Mortgage news

News, trends and analysis of the mortgage and credit market

Monday, July 23, 2007

How To Avoid Home Equity Scams

Home Equity Scams

How to avoid them

Loan flipping
This is where a lender encourages you to refinance your loan repeatedly. In refinancing, the lender charges high fees. In most loan-flipping cases, each successive loan is for a higher amount as fees are rolled into the loan amounts.
A resident of New York City getting a $200,000 mortgage would pay an average $3,830 in origination, title and closing costs, according to Bankrate's survey of lenders.

With each flip of the loan, you increase your debt. If you get in over your head, you could lose your home.

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Credit insurance packing
You've just agreed to a line of credit home equity loan on terms that seem affordable. At closing, the lender gives you papers to sign that include charges for credit insurance or other "benefits" that you didn't ask for and don't want. The lender hopes you don't notice and doesn't explain how much will be added to the cost of the loan.

If you do notice and object, the lender may use scare tactics, telling you that if you don't want the insurance, the loan will have to be rewritten, resulting in a delay and even reconsideration of your application. If you agree to buy the insurance, you end up paying extra for a product you do not want or need.

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Deceptive loan servicing
The loan servicer fails to provide you with accurate or complete account statements and payoff figures, making it almost impossible to determine how much you have paid and still owe. Or, after you get your loan, the servicer starts sending letters saying your payments are going to be higher than expected.

The servicer might tack on taxes and insurance you had already arranged to pay yourself, late fees even though your payments have been on time or legal fees you don't understand. Amid the confusion, you are paying more than you owe.

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The home improvement loan
A contractor knocks on your door and offers to put on a new roof or resurface the driveway. The contractor offers to arrange financing. You agree and the contractor starts work.

Later, the contractor gives you papers and tells you the job will be halted unless you sign them. Unbeknownst to you, you have agreed to a home equity loan with high points, fees and interest. To make it worse, you're not happy with the work being done and the contractor, now that he has your signature, is not showing up for work every day.

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Signing over your deed.
You are having trouble paying your mortgage and the lender has threatened to foreclose. A "lender" contacts you with an offer to help you find new financing. In the meantime, the lender wants you to deed your property to him, calling it a temporary measure to stave off foreclosure.

Once the lender has the deed to your property, he treats it as his own, borrowing against the equity or selling the house. You've become the tenant, with the lender demanding "rent." If the rent is late, the lender can evict you.

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Friday, July 13, 2007

When subprime borrowers get soaked

Bad lending practices

Ameriquest Mortgage Co to pay settlement over improper sales practices

Ameriquest Mortgage Co pays $325 million to compensate soaked customers

July 13 2007

Ameriquest Mortgage Co., a unit of ACC Capital Holdings Corp. of Orange, agreed in January 2006 to a total $325 million settlement with 49 states over its lending practices.

About 78,000 Californians who got mortgages from the nation's leading subprime lender will receive letters in the next few days notifying them that they are eligible to split $51 million in restitution for allegedly improper sales practices.


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Tuesday, July 10, 2007

How to choose your mortgage

How to choose your mortgage

Depending on your lifestyle

Mortgage lenders offer many features and restrictions that can be added to a variety of mortgage programs, but the following eight mortgage loans are the basic types you will encounter. No single loan is best for all circumstances, but here you'll see what specific loan types work better than others depending on individual circumstances and lifestyles.

1.Buying for the long haul

Loan to consider: 30-year fixed rate

Financial peace of mind can be worth the higher interest rate that comes with an interest rate that won't change for three decades.

2.Refinancing (15-20 years before retiring)

Loan to consider: 15- or 20-year fixed or adjustable rate mortgage (ARM)

You can retire the loan before you retire from your job. A fixed rate generally costs more than an adjustable, but will give you more certainty in budgeting. However, if ARMs are significantly cheaper and your income can handle possible payment increases, you could save with the adjustable rate

3.Recent graduate with strong potential for increased earnings

Loan to consider: One-year ARM

Stretch your dollars with low interest rates during the years when your income is at its leanest. Your rate can go up (or down) each year, but interest-rate caps will limit that change to a predictable amount, and your rising income should be able to handle it. Watch out for loans that don't cap the interest rate but instead cap your payment. They could cause your indebtedness to grow even as you make monthly payments. ARMs also come in varieties that adjust -- up or down -- every six months, or even more frequently.


Loan to consider: No- or low-documentation loan

Though you'll pay a higher interest rate, not having to produce paycheck stubs or employer references, as you would be expected to supply when applying for a traditional loan, can be a huge help to those with variable incomes.

5.Planning to live in home 4 or 5 years

Loan to consider: A 5/25 hybrid loan

If you won't keep the loan longer than five years, why pay extra to lock in an interest rate for a longer period? If you do end up staying longer, you can either refinance, or live with an interest rate that adjusts every year.

6.Job with good income, but not consistent month to month

Loan to consider: Option ARM

These loans, considered among the riskiest offered in recent years, originally were designed for people with incomes that vary a lot from month to month. Each month you have a choice of payments: The full amount needed to pay off principal and interest as scheduled, an amount that covers only the interest owed that month, or an even smaller amount that doesn't even cover interest owed. In a month in which your earnings are lean, you might choose to make one of the lower payments, even though that actually adds to the amount of debt you must eventually pay back. In a month of strong earnings, you could choose to make the full payment. Over time, however, your required payments could rise significantly if you have frequently chosen to make only the smaller payments.

7.Job relocation for a short run (with good income and savings)

Loan to consider: Interest-only mortgage

While these loans can be risky for novice borrowers or those stretching to afford a home, they can be a smart tool for financially sophisticated borrowers who already have assets built up. Monthly payments are low because you're not repaying principal, so you can afford a larger loan. If you eventually sell the home for less than you paid, however, you could have to take money out of savings to pay back the full amount owed on your mortgage

8.Active duty military or veteran

Loan to consider: VA loan

The U.S. Department of Veterans Affairs offers loan guarantees that allow qualified military personnel and veterans to take out mortgages for as much as $417,000 with zero down payment. In Alaska, Hawaii, Guam and the U.S. Virgin Islands, that loan amount goes up to $625,000.

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Tuesday, July 3, 2007

Why homeowners should refinance

Top reasons why you should refinance

Unlock the power of your home equity

For most homeowners, refinance mortgage can help significantly improve your financial wellbeing. Here are some top reasons why homeowners avoid walking the financial plank with a home refinance.

Making an adjustment
Many homeowners have an adjustable-rate mortgage (ARM), which can switch to a higher term after its initial teaser rate. If your ARM is adjusting, you're probably going to have a higher monthly payment. In order to avoid this, you can refinance to a fixed-rate loan, or to another ARM.

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Lower your monthly payment
Like a cash-strapped pirate, it's not uncommon for you, as a homeowner, to find yourself in debt. If you need to free up cash on a monthly basis, move to an ARM with a lower interest rate, or even an interest-only mortgage loan. Either one may help you clear up some short-term monetary hurdles.

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Consolidate your credit card loans
A debt consolidation loan can be a treasure chest for you if you carry a balance on your credit cards. Because most credit lines carry double-digit interest rates, you can consolidate all these debts into a single home equity loan or home equity line of credit. Your monthly payment will drop, and you'll be able to reap some tax savings on the tax-deductible interest payments.

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Term limits
If you have a home loan, you pay a tremendous amount of money in interest on it for the privilege. You could refinance your loan to a shorter-term fixed-rate mortgage, for example, moving from a 30-year to a 15-year. Your payments may increase, but you'll realize significant interest savings in the long run.

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A new home loan may not be as lucrative as a sunken treasure, but the right refinance loan can go a long way to improving your financial situation. Consider the reasons above when you analyze your particular situation. If any of them align with your current needs, you'll want to set sail for a mortgage refinance.

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