Need A Mortgage?   Forget Banks
By Peter Miller

You might think that after the government gave the nation's nine largest banks $250 billion that new mortgages would be as common as tree pollen. Unfortunately, banks are hoarding their federal money in large measure to bolster their own balance sheets and potentially to buy other banks.

"The banks could use the money from the government for any number of things," says The New York Times. "Some analysts say the banks may use it to acquire weaker competitors. Others say they might use it to avoid painful cost-cutting. And still others say the banks may sit on the capital."

Acquiring, cost-cutting and sitting accomplish nothing for those who need to finance or refinance a home or to trade a toxic mortgage for something safe and sensible. In fact, the Times says that "lenders have been pulling back on credit lines for businesses, mortgages, home equity loans and credit card offers, and analysts said that trend was unlikely to be reversed by the government's money."

The problem today is usually described as a "liquidity crisis," an expression which means that lenders have dollars but are not making loans. And while there have surely been tight times with few mortgages in the past, the situation now is different because several traditional financing alternatives are missing.

Lease Option: Instead of selling a home outright, the property is rented at a premium rate. The amount of the rent above fair-market value is credited to the tenants if they buy at a price set in advance. If the tenant does not buy within a certain timeframe the owner has gotten a bigger rent than otherwise would have been possible. Cautions:

Seller Take-Backs: It's generally estimated that 35 percent of all homes are owned free and clear. With such properties there are no loans to assume, owners can take back financing if they wish because they have equity.

Seller take-backs can make perfect sense — if an owner does not require lots of cash from the sale to purchase a replacement property and the sale is done the right way with title insurance, a survey, a recorded note, etc.

Some within the get-rich-by-Tuesday crowd love seller take-backs because they want to supply grossly pro-buyer sale agreements and mortgage notes which eliminate basic seller protections. These are lousy deals for owners and will not pass muster with seller attorneys.

For a seller take-back expect to make a significant down payment — say 5 to 20 percent — and to have a full-blown closing with proper forms, credit checks, documents and requirements in a form satisfactory to the owner.

Foreclosure Financing: With a huge and growing inventory of foreclosed properties, many lenders are open to "combo" deals — buy a foreclosed property from us at discount and we'll provide the financing. If the underlying property is attractive such deals can work well.

Family Financing: The U.S. economy is enormous and while much of the news is glum the reality is that many of us are doing well. FactCheck.org says "those reporting adjusted gross income of more than $250,000 to the IRS are projected to make up 2 percent of households next year, when the new president will take office. Those folks will earn 24.1 percent of all income, and pay 43.6 percent of all personal federal income taxes, the Tax Policy Center figures."

Seen another way, there are relatives with cash who might consider a loan to help you avoid bad credit, tide you over until a toxic mortgage can be refinanced or even provide money for a down payment, closing costs or both.

The catch is that asking family members for money is tricky. Problems often involve issues of psychology, sibling rivalries, status and ego as much as finances, accounting and dollars.

You want to avoid debates and disputes, and the solution is to structure a written, detailed, business arrangement. This is important for tax and estate purposes and also to clarify financial obligations if personal relationships change (that is, you finally tell rich Uncle Ralph that martinis are not a breakfast food...).

One quick and easy way to create private loans is to check out VirginMoneyUS.com. The company sets up and services private loans, a smart idea in the sense of creating a formal business arrangement among friends and family.
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Peter G. Miller is the author of the Common-Sense Mortgage and is syndicated in more than 100 newspapers    More below:

Bank Mortgages:
Because the loan is securitized and the investors who bought into bits and pieces of the money stream are not experienced nor set up to service the loan in a default situation. Let me translate. There is no money to be made in working out the problem. Attorneys say when those payments stop coming in on a regular basis, the loan transfers to a special form of mortgage servicer called a default servicer. Default servicers have the incentive to foreclose on the property, because that is how they get paid – to close out the deal. They are not paid to rework the loan. These default servicers hire foreclosure mill attorneys who handle hundreds of cases and no one takes a particular interest in the borrower, the property or the economy. The days of the friendly local banker down the street holding the title to the homes in the neighborhood are long gone.

One need only look at the numerous proposals announced by the White House and Secretary Paulson to fix the mortgage mess, and the many fed fund overnight interest rate cuts, yet so far none have stemmed the tide of foreclosure and the economic downturn. We have identified the problem. Now it is time to use common sense and rewrite these loans. And since the banks will not listen to Chairman Bernanke and do it voluntarily, Congress should listen to the Chairman and pass a law letting Judges fix the problem.

Why Are Mortgage Modifications Still Not Working?

The choice to modify a home mortgage is a decision that should not be taken very lightly. Mortgage modification seems to be the buzz word of the day. The Federal Government has passed three pieces of legislation this year encouraging distressed homeowners to contact their mortgage companies and seek modification options.

The only problem is that when a homeowner contacts the company who they thought owned the mortgage, it turns out that the mortgage was securitized. Securitization is the process where an asset, like a mortgage, is pooled and packaged into a security and sold to investors. Simply put, your mortgage is owned by an investor, not the company that you pay your monthly payment to.

As if purchasing a home and obtaining a mortgage wasn't difficult and stressful enough. Once you begin the process you realize that there are many players in a mortgage transaction. You may have dealt with a loan originator, broker, attorney, document custodians, mortgage servicers and trusts. As if this wasn't frustrating enough, now you find out that the servicer doesn't own or hold the promissory note and mortgage on your home. So, who is the real party that you can call to modify your home loan.

Normally, in the mortgage modification process, you would start with the company that you make your payments to. This company could be a mortgage servicer or a mortgage company holding and servicing its own loans. I would ask them immediately if they own and hold the note and mortgage. If the company is a servicer, request that everything they tell you be put into writing. If they will not put their words into writing, I would highly suggest that you put their words into writing and send them back to them via U.S. Mail or ask their permission to record the phone conversation so you don't mistake their advice. Why would you want to do this?

Because the mortgage servicer makes more money when you default. The mortgage servicer does not have your best interests at heart. I wish I had a dime for every person who told me: "My mortgage company said that I had to be three (3) months behind before they would work with me."

What is the authority for that statement? When did it become good advice to go into more debt so the mortgage company could help you. Were they going to waive the late fees and costs associated with going into more debt? Were they giving a guarantee that they would help as soon as you were three (3) months behind. No, I didn't think so.

But guess what did happen, you now owe the mortgage servicer three late fees and whatever else they could tack onto your loan. Your credit rating is falling faster than John McCain's popularity and now no bank will look at you for a refinance, so you have to pay the mortgage servicers their fees and costs or risk losing your home.

With friends like these, who needs enemies. So, in the process of trying to modify your mortgage, ask the person on the other end of the phone what authority he or she is acting under. They may say that there is a pooling and servicing agreement that binds the servicer, but I doubt they will tell you that because it is the truth. You want to see that document because it details the rights between the investors in the trust and the servicer. Of course, the servicer never wants you to see this document because it does not say that you must fall three (3) months behind on your mortgage before anyone will help.

New Mortages:
Also on January 1st, according to Inside Mortgage Finance, underwriting standards for these loans will rise, requiring most buyers to put down 20 percent and have a debt-to-income ratio as low as 30 percent.

 

 

Information received from Bank Of America on 1-21-2009
Minimum Loan requirements: Interest rates 4.375 to 4.875
15% down
Credit score 680 or above (630 to 680 is 20% down)
Income to debt ratio: Not more than 38% of debt