The Top Questions to Ask Your Lender Before a Refinance

You waited long enough – interest rates are right where you want them so you are ready to refinance. Before you jump in head first, you should ask your lender the following important questions.







What is the APR?

Don’t let yourself get so focused on the interest rate that you forget about the APR. The APR is the total cost of the loan, including the closing costs in percentage format. It gives you a better idea of what the loan actually costs you.

Sometimes loans with low-interest rates actually have high APRs because of the excessive fees charged. The APR can help to keep you in line and avoid you from refinancing when it’s really not worth it. It’s so easy to get caught up in the low-interest rate that you completely overlook what the loan will cost in the end.

Is There an Origination Fee?

If you are using a lender other than your current lender, you may pay an origination fee. Even if you use your current lender, don’t just assume they won’t charge it – ask them. Lenders charge an origination fee when they think an applicant has a risk of default. Unless you have exceptional credit and a super low debt ratio, you have some level of risk of default; it’s only natural.

Not all lenders charge the origination fee, but if they do, it can really make your closing costs get expensive. One point in an origination fee equals 1% of your loan amount. If you have a $200,000 loan, that’s $2,000 on top of all of the other closing costs.

Can You Pay a Discount Fee?

The discount fee is an optional fee. If you want to buy your interest rate down, you’ll pay the discount fee. Lenders usually discount the rate 0.25% for every point that you pay. Each lender has their own pricing structure, though.

Make sure you look at the big picture before you decide to pay the discount fee. First, will you stay in the home long enough to realize the savings? Remember, you have to pay off the closing costs before you truly start putting the savings in your pocket. Also, is the savings enough to make it worth it? If you’ll only save $25 a month, do you really want to pay thousands of dollars? It will take many years for it to make it worth it.

When Can You Lock the Rate?

Just like when you bought your home, you need to lock the interest rate. You’ll have a certain amount of time to close the loan before the rate lock expires too. Luckily, you can usually take a smaller lock period with a refinance because you don’t have to do any of the legal work that was necessary when selling the home.


Make sure you know the cost to lock the rate (if any) and the consequences of an expired lock. You don’t want to find out the hard way that you’ll have to pay to re-lock your interest rate because you locked it too early.

What’s the Turnaround Time?

If you are in a hurry, such as is the case with some cash-out refinance loans, you’ll need to know how long it will take the lender to process your loan. don’t be afraid to ask what the turnaround time is and what you should expect as far as a closing date.

If you are getting cash out of your home’s equity, you’ll want to know when you’ll receive it. Plus you need to schedule your life around the closing. For example, your closing date will affect when you have to make your first payment. If you have a month off, you can use that extra money that you’ll save to cover your closing costs. If you close at the beginning of the month, though, you won’t have that month off; your first payment will be due the next month.

Who Will Service Your Loan?

Finally, you should know who will service your loan before you close on it. If the lender doesn’t do their own servicing or they know they will sell your loan, you’ll need the details of where your loan will land. Just because you like the lender you are using now doesn’t mean that you’ll like the company that services your loan.

The loan servicer is actually the company that you’ll have the most communication with so you want to make sure that it’s a company that you like. If your lender can’t tell you exactly who will service your loan, they can at least tell you the possibilities of who will so that you can do your research and decide if it’s the right loan for you.

Take your time to ask your lender these important questions before you refinance. They will give the answers that you need to make the best decision about your refinance. Since you already own the home, you aren’t under any pressure to refinance like you were when you bought the home and needed financing. This time around, you’ll have more time and be able to make clear choices.

source: blownmortgage.com

French PM says financial system solid but some banks ailing

PARIS -- French Prime Minister Jean-Marc Ayrault said Sunday that France's financial system is solid, even though the state was this weekend forced to help struggling mortgage lender Credit Immobilier (CIF).

"It is globally (solid), but there are a certain number of banks or establishments that are posing problems. Since I have taken up my post, we have had to deal with two situations -- CIF and Dexia," Ayrault said.

The CIF case is "very important because it is also about housing finance," he noted, without naming other banks which were facing trouble.

First bailed out in 2008 amid the global financial crisis, Dexia was not able to survive subsequent turmoil created by the eurozone debt crisis. In October last year France, Belgium and Luxembourg stepped in to wind up the bank.

Meanwhile, sources told AFP on Sunday that the French state would guarantee CIF to the tune of 4.7 billion euros ($5.9 billion) and wind down its operations.

France said on Saturday it would grant the guarantee to CIF, which has been hit by a liquidity crisis as markets shunned its calls for financing and must find 1.75 billion euros to pay off creditors in October.

Sources close to the matter said CIF, which specialised in mortgage lending to less privileged families, would cease providing new loans as its financial model was no longer viable.

Unlike banks, CIF does not take deposits from savers and rather taps the financial markets for funds to lend to homebuyers.

But tightened rules aimed at averting a repeat of the financial crisis have called into question the group's financing model. A recent credit downgrade by ratings agency Moody's added to its problems, forcing it to turn to the state for help.

CIF has 33 billion euros on its loan books.

Meanwhile, the French association of bank users said that granting a guarantee to CIF was a "high-risk gamble".

"We understand the procedure. But this method has so far led to a disaster," Serge Maitre, spokesman for the association said, citing Dexia as a precedent.

source: interaksyon.com

With Rates Low, Banks Increase Mortgage Profit

Interest rates on mortgages and refinancing are at record lows, giving borrowers plenty to celebrate. But the bigger winners are the banks making the loans.

Banks are making unusually large gains on mortgages because they are taking profits far higher than the historical norm, analysts say. That 3.55 percent rate for a 30-year mortgage could be closer to 3.05 percent if banks were satisfied with the profit margins of just a few years ago. The lower rate would save a borrower about $30,000 in interest payments over the life of a $300,000 mortgage.

“The banks may say, ‘We are offering you record low interest rates, so you should be as happy as a clam,’ ” said Guy D. Cecala, publisher of Inside Mortgage Finance, a home loan publication. “But borrowers could be getting them cheaper.”

Mortgage bankers acknowledge that they are realizing big gains right now from home loans. But they say they cannot afford to cut rates even more because of the higher expenses resulting from stiffer regulations.

“There is a much higher cost to originating mortgages relative to a few years ago,” said Jay Brinkmann, chief economist at the Mortgage Bankers Association, a group that represents the interests of mortgage lenders.

The jump in revenue for the banks is not coming from charging consumers higher fees. Instead, it comes from the their role as middlemen. Banks make their money from taking the mortgages and bundling them into bonds that they then sell to investors, like pensions and mutual funds. The higher the mortgage rate paid by homeowners and the lower the interest paid on the bonds, the bigger the profit for the bank.

Mortgage lenders may also be benefiting from less competition. The upheaval of the financial crisis of 2008 has led to the concentration of mortgage lending in the hands of a few big banks, primarily Wells Fargo, JPMorgan Chase, Bank of America and U.S. Bancorp.

“Fewer players in the mortgage origination business means higher profit margins for the remaining ones,” said Stijn Van Nieuwerburgh, director of the Center for Real Estate Finance Research at New York University.

Mary Eshet, a spokeswoman for Wells Fargo, said the mortgage business remains competitive. “The only way we can effectively grow our business and deliver great service to customers is by offering market competitive rates,” she said.

The other three banks declined to comment. But the banks are benefiting from the higher mortgage gains. Wells Fargo reported $4.8 billion in revenue from its mortgage origination business in the first six months of the year, an increase of 155 percent from $1.9 billion in the first six months of 2011. JPMorgan Chase and U.S. Bancorp, the other big lenders, are also reporting very high levels of mortgage origination revenue. Wells Fargo made 31 percent of all mortgages in the 12 months through June, according to data from Inside Mortgage Finance.

“One of the reasons that the banks charge more is that they can,” said Thomas Lawler, a former chief economist of Fannie Mae and founder of Lawler Economic and Housing Consulting, a housing analysis firm.

The banks are well positioned to profit because of their role in the mortgage market. After they bundle the mortgages into bonds, the banks transfer nearly all of the loans to government-controlled entities like Fannie Mae or Freddie Mac. The entities, in turn, guarantee the bond investors a steady stream of payments.

The banks that originated the loans take the guaranteed bonds, called mortgage-backed securities, and sell them to investors. The banks nearly always book a profit when the bonds are sold.

The mortgage industry has a yardstick for measuring the size of those profits. It compares the mortgage rates paid by borrowers and the interest rate on the mortgage bond — a difference known in the industry as the spread.

For example, a bank may lend money to homeowners at a 3.6 percent interest rate. After bundling those mortgages, the bank may then sell them in bonds that have an interest rate of 2.8 percent. The lower interest rate on the bond shows that the banks are effectively able to sell the mortgages to investors for a gain.

The banks pocket that markup when they sell the bonds. The bigger the spread between the mortgage rate and the bond rate, the bigger the markup for the banks.

Mortgage analysts who track this difference say it has been historically high in recent months. They contend that if the market were functioning properly, the recent drop in the bond rates should have led to a larger decline in mortgage rates for consumers than has actually occurred. .

Instead, the difference between the two rates is increasing: mortgage rates are falling much more slowly than the bond interest rates.

In the six months through June, the average difference between the two rates was 1.1 percent, and at the start of this month it was 1.26 percent. From 2000 to 2010, it was about 0.5 percent.

If banks offered mortgages with an interest rate that was half a percentage point lower — a move that would leave their mortgage gains closer to the historical levels of 0.5 percent — borrowers would see real savings.

Bankers say they need the extra mortgage revenue to cover new costs. As a result of more stringent conditions since the housing bust, bankers are required to be more diligent in approving loan applications. The banks say this requires better-trained employees and other added expenses. If Fannie Mae and Freddie Mac find flaws in the loan applications, they ask the banks to buy back the faulty loans, which can be expensive for the lenders.

“Fannie and Freddie are requiring zero-error loans,” said Tom Deutsch, executive director of the American Securitization Forum, a group that represents financial firms active in the mortgage market.

But Mr. Lawler, the housing analyst, is somewhat skeptical about the banks’ fears about the costs of buybacks. “If banks do their job properly, there should be little buyback risk,” he said.

The failure of mortgage rates to fall further poses a quandary for the government entities like the Federal Reserve and the Treasury Department, which have spent hundreds of billions of dollars to help make home loans cheaper.

“Policy makers get a little frustrated that they are not getting all the bang for their buck that they could,” said Mr. Lawler.

If the Federal Reserve bought more mortgage bonds in the market, it could actually increase banks’ mortgage profits, since such buying could drive down bond rates and increase the size of the markup banks take when they sell their mortgages.

It is hard to see how this situation can change in favor of lower rates for consumers. The banks are finding plenty of consumers wanting mortgage loans at current rates, and bond investors are happy to pay whatever low rate is offered.

And regulators, who are loath to dictate business practices, are unlikely to force banks to lower mortgage rates.

Still, the housing market would benefit if rates to consumers fell in tandem with the bond rates, said Mr. Van Nieuwerburgh of New York University.

“The relatively high mortgage rates do not help the housing recovery because they make it harder for new homeowners to get on the housing ladder and because they make refinancing relatively less attractive,” he said.

source: http://dealbook.nytimes.com/2012/08/08/with-rate-twist-banks-increase-mortgage-profit/?hp

Reviving Real Estate Requires Collective Action

IMAGINE that you are watching an outdoor theater production while sitting on the grass. You have difficulty seeing, so you prop yourself up on your knees. Soon everyone behind you does the same. Eventually, most people are kneeling or standing, yet they are less comfortable than they were before and have no better view. Everyone should sit down, and everyone knows it, but no one does.

This is a collective action problem, a phenomenon that is, unfortunately, all too common. At the moment, the trouble in our real estate markets and the drag these markets are placing on our entire economy may be understood as a collective action problem. In a nutshell, mortgage lenders need to write down the amounts owed by individual homeowners — that is, let everyone sit down and relax — but the different stakeholders have been unable to reach an agreement, even if it is in their common interest.

In the 1971 book “The Logic of Collective Action: Public Goods and the Theory of Groups,” the economist Mancur Olson argued that collective action problems are pervasive, plaguing nations and economic groups alike. “Most groups cannot provide themselves with optimal amounts of a collective good,” he said, because they cannot manage a “selective incentive” or arrange “coercion or some reward.”

In the current real estate market, the relevant group is enormous and complex. It includes those who own first and second mortgages or home equity lines of credit or residential mortgage-backed securities or the various tranches of mortgage collateralized debt obligations or shares in banks and finance companies that in turn own mortgages. These people live all over the world and have no way of communicating with each other, let alone coming to an agreement to give homeowners a break.

My colleague Karl Case and I showed in 1996 that when the value of a home falls below the value of the mortgage debt — when it is underwater — a person is much more likely to default on the mortgage. And it is well known that in foreclosures, lenders lose so much on the legal costs and depressed market values of the homes that it would be in their interest to lower mortgage balances so the homeowners stay in place and don’t default.

If such mortgage principal reductions could be applied on a large scale, there could be large neighborhood effects, raising a sense of optimism among homeowners and bolstering the value of all homes and, ultimately, the whole economy. But mortgage lenders in all their different forms lack a group strategy.

John Geanakoplos, a Yale economist, and Susan P. Koniak, a Boston University law professor, have proposed legislation that gives community-based, government-appointed trustees a central role. The trustees would have the authority to impose a write-down of mortgage principal that served the interests of mortgage issuers as a group, without having to prove that each and every one would be better off. But Congress has not acted on their idea. And so we are still lacking the authority to make everyone sit down.

ROBERT C. HOCKETT, a Cornell University law professor, has outlined another approach, which uses the principle of eminent domain, to solve this collective action problem. Eminent domain has been part of Western legal tradition for centuries. The principle allows governments to seize property, with fair compensation to owners, when a case can be made that such seizure serves the public interest.

Traditionally, we think of eminent domain law as applying to land and buildings. For example, a government can use eminent domain to seize real estate along a proposed new highway route so the highway can be built in a nice straight line. It would be absurd to expect the government to bargain with each property owner to buy a strip of land along the proposed highway route and to have to redirect the highway around a farm whose owner refused to sell. That is common sense.

But eminent domain law needn’t be restricted to real estate. It could be applied to mortgages as well. Governments could seize underwater mortgages, paying investors fair market value for them. This is common sense too. The true fair market value for these mortgages is arguably far below their face value, given the likelihood of default, with its attendant costs.

Professor Hockett argues that a government, whether federal, state or local, can start doing just this right now, using large databases of information about mortgage pools and homeowner credit scores. After a market analysis, it seizes the mortgages. Then it can pay them off at fair value, or a little over that, with money from new investors, issuing new mortgages with smaller balances to the homeowners. Taxpayers are not involved, and no government deficit is incurred. Since homeowners are no longer underwater and have good credit, they are unlikely to default, so the new investors can expect to be repaid.

The original mortgage holders, the investors in the new mortgages, the homeowners and the nation as a whole will generally be better off. There will surely be some who may not agree, like the holdout farmer opposing the highway, but eminent domain ought to be able to push ahead anyway.

San Bernardino County in California is working with a private company, Mortgage Resolution Partners, on the possibility of putting such a plan into action. We must hope this effort succeeds. If it works, it can be replicated all over the country.

But first we have to realize that much of our economic suffering takes the form of a collective action problem. We have to stop the wishful thinking that the problem will solve itself through a spontaneous rally in home prices. We need to summon our resources to exercise the authority that allows collective action.

Professor Koniak says the solution to this problem has been so slow in coming for a simple reason: “It’s the will that’s lacking! The will!”

article source: nytimes.com

Applying For Home Mortgage Loan Online Tips

There are different home mortgage loan online provided by various lending companies. If you are applying for a home mortgage loan online, there are number of documents, application forms for you to fill up. These forms are provided by a secure connection that can protect you from a possible identity theft thus, by filling out these documents and forms, considered borrowers are able to provide lenders with all of the necessary information to pre-qualify for a home mortgage loan.



Mortgage lenders are qualified experts in mortgages as well as the business world. There are numerous online mortgage lending companies that serves different set of mortgage packages so you have to do some research and analyze each of them to get the lowest interest rate.

People with bad credit can still apply and get approved for a mortgage loan. A lot of companies specializes in lending to borrowers with bad credit. You'll also be referred to a financial counselor. You can research through the internet as well. Look for a website which provides free information, advice and counseling in this concern.

Subprime mortgages is also known as bad credit mortgage loan. Subprime mortgages offer home buyers with bad credit the option of financing their home purchase even with bad credit history however, has higher interest rate than other loans and nowadays, there are fewer Subprime mortgage lenders.

When selecting a bad credit mortgage company, it's important to compare offers and look at both rates. Compare the Annual Percentage Rate (APR) offered rather than the interest rate.

Comparing lenders and their loan offers will go a long way toward reducing your loan costs.