John Beckett's Real Estate Blog

Faced with plunging property values and rising defaults, lenders are charging borrowers higher mortgage rates and adding fees. Not all of these added costs are set in stone, however. If you’re looking for a loan, vigilant shopping and a little haggling can go a long way toward landing a better deal. Here are five fees to watch out for and how to avoid paying them:

Application fees

Just because an ad says “no application fee” doesn’t mean there’s no fee at the time you submit a mortgage application. Each lender gives different names to its fees, which makes it hard to comparison-shop. Fees paid outside of closing — meaning at the time you submit loan paperwork — typically include an application fee (an average of $252, according to HSH Associates, a mortgage-information company in Pompton Plains, N.J.), an upfront property appraisal ($331) and a credit check ($33). They may be listed separately or lumped together as a “document-processing fee.” To avoid overpaying, ask lenders for a good-faith estimate of mortgage costs. Though lenders are under no obligation to provide one, most will.

The yield-spread premium

One dirty little secret of the mortgage industry is the yield-spread premium. In return for arranging loans with inflated interest rates, some brokers receive fattened payments — referred to as the yield-spread premium — from lenders. Even a slight difference in rate — say, 6.779% instead of 6.495% — amounts to nearly $17,000 in extra interest over the life of a 30-year, $250,000 loan. To avoid getting suckered, ask your broker whether the lender pays a flat rate or a percentage commission based on loan terms. Also, obtain a copy of your credit score and use Fair Isaac’s MyFICO.com to get a realistic estimate for a fixed-rate mortgage based on your score.

Risk-adjusted rates

Getting deemed a risky borrower is no longer just a matter of a low credit score. Lenders now consider other risk factors. Buy in an area that has seen values drop precipitously — such as Florida or Las Vegas — and you can expect a higher rate. The good news is that each lender gives different weight to individual risk factors. So make sure to collect bids from various lenders.

Down-payment penalties

The days of zero down on a mortgage are over. Without a down payment of at least 20%, prospective homebuyers will undoubtedly get hit with a higher interest rate and need to pay for more points. (Each point usually amounts to a fee of about 1% of a mortgage.) Also, if buyers can’t put 20% down, they’ll need to get private mortgage insurance, which typically costs 0.5% of the loan. Shopping around for lenders with more-favorable points and insurance charges can help lessen the blow.

Closing costs

The way closing fees are disclosed is, frankly, quite bad. That’s problematic, considering closing fees amount to 2% to 5% of a home’s price. Location plays a big role, as taxes and other requirements vary by state. Some states require expensive attorneys to oversee the closing process, while others allow a title agent or escrow officer. Ask potential lenders for a good-faith estimate of closing costs. Then check in weekly with whoever is handling the closing to see whether there are any changes in either lender or third-party fees. Here’s how to keep these fees under control:

• Lender fees. Ask which expenses go into each fee, and challenge anything that seems unnecessary or inflated, such as overly high charges for faxing documents or overnight delivery. Be particularly cautious about fees prorated based on the closing date. Such fees are easily miscalculated, especially if the closing date changes.

• Third-party fees. Home-buyers also have to deal with title insurance companies, surveyors and inspectors, all of whom have their own fees. Comparison-shop at other local companies to ensure you’re getting a competitive bid. If you find a better rate, ask the lender to use that vendor instead.

This story was reported and written by By Kelli B. Grant for SmartMoney. Published Oct. 2, 2008

Many people have either gone through foreclosure, a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership of the property, or know someone who has. RealtyTrac released its U.S. Foreclosure Market Report on April 15 for the first quarter of 2010. The report calculates foreclosure filings, including default notices, scheduled auctions and bank repossessions, and showed that 932,234 properties were involved in the first quarter. That was a 7% increase from the last quarter of 2009 and a 16% increase from the first quarter of 2009. An astonishing one in every 138 U.S. housing units received a foreclosure filing during the quarter. If you or a loved one are facing foreclosure, make sure you understand the process. While it varies from state to state, there are normally six phases of a foreclosure.

Phase 1: Payment default

A payment default occurs when a borrower has missed at least one mortgage payment. The lender will send a missed-payment notice indicating that it has not yet received that month’s payment. Typically, mortgage payments are due on the first day of each month, and many lenders offer a grace period until the 15th. After that, the lender may charge a late-payment fee and send the missed payment notice. After two payments are missed, the lender may send a “demand letter.” This is more serious than a missed-payment notice; however, at this point the lender is probably still willing to work with the borrower to make arrangements for catching up on payments. The borrower would normally have to remit the late payments within 30 days of receiving the letter.

Phase 2: Notice of default (NOD)
A notice of default is sent after 90 days of missed payments. In some states, the notice is placed prominently on the home. At this point, the loan will be handed over to the lender’s foreclosure department in the same county where the property is located. The borrower is informed that the notice will be recorded. The lender will typically give the borrower another 90 days to settle the payments and reinstate the loan. This is referred to as the reinstatement period.

Phase 3: Notice of trustee’s sale
If the loan has not been brought up-to-date within the 90 days after the notice of default, a notice of trustee’s sale will be recorded in the county where the property is located. The lender must also publish a notice in the local newspaper for three weeks indicating that the property will be available at public auction. All owners’ names will be printed in the notice and in the newspaper, along with a legal description of the property, the property address and when and where the sale will take place.

Phase 4: Trustee’s sale
The property is placed for public auction and will be awarded to the highest bidder who meets all of the necessary requirements. The lender, or firm representing the lender, will calculate an opening bid based on the value of the outstanding loan, any liens and unpaid taxes, and any costs associated with the sale. Once the highest bidder has been confirmed and the trustee’s sale is completed, a “trustee’s deed upon sale” will be provided to the winning bidder. The property is then owned by the purchaser, who is entitled to immediate possession.

Phase 5: Real-estate owned (REO)

If the property is not sold during the public auction, the lender will become the owner and will attempt to sell the property on its own, through a broker or with the assistance of an REO asset manager. These properties are often referred to as “bank-owned.” The lender may remove some of the liens and other expenses in an attempt to make the property more attractive.

Phase 6: Eviction
The borrower can often stay in the home until it has been sold either through a public auction or later as an REO property. At this point, an eviction notice is sent demanding that any people vacate the premises immediately. Several days may be provided to allow the occupants sufficient time to remove any personal belongings, and then typically the local sheriff will visit the property and remove the people and any remaining belongings. Belongings may be placed in storage and retrieved later for a fee.

The bottom line
Throughout the foreclosure process, many lenders will attempt to make arrangements for the borrower to get caught up on the loan and avoid a foreclosure. The obvious problem is that when a borrower cannot meet one payment, it becomes increasingly difficult to catch up on multiple payments. If there is a chance that you can catch up on payments — for instance, you just started a new job after a period of unemployment — it is worth speaking with your lender. If a foreclosure is unavoidable, knowing what to expect throughout the process can help prepare you.

Read at: http://realestate.msn.com/article.aspx?cp-documentid=24721210

The nation’s housing inventory is cluttered with foreclosures, short sales and homebuilders willing to make a deal. If you’re in the market to buy a home today, you’re likely weighing the benefits of each type of property available for purchase. Don’t be fooled. Not all bank-owned foreclosures are sold at deep discounts. Not all builders are slashing prices. Short sales can be a crapshoot, with some buyers enduring months of waiting and still not getting the property. All things considered, it’s possible that your best deal is purchasing a traditionally sold existing home, so don’t count those out of the running. To get the most for your money, it’s important to understand the local market’s inventory; market dynamics will have a lot to do with how various types of homes are priced. Also, do some soul-searching to determine how much risk you’re willing to take and the amount of time and money you’re willing to invest in a home.

Bank-owned properties

Foreclosures reclaimed by the bank, often called bank-owned properties, are often sold at a discount. However, the size of the discount depends on the market you’re in. A recent report from Zillow.com found that the typical discount for bank-owned properties, compared with a traditionally sold home, averaged 20% to 30%. According to separate data from RealtyTrac, an online marketplace of foreclosure properties, the average discount on bank-owned properties was 34% in the first quarter. There is more than one reason why the selling price of a foreclosure is lower than a traditional home. The seller is typically a bank, and would like to move (the property) off the books as quickly as possible. A traditional seller is interested in getting a certain price and is willing to stay in the market. Also, the condition of the home can be an issue. A buyer who wasn’t able to make mortgage payments also probably wasn’t able to keep up with needed maintenance. One of the biggest mistakes homebuyers make when buying a foreclosure is underestimating how much it’s going to cost to repair it. It usually costs a lot more than you think, you can add value to a property by rehabbing it, but probably not more than the cost you put into it. For the lower price, buyers also need to accept that they’re most likely purchasing a home that has been sitting vacant, which comes with its own set of issues because small problems — a leak, for example — can become big ones if no one is there to notice them. These homes also may have limited seller disclosures, because the owner — the lender — hasn’t been living in the home and thus has less information to disclose. Home inspections are generally recommended regardless of what type of property you’re buying, and they’re essential in the case of a bank-owned property. Location matters, too, in the pricing of a bank-owned foreclosure. In places with the highest incidence of foreclosure, bank-owned properties garnered the smallest discounts, compared with traditionally sold existing homes. The places that did not have very many foreclosures right now had large discounts. Another way to look at it: A homeowner aiming to sell his home in a market where a large percentage of sales are foreclosures will likely have to price it like a foreclosure just to be competitive.

Short sales

Short sales offer some of the best deals. A short sale is when the seller owes more on the mortgage than the home is worth, and the lender agrees to accept less for the property to make a sale. But even if you save money on a short sale, you could pay in other ways. Although lenders and government programs are trying to speed up the process required to complete a short sale, a buyer could still wait months just to find out he or she failed to get the home. The home is discounted partly because of the uncertainty that the buyer experiences. You need to understand there’s a reason why they’re less money — you have to play the game, you have to be patient. The market generally discounts short sales by 5% to 8%, compared with traditional sales.

New homes

In many markets, the supply of new-home inventory is dwindling. That has caused pricing in the new-home market to stabilize. That is, fewer bargains may be available for new-home buyers. There is less flexibility on the builders’ side to negotiate prices, plus with supply more in control, there’s not as much urgency to drop prices to move the homes that are currently sitting on the market. Buyers typically pay a 20% premium for a new home, compared with a traditional (nondistressed) existing home, but that also varies by location. That isn’t to say builders won’t find other ways to make a deal. They’re still willing to throw in incentives, like finished basements, as a way to sell a home. But if you’re looking to get the lowest price on a home, this might not be the best route. And if there are distressed sales in new communities you’re considering, proceed with caution. A lot of foreclosures in the area will drive down the prices of nonforeclosure homes, and that can extend to new-home inventory. It’s not impossible to find foreclosures and vacant properties in communities that aren’t even finished yet.

Read at: http://realestate.msn.com/article.aspx?cp-documentid=24884570

Americans who are brave enough to buy a home despite persistent predictions of a double dip in housing may want to contact the federal government, as the recession and financial crisis have turned Uncle Sam into one of the largest owners of real estate in the United States.

Rising foreclosures

The housing bust has led to an unprecedented number of foreclosures in the U.S. In May, 322,920 foreclosure notices were filed against homeowners, and more than 3 million homes have been seized over the last five years from delinquent borrowers. While most homebuyers may assume that banks are the only source of foreclosures, the U.S. government also owns many residential properties because of its role in buying and guaranteeing mortgages. Many of these properties are held because of the conservatorship established in 2008 over the government-sponsored enterprises popularly known as Freddie Mac and Fannie Mae.

Freddie Mac

The Federal Home Loan Corp., or Freddie Mac, owned approximately 45,000 multifamily and single-family homes at the end of 2009. The company put a gross value on these properties of $5.13 billion. Freddie Mac obtained these properties by being the highest bidder at foreclosure auctions when the properties were used as collateral for loans owned by the company, or when owners just transferred the property to Freddie Mac without going through foreclosure. Freddie Mac is furiously attempting to dispose of these homes, and has been fairly successful; the company’s average holding period for real estate is less than one year. The company markets the homes through HomeSteps, where buyers can search by state and city.

Fannie Mae

The Federal National Mortgage Association, or Fannie Mae, is also a large owner of foreclosed property. The company owned more than 86,000 single-family homes at the end of 2009, with a value of $8.5 billion. These homes are concentrated in states that were ground zero of the housing bust, with 28% of its inventory in California, Nevada, Arizona and Florida. Fannie Mae also markets these homes intensively, and sold 123,000 in 2009. The company’s official website to sell homes is called HomePath, where buyers can look up inventory near their location.

Other agencies

Another source of homes owned by the government is the Department of Housing and Urban Development. HUD obtains its properties through foreclosure auctions on Federal Housing Administration-insured loans. HUD has a website at hud.gov/homes. Next up is the Federal Deposit Insurance Corp., which owns its inventory through its role in seizing failed banks. The FDIC owns single-family homes but also has a large number of other properties, including industrial and commercial properties and raw land. The Veterans Affairs Department and the Agriculture Department also play roles in financing and guaranteeing home loans, so both own single-family home and other properties. Buyers can look for their dream home through these agencies as well.

Buyer beware

Buyers shopping for homes from the government should be aware of the disadvantages of the process.  Many agencies offer properties “as is,” with no warranties on their condition. There is also little flexibility on negotiating the terms of the contract if the government accepts your offer. Fannie Mae, for example, does not accept offers for houses that are contingent on a buyer selling a currently owned home.

Read at: http://realestate.msn.com/article.aspx?cp-documentid=24796144

As mortgage rates hit a new record low this week, two questions come to mind:

• How low will rates go?
• And when will they head back up again?

The average rate for a 30-year fixed-rate loan fell for the third straight week, to 4.57%, down from 4.58% last week, according to Freddie Mac’s weekly Primary Mortgage Market Survey. The average rate for a 15-year loan was 4.07%, up from 4.04% last week. The 30-year rate is the lowest since Freddie Mac started keeping records in 1971 and the lowest recorded by the Bureau of Economic Statistics since February 1955, when home-loan terms were shorter than 30 years.  The number of refinancing applications rose 9.2% last week, the Mortgage Bankers Association said, as more people who refinanced last year, when rates were about 5.5%, see benefits to refinancing again. The number of applications for home purchases, however, continued to decline.  Why are rates so low? It’s the economy. Amy Hoak of MarketWatch explains, mortgage rates are low because of fears about the economy, both in the United States and abroad. She interviewed Greg McBride of BankRate.com, who said: When investors get nervous, they flock to safe-haven investments such as government debt. Mortgage rates are priced relative to yields on U.S. government debt. The decline on government bond yields has directly benefited the mortgage shopper. And when will rates start to rise? I left my crystal ball in my other office, but the short answer, obviously, is when the economy improves.  David Dessner, director of sales for New York’s GuardHill Financial mortgage company, told said: So keep an eye on when investors start moving their money from U.S. Treasury bonds to other venues. That’s when rates will start to inch up. Remember that the published weekly number is an average gathered nationwide, so the actual rate customers are offered can vary. In fact, mortgage rates offered by a given lender on a given product can change daily, or even several times a day.  The irony of the record-low mortgage rates, of course, is that so few people can refinance or can afford to buy because of the same economic conditions that are keeping rates low. Ted C. Jones, a title company economist in Houston who was interviewed by Holden Lewis of Bankrate.com, has what he calls “a great way to get money in the pockets for people to recover from this economy”: Allow anyone who is up to date on mortgage payments to refinance at the current market rate, even if they owe way more than their home is worth.  If you’re one of the lucky few Americans who have at least 20% equity in your home, a solid income and good credit, you may want to see if refinancing could save you money. Refinancing a $250,000 mortgage from 5.5% to 4.5% would save about $150 a month.  But whether refinancing provides a true savings depends on whether you’ll live in the house long enough to recoup your closing costs, which vary widely across the country.  Is this a good time to buy a house or should you wait for rates to go lower? Or rush now for fear rates will spike soon? This assumes, of course, you have a down payment, a secure job and good credit — things many Americans lack these days.  McBride and other experts  expect rates to rise by the end of the year, but McBride points out that 5.5% is still a low rate, by historical standards. On a $100,000 loan, the difference between a 4.5% rate and a 5.5% rate is $61 a month.  The biggest question to ask is whether this is the right time for YOU to buy a house.

Read at: http://articles.moneycentral.msn.com/SmartSpending/blog/page.aspx?post=1779385&_blg=1,1779072