Monday, January 30, 2012

Buy a House or Bury Your Money??

If you’re given a choice to either invest $1,000 in a two-year bank certificate of deposit or bury that money in your backyard, don’t spend too much time thinking about it, because for all practical purposes you’ll come out the same either way.

Researchers at the University of Alabama at Birmingham (UAB) say you’ll earn 83 cents more with the CD than burying your money, so the CD’s probably the better deal. But after you factor in the gas to get to the bank to buy your CD you’re probably better off going with the buried money and just taking advantage of inflation.

So, where should you put your money? Andreas Rauterkus, an assistant professor of finance at the UAB School of Business, says you should buy a house.

“First-time home-buyer rates are around 3.8 percent for a 30-year mortgage, so if you can afford a $1,000 mortgage payment monthly for 30 years then you can buy a $250,000 home right now,” says Rauterkus.
Lary Cowart, an assistant professor of real estate and finance at the school, says you don’t want to wait too long, though. Because once prices start moving, it won’t take long before price changes affect the advantage of today’s low rates.

“Holding out to try and find the lowest price is not a good strategy because if the house were to go down 10 percent but the interest rate goes up 1 percent you are not gaining anything,” says Cowart. “If rates go up 1 percent, say from 4 to 5 percent, that is a 25 percent increase in the interest rate; so the mortgage payment goes up by more than 10 percent and the amount of house that can be purchased goes down by more than 10 percent. People fail to realize that and it is another little thing that will cost them big over the 30-year life of the loan.”

Of course, whether you can buy at all depends on lenders’ willingness to make a loan today to anyone except those with the best credit profile and plenty of money for a downpayment, and that’s a big question today. It makes you wonder if the reason banks aren’t lending is because they don’t have any money available because it’s all buried in the bankers’ yards.


1/30/2012 By Robert Freedman

Friday, January 20, 2012

Relief for Homeowners Behind on Mortgages!

If you or someone you know has lost a job and are in danger of falling behind on mortgage payments, here's some potentially important news for you: The two largest players in home mortgages, Fannie Mae and Freddie Mac, are revising their policies on forbearance when unemployment interferes with your ability to stay current on your loan.

Forbearance means that a lender or mortgage servicing company will either suspend — cut to zero — or reduce required monthly payments for a specific period of time. On loans they own or have securitized, Fannie and Freddie are now directing servicers to forbear when a borrower can show the loss of a job.
Unlike the companies' earlier rules, servicers can grant a half year of reduced or suspended payments without getting special permission in advance. If unemployment continues beyond six months, and if the servicer believes additional forbearance for up to another six months would be appropriate, it can ask Fannie or Freddie for approval to do so. During any unemployment forbearance period under the rule revision, borrowers will not be subject to foreclosure, even if they had fallen behind on payments before the forbearance began.

Fannie Mae's policy becomes mandatory for all loan servicers on March 1. Freddie Mac's policy takes effect Feb. 1. Though no estimates were available on how many borrowers could be assisted under the new guidelines, the numbers nationwide are likely to be substantial at a time when the unemployment rate is at 8.5 percent.

Forbearance, it should be noted, does not mean a forgiveness or reduction of the principal balance on the mortgage. Think of it instead as a timeout. Whatever amounts go uncollected during the forbearance period must eventually be repaid. Say, for instance, that you owe $2,000 a month on your loan. Suddenly you lose your job and that payment becomes impossible. An unemployment forbearance agreement might allow you to pay nothing on the mortgage while you search for a new job. Or, if your spouse still has a job and you can afford it, your monthly payment might be cut to $1,000.

If your job search ultimately took four months, you'd owe $4,000 on the partial reduction plan or $8,000 on the suspension plan at the end of the forbearance period. You'd be expected to resume your regular $2,000 payments and work out an arrangement with your servicer to repay the deferred amounts in affordable increments. If this happened to be $500 extra a month, your repayment would take eight months on the reduction plan, 16 months on the suspension.

Not everybody owning a home with a Fannie or Freddie mortgage will be eligible for the expanded job-loss relief. To begin with, the house will need to be a principal residence, not a second home or investment property. Fannie's guidance to servicers specifically rules out assistance when the home was financed with an FHA, VA or Rural Housing mortgage. Most important, there must be a documented "financial hardship" caused by the employment loss and there must be a reasonable chance that without forbearance, the borrowers could sink into default and eventually lose the house.
In cases where borrowers are being considered for an extension of an existing forbearance plan, borrowers will also have to document that they don't have cash reserves -- bank accounts, other liquid assets -- that exceed 12 months worth of their monthly housing expenses. In other words, if you've got money socked away that you could use to pay the mortgage, don't expect another forbearance. Also under Fannie's rules, borrowers' monthly housing expenses must be more than 31 percent of their monthly income, excluding unemployment benefits. Put another way: Only borrowers whose mortgage bills are consuming an inordinate amount of their total household budget need apply.
Tracy Mooney, Freddie Mac's senior vice president for single family servicing, said the purpose of the expanded forbearance is to "provide families facing prolonged periods of unemployment with a greater measure of security by giving them more time to find new [jobs] and resolve their delinquencies."
How do you get a pause on your mortgage payments? The first step is to communicate with your servicer as soon as you learn of your job loss. Don't wait until you fall behind on a payment. Ask the servicer whether Fannie or Freddie owns or has guaranteed your mortgage, then walk through the rules and numbers: Are we eligible for a forbearance plan? How much can we afford to pay and how much will be deferred? What alternatives may be available such as a loan modification?
Check it out. It just might help save your house.

The Hartford Courant
January 21, 2012