Mortgage aid program will likely help millions

Some questions and answers about how it could affect payments, taxes

NEW YORK - It's welcome relief for homeowners struggling with mortgage payments.

The new federal program to let people refinance or modify their mortgages is expected to help millions of Americans lower monthly payments and avoid foreclosure. So what strings are attached?

You might be concerned about the impact to your credit report or the tax implications, for instance. Others who are still paying low introductory rates might fear their monthly bills could skyrocket.

Here are some questions and answers on concerns people might have about the Making Home Affordable program.

Q: How will my credit profile be affected?

A: Refinancing generally doesn't affect your score since it's simply a rewritten mortgage, according to Norm Magnuson of the Consumer Data Industry Association, a trade group based in Washington.

This is especially true of refinancing under the federal program, since one of the terms of eligibility is that homeowners can't have missed a payment in the past year.

It's not yet clear what impact a federal loan modification — an adjustment to terms of an existing mortgage, rather than a new one — will have on credit profiles, however, Magnuson said. Regulators haven't yet determined how the loan modifications will be reported, if at all.

If you're applying for a loan modification under Making Home Affordable, it means you've already missed payments and hurt your credit profile. A loan modification should improve your credit profile in the long-run since the idea is to get you on track for meeting payments.

It might also free up money to pay off other debts.

Q: Is it possible my payments will be higher?

A: If you're still paying a low, introductory rate, it's possible your monthly mortgage payment will increase slightly under the federal refinancing program. But the idea is to avoid the big interest rate spikes that typically come with adjustable-rate mortgages.

After applying for the Making Home Affordable program, your lender should give you a "good faith estimate" that includes your new interest rate, mortgage payment and the total cost of the loan. Compare the numbers with your current loan; you might decide that refinancing isn't an improvement.

You can also check out the payment reduction estimator on the government's Web site at http://www.makinghomeaffordable.gov/.

Q: Should I wait to see if mortgage interest rates come down in a couple of months before applying?

A: Probably not, since mortgage rates are at historic lows.

Last week, rates on 30-year mortgages inched upward to 4.87 percent, but that's still close to the lowest level in decades. Waiting for the rate to go any lower might backfire, said Ken Inadomi, director of the New York Mortgage Coalition.

Even introductory rates shouldn't be that much lower than fixed rates these days — in some cases, they may even be higher. So it's probably in your best interest to apply for refinancing now.

In case you decide to wait: The Making Home Affordable program expires on June 10, 2010.

Q: What are the tax implications?

A: Charges for refinancing a mortgage are tax deductible. The total cost should be evenly divided to be deducted over the life of the mortgage, Inadomi said. Other costs, such as attorney or appraisal fees, are not deductible.

You'll also have to adjust your mortgage interest deduction if you get a lower rate.

Q: Can I try to refinance or modify my mortgage on my own, without going through the program?

A: Working directly with a lender shouldn't be a problem if you think you're not eligible for the federal program. Just beware of getting a third party involved, especially if they ask for an upfront fee.

Last week, government officials warned homeowners of scammers that charge fees of $1,000 to $3,000 to help with loan modifications. Officials say such operations almost always are fraudulent, and that help is available for free from government-approved housing counselors.

Officials said the scams often go by official-sounding names designed to make borrowers think they are using the Obama administration's program.

updated 7:05 a.m. ET, Tues., April 21, 2009

http://www.msnbc.msn.com/id/30197516/

Beach to Bay Real Estate Center is a full service real estate brokerage servicing buyers, sellers and renters at the Delaware beach areas. We handle all forms of real estate, including residential, commercial, and lots and land, in addition to bank owned, short sales and auctioned properties and representation; mortgage needs including refinances, new home purchases, second homes, first time homebuyer programs and reverse mortgages; maintain professional relationships with local settlement attorneys, insurance companies, contractors, and inspection companies; and are affiliated with a preservation and restoration company. Beach to Bay services all of Sussex County, and southern Kent County, with a strong focus on the beach resort areas of Rehoboth Beach (19971), Lewes (19958), Bethany Beach (19930), Dewey Beach (19971), Milton (19968), Millsboro (19966) and more.

Washington Report: Buydowns?

by Kenneth R. Harney

It seems that everybody is looking to Capitol Hill right now for a bailout: the Big Three auto manufacturers, banks, insurance companies, Wall Street titans.

But real estate and housing advocacy groups are floating a very different "b-word" -- "buydowns" -- or interest rate reductions on mortgages to stimulate more purchases of new and existing houses.

The buydown idea is not something dreamed up by builders or Realtors for the current tough market. Rate buydowns were used successfully during the 1970s, when Congress authorized the Government National Mortgage Association, "Ginnie Mae," to subsidize rates on mortgages funded through Fannie Mae.

Ginnie Mae essentially bought low-rate loans from Fannie but paid for them as if they carried higher, prevailing market rates. The government absorbed the difference.

Back then, it was known as the "Tandem Plan." Though neither the National Association of Home Builders nor the National Association of Realtors has spelled out the mechanics, both are urging the incoming Obama administration to include some version of a Tandem Plan-type buydown in its economic stimulus package expected as early as January.

The builders' buydown proposal is the more aggressive -- and expensive. It would cut rates on loans for new and existing homes to 2.99 percent, fixed for 30 years, for people who buy between now and next June 30. On purchases from July 1 through December 2009, mortgage rates would be fixed at 3.99 percent.

The home builders make no bones about their objective here: By slashing mortgage rates drastically, the plan would jolt buyers off the sidelines in droves, stabilize prices, get rid of unsold inventories, and send positive ripple effects through the economy as a whole.

The Realtors also favor some type of buydown plan. Chief economist Lawrence Yun has called for at least a one-point rate reduction, but they want to leave the details up in the air for the moment to see what the new administration might find acceptable.

So how likely is it that we'll see rate buydowns anytime soon? At the moment that's unclear. Any form of national buydown would be expensive -- the builders estimate the one year cost of their plan at $130 billion or more.

But there's precedent and there's little question that buyers would respond to even a modest rate subsidy. The main question is: Can a new Congress and new administration fit this into their already bulging package of promises to other needy causes?

And do they accept the core idea here that if you stimulate the housing sector, you stimulate the economy as a whole?

Published: November 24, 2008

A Wakeup Letter to Washington

Note to lawmakers: It's high time to take care of unfair costs for consumers. Let's have some change for fair play.

Take a memo.

To: Our new Congress; the President-elect
From: Nickeled-and-dimed Americans
Re: The (other) financial mess

Congratulations on winning your elections. We trust you won't spend too much time celebrating, though. We taxpayers have had to lay nearly $1 trillion on the line to keep the banking and credit system from collapsing. Cross our fingers, it just might work.

Your task now is to reform the financial industry that helped get us into this jam in the first place. Already there's a fervor in Washington to clamp down on the wholesale side of Wall Street's business, to tighten capital requirements and to get on top of derivatives and the other kooky securities investment banks trade.

All good. But please don't ignore the retail end - that is, the way lenders and brokers do business every day with us consumers. That's a mess too. You've allowed these companies, including some of the very ones we're bailing out now, to do pretty much whatever they want to drain us of our money.

Even the most responsible and savvy borrowers among us have trouble avoiding the tricky fees and rate-hike triggers on our credit cards. You've allowed our kids to get sucked into the debt culture before they've even gotten a job to pay the bills.

And then there are the financial products that are just plain poison, like mortgages that homeowners can't possibly repay and loans with interest rates to rival what guys with names like Sammy Knuckles used to charge.

As we're seeing now, irresponsible lending doesn't just hurt the people who take the bait. It can undermine the whole economy.

We aren't saying that lenders shouldn't make a profit. And we aren't saying that we borrowers aren't responsible for our own choices. We just want transparency and safeguards against faulty financial products.

Here's what you should be working on:

Curb credit-card gotchas
We understand the basic bargain behind credit cards (or think we do). For the convenience of charging, we have to pay some interest. If we pay on time, we should get a lower rate because we've proven that there's little risk we won't pay back.

But if we miss payments, we'll pay more - and even get dinged with some penalties. The card issuers call this risk-based pricing. And whenever lawmakers discuss new regulations, issuers strenuously argue that this system must never be undermined, for the good of consumers.

Ken Clayton of the American Bankers Association says that if lenders aren't allowed to charge their riskier customers a penalty, "some people will lose access to credit at reasonable prices."
Well, sure. Of course lenders ought to be able to set rules for borrowers - the only trouble here is the complexity. It seems to us that card companies aren't pricing for risk so much as teasing us with one low rate and then building multiple traps into their contracts to get us to shell out more, no matter how creditworthy we are. After all, virtually anyone can occasionally incur a late fee.

For starters, there are contracts that stipulate that the terms of the loan can change "at any time, for any reason" - which makes us wonder what all the rest of the gobbledygook is there for.
Among the reasons a card lender might choose to hike our rates: We missed a payment owed to someone else. (The lenders' jargon for this is universal default.) And when we're hit with a new rate, it's generally applied not only to new purchases but to any outstanding balances.

Penalty fees have become an important part of the card lenders' business model. According to IndexCreditCards.com, the average late fee is up to $35; the fee for going over the credit limit is about the same. (And those charges accrue interest too.)

Bills are often mailed out uncomfortably close to the due date. Sometimes the deadline isn't just a date but a specific hour. You can even be charged when paying on time: A Washington Mutual card assesses a $15 fee for paying online on the due date.

And then there's the stuff that seems intentionally perplexing. Many cards, for example, offer tantalizing 0% rates on balance transfers while charging a higher rate on regular purchases.
If a customer doesn't pay off the balance transfer immediately, all the monthly payments go to that 0% loan while the balance for the other, higher-rate charges just compounds and compounds.

Another common trick is "double cycle" billing. Here's how it works: Say a cardholder with no previous balance charges $1,200 and pays off $500 when the bill is due. You might think that interest would be assessed only on the remaining $700.

And with some cards that's true. But with double-cycle cards, a customer would owe interest in the next billing period on $1,900 - first on the original $1,200 and then on the $700 left over.
It's tough enough for full-fledged grownups with steady incomes to navigate this credit-card maze. So it worries us when we see that credit-card companies are aggressively pulling in college students. If they're over 18, they don't need a parent's consent to sign up.

A 2008 survey of new college grads for the credit bureau TransUnion found that 24% start their adult lives with more than $5,000 in credit-card debt. Many students have no means of support other than their parents, scholarships or loans.

But if kids don't or can't repay, says Robert Manning, author of Credit Card Nation, lenders "send bill collectors after parents saying, 'Do you really want to ruin Sally's life over $6,000?'"

How to fix it: We're hopeful that change is coming. "A critical mass is building for reform," says Travis Plunkett, legislative director of the Consumer Federation of America (CFA). Last year the Federal Reserve, which regulates banks, proposed new rules and asked for public comments. An unprecedented 62,000 consumers wrote in.

The Fed's proposal is a good start. If chairman Ben Bernanke actually approves the new rules, they'll ban double-cycle billing, prohibit applying rate increases to old balances and force companies to consider a payment on time if received by 5 p.m. of the due date.

The Fed would also require card companies to apply payments above the minimum proportionally. So if a cardholder who owes $2,000 for new purchases at 19% and $3,000 for transfers at 0% made a payment of $500 over the minimum, the bank would have to apply $200 to the new purchases and $300 to the cash advance. How perfectly sensible.

If the Fed doesn't act or waters down its ideas, then Congress, it's up to you. The Credit Cardholders' Bill of Rights, sponsored by Carolyn Maloney, D-N.Y., passed the House in September.

It would do much of what the Fed proposed and then some. It would bar universal default and "any time, any reason" rate hikes and require card companies to send out bills 25 days in advance of the due date.

The measure would also cut down on surprises. Card companies would have to notify customers of any rate increase 45 days before it went into effect. That would give us more time to make other plans or shop around for a better rate.

In an ideal world, we'd like Congress to go further. If a card has a credit limit, the lender should enforce it, instead of letting the transaction go through and then spanking us with a big fine.

And lawmakers should forget about those complicated deadlines and require lenders to accept a payment if it's postmarked on the due date. If that's good enough for the IRS, it should be good enough for a card company.

But most important, we've really got to protect students. Manning proposes a common-sense solution: Those between ages 18 and 21 should be allowed to have credit, but only if they have some income. Student loans and bailouts from the Bank of Mom and Dad shouldn't count.

By Marlys Harris, Money Magazine editor-at-large
November 5, 2008: 9:47 AM ET