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This seems a rather basic question to be asking in a website dedicated to commenting on blown mortgages and how to pick up the pieces. However, it is sometimes useful to sit back and ask ourselves the basics again to reassess our understanding and check we are still on the same page.

Loan Modifications are a change to a loan contract between the lender and the homeowner. The whole purpose is to adjust the terms of the contract so that the loan is affordable for the borrower. Loan Modifications have changed in the last years. Previously they existed only in the form of an interest rate reduction for a period of time when a delinquent borrower was suffering from a specific type of hardship, as a divorce, illness or a job loss.

Now loan modifications are provided for a wider set of circumstances and usually change the terms of the mortgage permanently.

What has not changed is the raison d’être of loan modifications; to help homeowners that can afford their home but not their current mortgage. This means that the homeowner has the ability to make reasonable monthly payments on their home but their current mortgage payments are to high.

Understanding this is vital to understand why so many homeowners apply for a trial loan but will never get one.

The second key factor that makes a homeowner eligible for a loan modification is the existence of a valid situation of hardship. A borrower must make sure they can prove the hardship and that it qualifies them to apply for a loan modification.

These are examples of hardship that give you a good chance of getting approved: ARM, adjustable rate Mortgage, reset payment shock, illness of a close family member dependant on you, loss of job (as long as there is proof you will be able to meet the modified payments), reduced income, death of the borrower (that is an excellent one), death of spouse or co-borrower, military duty, medical bills, damage to your home, not being able to sell or rent the property.

However excuses like: I didn’t realize how expensive it would be, or my realtor/lawyer/wife lied to me are just not going to work.

The third factor is accurate documentation. You don’t only have to be able to afford your home and undergo a valid situation of hardship; you also need to prove it with proper documentation.

These three points are the ABC of successful loan modifications:

a)      You must be able to afford the payments of a reasonable loan modification.

b)      You must be experiencing some type of valid hardship.

c)       You must be able to prove it.

Convincing your lender or loan servicer of the truth of those three factors is the most important part of applying for a loan modification. You must focus all your energy in making these three points loud and clear when you communicate with your lender, whether your are speaking on the  phone or writing your hardship letter.

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If you are among the 6.5 million homeowners who took out a low-rate adjustable-rate mortgage during the housing boom, you've probably spent the past couple of years waiting for your day of reckoning to come.

Foreclosures have struck communities across the country in the wake of the subprime meltdown and ensuing housing slowdown.

While the FHA continues to garner headlines as an increasingly attractive lending option for prospective homebuyers, one of the agency’s lesser known programs may hold the key to helping to rebuild neighborhoods nationwide.

Government loans are headed for a record year in 2009. The FHA’s traditional home loan program has grabbed significant market share in the last fiscal year. But its unique program for purchasing and refurbishing rehab properties is gaining momentum.

The FHA 203(k) program provides qualified borrowers with fixed-rate and adjustable-rate mortgage options, which can be used for buildings anywhere from one- to four-family in size. Down payments, like the traditional FHA loan, are as low as 3.5 percent. Generally, the FHA will set the loan amount based on what the agency thinks the home will be worth upon completion of all rehab work – that includes the actual costs of repair.

Buyers can even use the 203(k) program on structures that were torn down, provided there’s some semblance of foundation at the site. A 203(k) loan can be used to cover rehabilitation costs such as room additions, painting, building decks, and a host of other alterations. Other acceptable refurbishing includes:

• Roofs and gutters

• HVAC systems

• Plumbing and electrical

• Flooring: carpet, tile, wood, etc.

• New windows and doors

• Weather stripping & insulation

• Stabilizing or removing lead-based paint

• Basement completion and waterproofing

• Septic or well systems

Buyers can also take advantage of the FHA’s Energy Efficiency Mortgage program and finance into the mortgage the cost of significant efficiency improvements. There are specific values and dollar limits for the agency’s EEM program.

Underwriting standards can at times be stricter for 203(k) loans, although there are no income or credit score restrictions to qualify. In most cases, the rehab work must start within 30 days of closing, be complete within six months and be professional in nature.

The 203k program doesn’t cover things like luxury improvements, which homeowners have to pay for from their own pockets. To learn more about FHA 203k loans, visit the HUD website here.

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We live in the age of information. That is good and it is bad. It is good because you can get information from a great variety of sources and have the choice of seeing the world from a number of perspectives. The bad news is that you really need to get your information from a variety of sources because it is hard to know who to trust or who got the story right.

An example of this occurred last Wednesday when we received conflicting reports. The Mortgage Bankers Association said mortgage loan applications were up 16.1% for the week ending August 7 in relation to the same week last year. This news item seemed feasible because there has been an increase in the home sales in the second quarter in 39 states.  Other figures also seemed to support this with mortgage refinancing accounting for 52.3% OF mortgage applications and adjustable rate mortgage applications also rose by 0.4%.

On the other hand, Reuters saw the situation in a completely different light by focusing on a different perspective of the situation.  Reuters looked at  a week over week seasonally adjusted  decline of 3.5% which is not exactly the good news the Mortgage Bankers Association reported.  Reuters cites the increase in interest rates as the reason for the drop coupled with the current 9.4% unemployment rate which is keeping homebuyers shy and cautions because of the economic climate.

So who is right? Are mortgage rates rising or dropping? The answer is that both are right, they just are focusing on different data to express their opinion. It is left to you to decide what argument is more compelling.

The Mortgage Bankers Association chose to compare this last week with the same week last year while Reuters analyzed the behavior of the market week over week.

To illustrate how this can affect our view of the situation look at these mortgage figures. The Mortgage Bankers Association reported that the cost to borrow on a 30 year fixed rate at 5.38% a rise of 0.21 percentage from the previous week. The lowest interest rate or cost to purchase a mortgage hit an all time low of 4.61% in the end  of March. If you look at these figures it does seem like things are going rather badly and that the Mortgage Market is falling.
However if you compare this week’s interest rate with last year’s in the same week you see that last year the 30 year fixed rate mortgage was a the hair rising rate of 6.57%! A far cry from the 5.38% we now have.

So are we rising or falling? We are both it just depends what point of reference you choose.

Related posts:

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A balloon mortgage is one in which monthly payments are made for a pre-determined period of time, with the balance of the loan paid in full at the end of the loan term. Like an ARM, interest rates on a balloon mortgage are typically lower than on a fixed rate mortgage and this makes the monthly payments on a this type of mortgage are very low and affordable. Balloon mortgage loans are calculated to amortize over a longer period than the due date of the balloon. A balloon, or lump sum, payment is required at the maturity of the loan to completely pay off the remaining principal. Therefore its important to keep in mind that the terms on a balloon mortgage are insufficient to completely amortize the loan.

Balloon mortgages can, and often do, contain a contractual opportunity to refinance at prevailing rates when the balloon payment is due. If the balloon mortgage loan has the option to be refinanced when the initial period expires, it will be called a convertible balloon mortgage. Some balloon mortgages come with “reset” clauses that provide for the original lender to reset the loan terms so that the loan is fully paid off in the remaining twenty three to twenty five years. The advantage of a balloon loan with a reset is that the loan payment will remain constant for the remaining life of the mortgage. The disadvantage is that the borrower is subject to the then current rates. If you are unable to convert or refinance the balloon mortgage, you may be forced to sell your home to make the loan whole. However, for the initial period of the loan, the interest rates on a balloon mortgage are usually a little lower than a comparable Adjustable Rate Mortgage.

Alternatively, with a fixed-rate mortgage you’ll have the benefit of knowing exactly what your monthly payments will be for the entire term of the loan. Because few people have the funds to fully pay off the balance due at the end of the balloon term, when using a balloon mortgage as the instrument of financing, the borrower should be concerned about future interest rates because they will be subject to them when the loan matures. However, most people that take out balloon mortgages assume that they’ll be moving within the term of the balloon period or that they will be eligible for a more attractive loan at the end of that period. Many people also use balloon mortgages to get that larger dream house. This strategy can, in fact, be fairly risky and a borrower should consider the market risk against the benefit of a larger home. Again, at the end of that period, the borrower must pay off the loan in full – this is the “balloon” payment. For example, a 7 year balloon calculated to amortize over 30 years will have low payments for 7 years and then the remaining balance will be due.

Before borrowing it’s important to consider whether you already have too much debt, whether you will be able to service the debt if you refinance at the end of the balloon period (or pay the balance), the risks associated with the current real estate market, and other factors as well. While it can be fairly easy to make the monthly payments on a balloon mortgage, it is very important to consider that there could be difficulty in managing the terms of the loan once it matures. In the current climate, fixed-rate mortgages are definitely the “loan of choice” for homeowners seeking a refinance mortgage, but if all the factors are considered and risks weighed, a balloon mortgage can be a viable alternative. Loan programs vary depending on the borrower’s credit, closing costs vary from state to state, work with your loan officer to get a proper estimate when you apply for your loan.