months or less, then you'll need to deeply discount the list price at least 10% to 20% below comparably listed homes in your area. So in essence if you need to move quickly it's going to cost you and you must be prepared to accept this. Because the best chance of selling your home is during the initial listing period, it is essential that you get this part right. There are far too many other listings available now for buyers to consider and if you don't price your home correctly from the start, buyers might not be willing to come back and take a second look at your home sometime down the line when you've come to your senses and realistically re-priced it. As loans have become more difficult to obtain in the post sub-prime environment, when you have an interested buyer who has money for both the earnest money deposit, along with the required down payment, you would be foolish not to seriously consider the offer of each and every qualified buyer. In today's real estate market even the previously immune high-end luxury homes have been greatly impacted because of the drying up of investors in the jumbo or non-conforming market. This is an unfortunate by-product of the sub-prime implosion which has scared many investors of mortgage-backed securities out of the market for the time being leaving only the so-called "A" paper conforming borrowers (those with credit scores 660 and over) with ample loan options available to them.

Mortgage Broker's Role in the Sub-Prime Loan Debacle

By: Cameron Street

Many in the mortgage industry admit to being caught off guard by the ferocity of what's occurred as a result of the meltdown in sub-prime lending, few predicted the global firestorm that has erupted and the fallout continues almost daily. Having been a mortgage broker in California for many years I'll be the first to admit that the reputation of the mortgage broker is parallel to that of the notoriously disrespected used car salesman. Luckily I've had the good fortune of working with extremely competent mortgage professionals who were in the business as a career and in it for the long run and not just to make a fast buck and then exit the industry when it cycled into a slowdown. With real estate being the type of referral business it is, the mortgage brokers I've known personally wanted to do a good job for their clients because they wanted the return business and more importantly they wanted clients to refer their family, friends and co-workers. Leading up to the implosion which occurred, most mortgage brokers I know believed that a day of reckoning would ultimately come and everyone seemed to recognize the outrageous risks that were knowingly being taken on, however the mortgage broker, just like the used car salesmen, is a middleman and while blaming the middleman may seem like directing frustration onto an unpopular and a deserving target, this could be impractical and might be counter productive to a real solution.

There are several fallacies in placing the blame primarily with the mortgage brokers. First you cannot paint all mortgage brokers with the same brush. All 50 states have different laws regarding the regulation and licensing of those in the mortgage industry, in fact some states have no licensing requirements for mortgage originators at all. Therefore it is difficult to blame them as a group because the profession varies so dramatically from one state to another. It is also important to point out that the two states in the country that currently have the highest rates of foreclosures have consumer protection laws which are polar opposite of one another. The largest state on the west coast, with the highest rate of foreclosures, is thought to have very strong consumer protections in place and the mid-western state, falling into second place, is considered to have about the weakest. So it appears that finding consumer safeguards the area that was lacking may be misguided as well. Most helpful might be to start by examining the basic economic fundamentals of supply and demand as well as reviewing the common denominators that existed within the sub-prime marketplace.

First where did the supply of the sub-prime loans come from and why would any lender want to finance such risky loans? The primary reason why is because the lenders had investors who were willing to take on the risk in exchange for a higher yield or return. If investors were knowingly willing to take on the risk of buying these bundled sub-prime mortgages as mortgage backed securities (referred to as Collateralized Debt Obligations or CDO's) because they were willing to accept the trade off of greater risk for higher yield, then lenders were willing to make these loans as long as they had a market where they could sell them. It is also thought that the agencies assigned the task of rating mortgage-backed securities may have played a significant role in this mess by not accurately evaluating the risk levels associated with these mortgage-backed investment vehicles. These agencies are now being compared to the public-accounting industry and the problems a few years back which contributed to corporate disasters such as Enron. As time passes we’ll see what comes to light and what direction this argument takes.

Next let's examine the underwriting guidelines of the lenders who both underwrote and funded sub-prime loans. Lending guidelines amongst large national lenders are somewhat standardized in various markets throughout the country. Inherent in the word "guideline" is that lending principles were developed and implemented by both a lender along with knowing and willing investors who agreed to buy these loans on the other end to free up more capital for the lender or mortgage banker. It is important to note that a mortgage broker does not normally fund loans and requires a wholesale lender or mortgage banker to perform the lending functions of underwriting, funding, selling and arranging for the servicing of the loans they originate. A mortgage broker is as a loan originator, which means they perform the so called upfront lending functions of advertising and marketing to potential buyers and homeowners interested in refinancing and then process loan applications for delivery to a mortgage banking or wholesale underwriter. From there the underwriter is the person whose job it is to evaluate borrower risk and adhere to the lender's and investor's stated guidelines. Technically a mortgage broker cannot decline a borrower's loan application, only an underwriter is permitted to do so. The system of credit scoring is another essential element of a loan which is supposed to serve as a standardized reflection of individual borrower risk and the decision to underwrite and fund the loans of low fico scoring sub-prime borrowers was strictly that of the funding lenders and their investors.

Next is the demand side of the sub-prime equation coming from the borrowers themselves. Admittedly I have seldom seen a borrower who wanted to purchase a home and was told no by one lender who simply did not move onto another lender until they got the "yes" they were looking for. Also, I have never met someone I would classify as a "stupid borrower", regardless of education level. Of course some borrowers are savvier than others but most who’ve entered the real estate market are smart enough to grasp the difference between a fixed rate and an adjustable loan. Wanting to participate in the American dream of home ownership, along with the expectation that real estate prices would always continue to climb, played a key role in motivating borrowers to get into homes they couldn't truly afford or worse, those greedy borrowers who attempted to purchase more than one home at a time, in hopes of "flipping" them and making a huge profit. As long as values and prices kept rising consumers were not complaining about lending guidelines being too lacking in restrictions. How many of the borrowers who purchased multiple homes claimed all were to be "primary residences" so they could secure the most favorable financing and tax treatment? And how many of the now defaulting borrowers put misleading or blatantly false information on their loan application in order to obtain a loan?

The critical flaw from a borrower's perspective regarding sub-prime loans is that unlike that of the prime lending arena, it is far more difficult for the sub-prime mortgage consumer to shop for a loan and to compare rates and programs. In many cases the rate is not definitively calculated until the loan is underwritten and all of the risk factors associated with the loan have been reviewed. This is where the consumer is left in the dark and the unscrupulous (or sleazy) mortgage broker could take advantage. If a borrower is unable to easily compare and confirm that the rate they are being offered is fair, this puts them in a dangerous blind spot where a mortgage broker can abuse an unsuspecting borrower by making thousands, in some cases ten of thousands, of dollars from a single loan. Mortgage brokers making five figure commissions on conforming loan amounts should be seriously called into question and forced to justify such seemingly usurious practices. Note that mortgage brokers are required to disclose their commissions on the mortgage lending disclosure agreement which regulations require to be presented to a borrower within three days of receiving a loan application. However the problem inherent in sub-prime vs. prime lending is that sub-prime borrowers are not usually permitted to lock in their rate until the loan is approved and ready for loan documents to be drawn. This is due to the individual risk factor involved with each loan and the fact that a sub-prime underwriter may have to review a complete borrower file before determining the rate. This leaves a sub-prime borrower "rate vulnerable" in that the broker is left unchecked and may change the rate at the time the loan is ready to be locked and loans documents are ready to be drawn. In many cases dishonest brokers may have "pulled a fast one" on sub-prime borrowers at the time of loan closing by putting them into a higher interest rate loan (resulting in greater commissions to them) and then falsely blaming the rate change on the funding lender's underwriter. The only way a sub-prime borrower may be able to confirm they are receiving a competitive rate would be by applying for financing with more than one broker or lender.

Clearly this is a complex problem with plenty of blame to go around. However hastily pointing the finger at the mortgage brokers who originated these loans could be a gross oversimplification of a complex problem. The answer may be to make the sub-prime loan process more transparent so borrowers can confirm that the rate they are being offered is fair. In prime lending the interest rate is reduced to nothing more than a commodity because a borrower can easily shop rates and terms from one lender to the next and will also ultimately choose to close their loan with the broker offering the best rate and terms. Sub-prime borrowers need a level playing field of comparison to make rate and loan program decisions on their own, something they have had no way of doing. However having the ability to shop and compare prices would not have likely prevented the loan debacle from erupting. The flaw is with the loan programs themselves and this is something the mortgage brokers had little to do with but profited from generously, and in many cases shamefully.

The solution to eliminating the multiple problems in sub-prime lending, and with it the potential for abuse, may be to have the government mandate how the sub-prime lending arena functions under a system very similar to that of the way FHA and VA loans operate currently. This will standardize the process and potentially protect all parties to the transaction against elements of abuse. It is unfortunate that the competitive market forces allegedly at play in the private sector were unable to make this happen without the government's interference. Back to the used car salesman analogy, recall that in the automotive world they have "Lemon Laws" which protect new car buyers who get stuck with mechanically unfit vehicles. Perhaps the sub-prime borrower requires similar protection. This may be a safeguard refinance borrowers already have on their primary residence, which is the right of rescission, or so-called "cooling off" period, which occurs after the loan documents have been signed by the borrower, but before the loan can fund, so that consumers have a three day time frame to re-think the loan before the lender is permitted to request the loan funds. It may also be time for sub-prime borrowers to benefit from this added safeguard as well.



The information contained on this article is provided as a supplemental educational resource. Readers having legal or tax questions are urged to obtain advice from their professional legal or tax advisers. While the aforementioned
information has been collected from a variety of sources deemed reliable, it is not guaranteed and should be
independently verified. Copyright ©1999-2007 ERATE

Choosing the Right Mortgage Can Be a Thrill

Source: Informa Research Services

While the thought of paying off an entire mortgage may have your stomach flipping, either from excitement or nerves, choosing a mortgage loan can be a lot like choosing a roller coaster at a large theme park: exciting, a little daunting, and important to your future well-being and happiness. Like coasters and other amusement rides, mortgages come in a variety of shapes, sizes, and speeds to accommodate your personal taste and situation.

Choose the size of your adventure: teacups or colossus?
Even at the largest theme park, rides are offered in a variety of sizes from "kiddie" rides for the little tikes to the extreme coasters that push the limits of speed, gravity, and the adrenaline rush. Likewise, most financial institutions offer a variety of mortgages made to fit homeowner needs. These usually come in the form of conforming mortgages and jumbo mortgages. The main difference between these choices is that conforming mortgages are under the threshold (currently, $417,000 for a single-family residence) set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (more commonly referred to as Fannie Mae and Freddie Mac, respectively), whereas jumbo mortgages are over the $417,000 threshold.

Mortgage term: How long is your favorite ride?
Another factor that coaster buffs consider in deciding which coasters to ride is the length of the ride. Would you rather have a slow and steady five minute ride or an adrenaline-packed 30 seconds? Similarly, the term of a mortgage loan, or the amount of time over which you have to pay the mortgage loan back, should influence your decision. While longer mortgage loan terms allow you to have lower monthly payments, some people might prefer the financial and psychological comfort of paying off their mortgages more quickly despite the larger monthly commitments (i.e. a 30 year fixed vs. a 15 year fixed)

Speaking of monthly payments, consider your spending habits and abilities over the term of the mortgage. For instance, a balloon mortgage typically requires very low payments in the beginning, but the balance of the mortgage is due in full all at once. While the low starting payments may be tempting, be realistic about whether you will be able to pay off the loan in its entirety when it is due.

Are you ready for that 300-foot rise?
The most obvious and attractive features of coasters are the loops and the drop. Likewise, many people only notice the interest rates attached to mortgage loans, and with good reason. Interest only adds to your monthly payments and the overall cost of your home; thus, you should use resources, such as the Internet, to shop for the best mortgage loan interest rates.

Mortgage loans come attached to a fixed or variable rate (also called adjustable or floating rate). If the rate is variable, look at what interest rate caps are in place (both annual and lifetime). Interest rate caps can apply not only to the frequency and amount of interest rate changes, but also the total adjustment in the interest rate over the entire span of the loan.

Lastly, in making any financial decision, be sure that you understand the terms and conditions of the mortgage loan you decide to take. You can save yourself hundreds and thousands of dollars by simply understanding what is expected of you and what you should expect from the lender. Having this thorough understanding will ensure that you can enjoy the thrilling ride to homeownership.

Mortgage Market Woes: Latest Market Victims

This year has been a year of ups and downs for the housing market. In our continuing series, we chronicle news affecting the housing market and its major players.

In a year that's seen some of the financial industry stalwarts stumble and fall, two more high-profile lenders are now added to the list.

UBS, Europe's biggest bank, announced it will report a loss in the third quarter due to lost value of securities backed by mortgages, to the tune of over $3.4 billion. Their chief financial officer and the head of the UBS investment bank are stepping down. Worst of all, the company announced plans to cut 1,500 jobs.

The loss is UBS's first quarterly loss since 1998. It shows proof that larger, international lenders are increasingly not safe from the subprime mortgage crisis affecting U.S. markets.

Analysts expressed surprise at the news, as the consensus expectation was for the bank to remain profitable. Rival Credit Suisse Group reported a profit for third quarter even after damage from the credit market roller coaster.

Final third-quarter figures for UBS will be issued on October 30.

Citigroup, the largest U.S. bank by market value, also issued distressing news on Monday. The lender is estimating a 60 percent drop in third-quarter earnings due to losses from subprime-mortgage-backed securities. They're predicting losses of about $1.3 billion in this area, and will also record a loss of $600 million in fixed-income credit trading because of market volatility.

Final third-quarter figures for Citigroup will be issued on October 15.

The losses are raising questions about whether other banks that have yet to report third-quarter results will suffer, or whether these stumbles could be one-time occurrences.

Others are questioning whether third-quarter figures are flawed.

For example, Lehman Brothers and Goldman Sachs have reported better-than-expected quarterly earnings last month. But their reporting period includes June, the last month of relative peace before the major market downturn. Some analysts have warned that earnings of banks whose third quarter includes June may be inflated, and alternatively, those that exclude the third quarter may be hit hard.

Mortgages: Protect Yourself Before You Wreck Yourself

Source: Informa Research Services

At the end of August, the Bush administration called for a more detailed disclosure of mortgage loan terms and settlement costs. However, if one were to read the Federal Deposits Insurance Commission (FDIC) laws and regulations (because they are such a fun read and we all have that much free time on our hands), one might be surprised to find that many tools are already in place to ensure full disclosure of said details. So, how can you avoid being yet another cautionary tale of mortgage mishap? Here are a few helpful tips:

Educate yourself. According to the White House Press Release, President Bush and his administration plan on enforcing a number of programs to promote consumer mortgage loan education. The home buying and financing process is not a simple process, and since a home purchase is frequently the largest purchase most people will ever make, it is something buyers should definitely take the time to understand.

A common complaint among borrowers, particularly those who took out subprime mortgage loans, was that they did not understand the terms of their loan. Thus, this is why some see education as an effective tool in preventing an inflated level of default mortgages.

Another common complaint among mortgage holders was that the terms of their loan had changed by closing. Thus, these homebuyers ended up with mortgages and interest scenarios that were not ideal for them or their financial situation. Had these borrowers been more aware of the different loan options that were available, they may have been able to avoid their current high cost loan. There are a number of tools, including the Internet, that you can use to research rates and find available loan options.

Don't be afraid to scrutinize. While most of us probably sign documents that are placed in front of us in the blink of an eye, it is important to know what terms and conditions to which you are agreeing. In addition to general knowledge concerning mortgages, being familiar with the mortgage loan vocabulary can help you better recognize bogus terms or interest rates. The purpose of written documentation is to ensure that both sides understand the terms to which they are agreeing. If either side neglects to read the fine print, once they sign it, they have agreed to whatever is stated in the document, regardless of whether they meant to or not.

While the government will continue to create more safeguards to protect consumers, doing your part as a responsible borrower can ensure that you don't run into any surprises down the road.

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Mortgage Rates for Interest Only Mortgages for Florida Homes
Mortgage Rates for Interest Only Mortgages for Maryland Homes

Bankruptcy Code Changes Could Help Avoid Foreclosures

Could over 600,000 foreclosures be prevented over the next two years with a simple change to the bankruptcy code?

That's the stand of the Center for Responsible Lending (CRL), who has proposed changes to regulations for Chapter 13 bankruptcies in a recently introduced House bill. The CRL calls it a tweak, and says the effect could be significant for homeowners and mortgage-backed securities markets.

"Under current law, subprime homeowners have two choices," said Eric Stein, senior vice president for CRL, in written testimony before a House Judiciary subcommittee last week. "They can get a loan modification, or they can lose their home through foreclosure. Bankruptcy – the traditional option of last resort– is virtually useless, because current law prevents bankruptcy courts from assisting with the very debt that is causing the problem today – the mortgage on the family home."

The CRL proposal aims to retool the current regulations, which establish a repayment plan instead of wiping out debt. Judges can't reduce mortgage debt owned on a person’s primary residence.

The House bill proposes that the bankruptcy judge for Chapter 13 bankruptcies would have the option of reducing what the homeowner owes lenders, perhaps reducing the principal to match the home's current market value and reduce the loan's interest rate. The rest of the original principal would become lower priority for repayment as an unsecured debt.

"If bankruptcy law is like a life preserver, we're reserving it for the strongest swimmers while hundreds of thousands of families drown," said Stein. "Changing the bankruptcy code to allow the courts to modify loans on primary residences could help 600,000 families facing subprime exploding ARMs stay in their homes. This change will also save American families not facing foreclosure $72.5 billion in wealth by avoiding these foreclosures."

CRL says that this change to the bankruptcy code would not necessarily increase bankruptcy filings, and in fact deter them. If lenders and investors know the new protections, they might be more willing to modify borrowers’ terms. Additionally, lenders will get paid more than they would for a foreclosure, making it a more attractive option.

Preventing foreclosure can also preserve home values in the neighborhood, a big perk for lenders and communities.

Homeowners who take advantage of this new provision will experience damaged credit, and a bankruptcy judge will closely monitor their finances. But this reality could be a better option than the threat of foreclosure.

Home Equity Hazards

While using your home equity can be a wise, tax-advantaged strategy when prudently applied, it can also be down right dangerous when misapplied. Home owners have been taking out home equity lines in record numbers to fund all types of consumer purchases. Almost 25% of all homeowners in the U.S. have a home equity line of credit (or HELOC) secured against their primary residence. In the past ten years it is estimated that U.S. household debt overall has increased by over 145% and at the same time credit card debt has risen almost 70%. The conclusion is that home owners are using their home equity, or borrowing against their homes, to either pay down or pay off their credit card balances.

Lax underwriting restrictions may have permitted many homeowners to take out lines of credit up to 75%-90% of the value of their home. These loans are frequently available at attractive interest rates and at little or no cost. On the east and west coasts, home equity lines of up to $500,000 are not uncommon. The concern with this practice is that by using the equity in your home as collateral for the loan, you are putting your very place of residence in jeopardy. If you rack up too much credit card debt and find yourself in over your head, the worse thing that can happen is that you ruin your credit and perhaps reach a point where you consider filing bankruptcy but you don’t have to lose your home in the process.

If you exercise prudent money management skills, your home equity could be an excellent resource at your disposal for making long term investments requiring a sensible tax advantaged strategy to achieve (as you may typically deduct the interest on a HELOC, depending upon when the home was purchased, up to your acquisition indebtedness on the home plus $100,000). However a home equity line shouldn’t be used as a "cash register" for making short-term consumer goods types of purchases and should not be seen as a way to further enhance your spending ability. Sensible reasons to tap into ones home equity include: home improvements, investing in a real asset, financing higher education, converting existing unsecured higher interest rate debt to secured lower interest rate debt, to purchase a new vehicle (of course you should always try to drive a car for 8 to 10 years before buying a new one) or for emergency funds in case of short term job loss or for covering unplanned medical bills.

Think carefully before writing a check against your home equity line and consider whether the risk of potentially losing your home justifies the reward obtained by using it. Ever rising home values are no longer a given as the median home price continues to fall from its peak. Using your home as a cash register for consumer purchases never made sense and it makes even less sense now than ever before.

Always consult with your tax or financial advisor regarding your own individual circumstances before proceeding with any plan which may have a dramatic impact on your personal finances.

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Fifteen Year Fixed Rates Mortgages by State

Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky

Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota

Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington Washinton DC West Virginia Wisconsin Wyoming

How Much Does a No-Cost Mortgage Cost?

Source: Informa Research Services

Free press. Fat-free. Free gift with purchase. It seems like anything that's "free" is harmless and generally, a good thing. People will jump at the opportunity for something that is sans cost. But should you be jumping for a no-cost mortgage loan?

So, what exactly is a "no-cost mortgage"?
A no-cost mortgage loan is a mortgage in which the upfront fees are paid by the lender at closing. These fees include many of the settlement costs, but keep in mind that there are some costs, such as prepaid taxes, or title charges, that cannot always be paid by the lender. Typically, the only fees that are waived are those that fall into the category of "lender fees."

How much does a no-cost mortgage cost?
A no-cost mortgage costs nothing out of pocket at closing. However, a no-cost mortgage may result in having a slightly higher interest rate. Nonetheless, the difference between the interest charged on a no-cost and regular mortgage loan tends to be very small. You should use the resources available to you, such as the Internet, to shop and find the best rates and fees.

Who would benefit from a no-cost mortgage?
Depending on your situation and personal finances, a no-cost mortgage may or may not be the right option for you. Some homebuyers may opt to use the cash they save to furnish their home or perhaps upgrade the conditions of their home. It may be advantageous to use the cash you save by not paying the upfront fees to get the mortgage loan to finance these purchases because it will be affected by a lower interest rate than many other loans, such as credit cards.

No cost mortgages are not for everyone. It is really a matter of preference. You need to weigh the importance of paying closing costs upfront against paying a slightly higher rate over the term of the mortgage loan.

Although there are protective measures in place, such as the Truth in Lending Act, regardless of which loan you choose, you should be sure to read the details contained in the fine print to ensure that you are truly getting (and paying) what you think you are. Additionally, one can use the Internet to research their available loan options, both traditional and no-cost.
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More about no cost mortgage refinance
Another good article from the Washington Post - Mortgage Fees to Avoid