Mortgage Modification Information - A Homeowner's Guide

Article Summary: Many financial institutions are unveiling mortgage loan modification programs to help at-risk homeowners avoid foreclosure on their homes. As new information becomes available, we will update this guide. Last update: 11/11/08

If you've been watching or reading the national news lately, you've probably heard a lot about mortgage modifications plans being used to prevent home foreclosures. Spurred by the economic crisis sweeping the United States, these loan modification plans are designed to help "at-risk" homeowners struggling with high-interest mortgage payments (i.e., the kind of homeowner who could face foreclosure in the near future).

But what, exactly, is a mortgage modification plan? Who will be eligible for assistance? When do these programs start? These are some of the questions we will answer in this guide to home loan modification programs.

Home Loan Modification is Making News (And History)

If you want to look back a few years to see how we reached this point of economic distress, you might want to read out explanation of the subprime mortgage crisis. The rest of this article will focus on current events, as opposed to the events leading up to them.

These home loan modifications are being offered by different lenders, and so the details of the programs will vary from one financial institution to the next. But in general, the process is supposed to work like this:

First, the lender creates a set of criteria to determine which of their customers / borrowers need (and qualify for) assistance under the mortgage modification program. Next, they will decide how they are going to modify the loans. In most cases, this includes moving their customers into loans with a lower fixed interest rate. This does two things at once. It makes the mortgage payment more affordable (because the rate is lower) and it protects the homeowner from future uncertainty (because the rate is also fixed). The goal, of course, is to keep the person in the home and avoid a foreclosure situation from developing.

Which Lenders Are Offering These Programs?

We are currently building a list of lenders that are currently offering some type of mortgage loan modification plan. It's a work in progress, because new programs are being announced at the time of this blog entry.

Learn more here:
http://www.homebuyinginstitute.com/mortgage-modification.php

How to Get a Mortgage In This Economy

Reader Question: I've heard that a lot of home buyers are having getting loans in this economy. Is this true? Is it hard to get a mortgage loan in this economy, and if so what can buyers do about it?

Let me start with the short and easy answer. Yes, it is a bit harder to get approved for a mortgage loan due to our current economic crisis. A lot of lenders have bad loans on their books right now, and they're not sure how or when they'll be able to recoup their losses (or prevent future losses, for that matter). So if you want to get a mortgage in this economy you will need to be a well qualified borrower, as defined below.

Now let me clarify some of these points. Lenders today are basically doing what they should have done all along. They are scrutinizing borrowers to make sure they are good candidates for a mortgage loan. They are reviewing the financial history of everyone who applies for a loan to see if there's a pattern of responsibility or negligence. This is a good thing, because it keeps both the lender and the borrower out of hot water down the road.

But we have only recently returned to these standards. For a while -- through the 1990s and into the early 2000s -- just about anyone could get a mortgage loan. Even if you had a bad credit score and tons of debt, you could find a subprime lender willing to offer you some "creative financing" to get you into a loan. As history has shown, this is a dangerous way to do business for all parties involved. Many of the problems we are having in this current economy are a direct result of the irresponsible lending that took place over the last 10 to 15 years.

So let's get back to your question: How can you get a mortgage loan in this economy given all the problems we are having?

Basically, you need to be a highly qualified candidate. The "best of the best," if you will. Homeownership has always been a reward ... something you had to strive for. But today, in this economy we are experiencing, you have to strive a little harder than you did a few years ago.

How to Get a Mortgage In Our Current Economy

Keep in mind that you might not have any trouble at all getting a mortgage in this economy, based on your current financial situation. It's true that some lenders are turning more people away these days, but a qualified borrower can still get financing in this economy. Of course, a lot of folks will have trouble getting approved for a mortgage in the current economic landscape. So for those people, I offer the following advice.

• Boost your credit score. As a result of the housing crisis and all of its symptoms, home buyers need a higher credit score in this economy if they want to (A) get approved for a mortgage loan and (B) get the best rate on that loan.
  
• Improve your debt-to-income ratio. Here again, the bar has been raised. If you want to get a home loan in the current economy you will need a more favorable debt-to-income ratio (DTI) than in the past. There are three ways to do this: Earn more, owe less, or a combination of the two.
  
• Pay down your debt. We just covered the importance of debt-to-income ratio when buying a home in this economy. You can increase your chances for getting a loan by paying down some of your high-interest debt (like those credit card balances).
  
• Save up for a down payment. And then some. In the past, you've probably heard about "zero down" mortgage loans, where you could get qualified based on your credit and income and then get financed for 100% of the home's sale price. Well, those days are behind us. At least for the time being. Most lenders in the current economy are requiring a 20% down payment across the board. If you can save more than that, by all means do so. You're going to need the extra cash at closing anyway.

I hope this answers your question, and I wish you all the best in your home buying experience. Good luck. If you think you're a qualified borrower, based on the criteria listed above, it might be a good time to move forward in the process. This would mean getting quotes from lenders, and you can do that from out online mortgage quotes page.

Republicans Use Voter Suppression Tricks - Voters Beware

I had a feeling things were going to get dirty in the hours leading up to this election. Or should I say dirtier? In a despicable attempt to reduce the number of democrats who turn out to the polls, some folks on the Republican side of the fence are using some dirty tricks for voter suppression.

In some cases, they are sending out bogus flyers to tell people there are "overflow" elections to accommodate large crowds. These flyers claim that Republicans will vote on Tuesday and Democrats on Wednesday. In truth, there are no elections being held on Wednesday. It is a despicable attempt at voter suppression aimed at reducing the number of Democrats who turn out to vote on Tuesday. If they fall for this trick and go to their polling station on Wednesday, they will find it to be closed ... and they will have been tricked out of their vote!

There are other voter suppression tricks being used by the Republican party, and you can read all about them in this MSNBC article.

Do not let anyone scare or confuse you away from voting. This election is far too important for you to lose your vote due to voter suppression tactics. You can find your polling station and voting times at Vote411.org or through your county or state website.

CNN has also set up a voter hotline to help with polling questions and problems: "If you have a problem registering or voting or see a problem, call the CNN Voter Hotline at 877-GOCNN-08."

Voter suppression is a disgusting practice, but it's nothing new. In recent years, it has been most frequently used by the Republican party. They are experts at voter suppression and, unfortunately, their tactics sometimes have an effect. You can protect yourself by using trusted information sources (such as those I've provided above), along with a healthy mixture of common sense and skepticism.

Buying a Home During the Housing Crisis

Reader Question: We want to buy a house in the near future, but we are troubled by the news about the economic crisis in this country. What should we know about buying a home during the housing crisis we are experiencing?

We have been receiving questions like this a lot lately, so I'm happy to answer it for you and other readers of this blog. Instead of overwhelming you with the history of the housing crisis and other economic background, I'll focus on three of the most important things you should know when buying a home during this financial crisis we are in:

1. You have a lot of leverage when buying in this economy.
2. You need a very good credit score to get a mortgage loan.
3. You may see your house values drop in the short term after you buy.

Let's examine these items one at a time:

1. The Housing Crisis Creates a Buyer's Market

Supply and demand are the primary forces that determine where a particular area is considered a buyer's market or a seller's market. Right now there are a lot off homes for sale, partly due to all of the foreclosures (and people who sold to avoid foreclosure).

On top of that, there is a shortage of qualified home buyers right now. A lot of financial institutions have failed already. And those lenders that have survived are much stricter with their lending criteria, requiring higher credit scores among other things.

So in most places across the U.S., the current housing crisis has increased supply (more homes) while decreasing demand (fewer buyers). As a result, those buyers who do qualify for financing have a lot of leverage when negotiating with sellers. It's certainly something to keep in mind as you move forward in your home buying process.

2. You Need Better Credit Because of the Crisis

I touched on this issue above, and I've written an entire article on this subject, so I won't belabor the point here. Suffice it to say that buying a house during the current housing crisis will require you to have an excellent credit score, a favorable debt-to-income ratio, and other qualifying factors. Lenders giving out loans to poorly qualified borrowers is the main reason we are in this mess to begin with.

So if you want to buy a home in the current economic landscape, you will need to be highly qualified. Otherwise, you may not be approved for a mortgage loan. Of course, if you can afford to pay for a house in cash, this is a moot point. But for most buyers, it's a very real concern.

3. Your Home Value May Continue to Drop

Some people refer to a "bottom" of the housing market, as if prices can only fall so far before they hit bottom and rebound. This is nonsense. Sure, every economic cycle has a top and bottom. But there is no such thing as a "hard bottom" beyond which prices can no longer fall. Because of this housing crisis, property values could continue to drop for a long time to come. Financial experts can make educated guesses on the subject, but nobody really knows what the housing market will do in 3 months, 6 months, or even 2 years from now.

This is something else to keep in mind when buying a home during a housing downturn. Sure, you might pay less for the house right now (than if you'd bought it six months ago). But what will the home be worth next year? It's hard to say.

If you plan to stay in the home for a long time, this will be less of a concern for you. It's still something to think about, though. On the other hand, if you plan to live in the home for only two or three years, this should be a big concern for you. Depending on the final effects of the housing crisis you could end up selling the home for much less than what you pay for it.

But that's how real estate works. There's always a certain amount of speculation involved with the process. Hopefully, after reading this article, your decisions will be fueled by knowledge and awareness -- in addition to speculation. Good luck with your home buying process.

Related Article:

• Consider the Housing Crisis on Election Day
• Mortgage Crisis of 2007 - A Love Story
• The Credit Help Blog - Ask a Question

The U.S. Housing Crisis - Consider it on Election Day

The other day, a seemingly deranged individual emailed to complain about a blog post I did about the financial crisis in this country. In that post, I explained my views on why it's important to consider the U.S. housing crisis when you go to the polls on Election Day.

Specifically, I suggested that John McCain would be a bad choice for president, because he staunchly opposes the kind of regulation that could have prevented the housing crisis we have experienced. This person said I should be "ashamed of myself" for pointing out this view, and then went on to decry the previous actions of the Democratic Party.

For the benefit of this individual, and for everyone who plans to vote on November 4th, let me restate my views on this matter:

John McCain Will Perpetuate the Housing Crisis

Not only that, but he will also plant the seeds for a future housing crisis like the one we are experiencing right now. Unless, of course, the Congress opposes him. Back in the 1990's economists were warning about a future mortgage / housing crisis that would take place in this country, if the mortgage industry was not regulated in some way. As we painfully know, those predictions came true.

Unfortunately, things are even worse than those economists predicted. Our economy is in the worst shape it has been in since the Great Depression, and we have not yet hit the so-called "bottom."

Now, I know that many readers will shout about the evils of government regulation on corporations. But let me ask you this. Why do we have laws and regulations on personal conduct? Why do we have traffic laws? Why do we have laws against drunk driving, murder, burglary, extortion and white-collar crime?

We have laws on these things, of course, because it makes sense to do so. It protects society as a whole. So why should the government have a hands-off policy of laissez-faire when it comes to big business? Did we learn nothing from Enron and all the rest? What is wrong with sensible regulation on the way companies disclose information ... the kind of regulation that could have prevented the housing crisis that wrecked our economy?

In light of current events, I think that the people who oppose tougher regulation on lending institutions fall into one of two camps. They are either (A) employed by said lending institutions or (B) utterly insane.

The reader who emailed me -- and apparently a lot of other people in this country -- seem to think that this election is a partisan issue where the past actions of one party should make you vote for the other party by default. To these people I say, wake up and smell the economic wreckage around you.

I am speaking in purely economic terms here (because this is the Home Buying Institute after all) when I say the following:

If left unchecked, John McCain will plant the seeds for the next housing crisis in this country. He is vehemently opposed to the kind of regulation we so desperately need. Don't take my word for it ... check out his voting record for yourself. McCain himself claims that he is "fundamentally a deregulator."

Of course, in light of recent economic events, McCain now realizes that this label is going to hurt him in the election. So he is now in the process of turning on a dime to stress the importance of strong regulation. In other words, he is saying: Don't look at how I've voted for the last two decades ... just listen to what I'm saying this week.

Would McCain be the kind of president who would work to prevent another housing crisis ten years down the road? Not so much. He would be too busy planting the seeds for that crisis by allowing financial institutions to operate above the law.

Or, if I get my wish, we will wake up on Wednesday, November 5 and realize that McCain is a moot point ... because he lost the election. Only time will tell.

In closing, I leave you with some recent commentary on this subject, provided by the always-insightful Sarah Palin:



Blog topics: housing crisis - john mccain - election - regulation

Buying a Home in the Current Economy

Reader Question: Given the very recent economic events, would you advise purchasing a home at this time or waiting?

From a buyer's perspective, there's really an upside and a downside to the current economic "crisis." So let's take a look at both sides:

The downside is that it's harder to qualify for a mortgage loan these days. You need a higher credit score and a more favorable debt-to-income ratio, among other things. This is especially a problem for people with past financial problems, bankruptcies, poor credit and such. Of course, if you have good credit, this might not be an issue at all.

The upside is that home prices have dropped considerably in most areas, when comparing current data to the prices from a couple years ago. Bad for sellers ... good for buyers.

The question for home buyers (and even for sellers) is, how much further will prices drop? Or will they start to rebound sometime soon? Sure, you could save money on a home right now. But how do you know the value of the property won't continue to drop after you buy it, due to continue weakening of the economy? The answer, of course, is that you don't know. That's the question mark that always applies to real estate purchases.

So to revisit the question at hand, it's hard for me to advise for or against buying a home in the current market. I think in some cases it makes sense, while in other cases it does not. For example, a first-time home buyer with great credit who plans to stay in the home for many years ... that would be a case where buying a home might make a lot of sense in the current economy.

But somebody with bad credit, or somebody who plans to turn around and sell within a few years, should probably avoid a home purchase at this time. It's something to be carefully considered on a case-by-case basis.

Hope that helps. Good luck!

Causes of Current U.S. Financial Crisis - And Why You Should Vote Democrat

What are the causes of the current financial crisis in the U.S., and what can we do to ensure it doesn't happen again in our lifetime? These are the questions we will address in this entry.

It's election time again, and this time around we have a chance to save our devastated economy. Scratch that ... to save our entire country from further devastation. In less than a month, you will be able to cast your ballot for the next president. So as somebody who watches the housing and mortgage markets very closely, let me offer this advice:

I you want to see an end to the current financial crisis ... if you want to see our government shift course and policy to ensure we don't have another financial crisis anytime soon ... if you think a reasonable amount of regulation on the lawless pirates of Wall Street is a good thing ... if you would like housing prices to rebound sometime in our lifetime ...

If you want all of these things, you should vote Democrat on November 4th.

Republican leadership (or, more accurately, a lack of leadership) is one of the primary causes of the current financial crisis we are dealing with in this country. I'll come right out and say it. The mortgage and financial giants helped pay for George Bush's past presidential campaigns so that he could essentially do their bidding once elected. They got their wish. And boy are we paying for it now!

But let's go back a few years to see what caused this current financial crisis and what we might have done to avoid it. In doing so, we can better avoid a future crisis of similar proportions.

A Brief History of Crisis and Crime

During most of the 1990s, a trend emerged in the mortgage industry. It was the rise of the subprime mortgage loan, a term we are all painfully familiar with right now. While subprime loans have been around for much longer, they became extremely popular during the aforementioned time frame. Popular in a bad way, mind you.

Basically, a subprime mortgage is one given to a borrower with a low credit score -- a borrower who wouldn't normally qualify for a traditional loan (and with good reason). But their are plenty of negatives associated with these loans, and those negatives are largely what caused the current financial crisis we are dealing with.

Most of these loans were adjustable rate mortgages with low "teaser" rates for the first few years, and then a ridiculously high interest rate later on at the "reset" point. But many of the big subprime lenders had a habit of downplaying the risks when dishing out record numbers of these loans to Americans.

For a long time, economists in this country warned that the out-of-control subprime market would lead to serious financial problems in the near future. Many of them even predicted a financial crisis would occur within the next decade or less. When you consider that their warnings began about a decade ago, you can see that they were right on the money!

Later, in 2004, we had additional warning bells. During the annual housing policy meeting, Edward Gramlich (a member of the Board of Governors of the Federal Reserve at that time) stated that: "the relatively high delinquency rates in the subprime market do raise issues ... For mortgage lenders the real challenge is to figure out how far to go. ... If lenders do make new loans, can conditions be designed to prevent new delinquencies and foreclosures?"

How far to go, indeed! Everyone knew that subprime lending had gotten out of control, and that it would fuel foreclosure rates like nothing we have ever experienced before. Red flags and warning signs were plentiful along the way. So why didn't somebody do something? Why did the federal government turn a blind eye for years, up until recently?

Ah, now we get to the heart of the matter. And this is why I warn you against voting republican on November 4th. Here's the big "secret" that many Americans don't seem to realize...

The Subprime Lenders Helped Bush Get Elected

Make no mistake about it, folks. George Bush is on the side of the lending industry and financial giants whose greed is a primary cause of our financial crisis. They helped him get elected, because they knew they would need an advocate to ward off regulation. That way, they could continue the very practices the economists were warning us about.

But it's hard to crack down on somebody who gave millions of dollars to your campaign. For example, during his 2004 presidential campaign, Bush received $7.8 million from Ameriquest (a giant of the subprime mortgage industry). They also helped pay for his inauguration.

Ameriquest's financial "love" didn't stop with the president. They contributed money and gifts to many legislators at the federal and state level. According to the Wall Street Journal, "[Governor] Arnold Schwarzenegger's campaigns received at least $1.4 million, along with stacks of tickets to a Rolling Stones concert that were used to lure big donors."

Sensible Regulation Can Prevent a Financial Crisis

Due to the financial contributions outlined above (among others), there was very little regulation of the subprime industry during George Bush's fist and second terms. Some people will beat their fist on their chest and say, "Government should never regulate business. It's Un-American!"

To these people I say: Wake up and smell the reality all around you. This whole argument is equally simple-minded and dangerous. Let me ask you this. Why is it okay to regulate the actions of people (with laws), but not the actions of corporations? What's the difference?

In fact, I would argue that it's even more important to regulate financial entities that have the power to bankrupt millions of Americans and wreck the U.S. economy. If ever a set of rules was called for ... it's with Wall Street.

November 4th = A Chance to Get it Right

And that brings us back to the present. In about a month, we will go to the polls and choose one of two men to be our next president.

On the one hand, John McCain is vehemently opposed to government regulation of big business. In other words, he wants to continue most of the policies that caused our current financial crisis. But then, why should McCain be concerned about the current crisis? It doesn't affect ultra-rich Americans like him. While millions of Americans are losing their homes, John McCain can't remember how many houses he has. Talk about being out of touch with economic reality!

On the other hand you have Barack Obama, who is an advocate of sensible regulation -- the kind of regulation that could have prevented the financial mess we are in now. Obama, who only recently paid off his student loans, is very much rooted in the reality of the current financial crisis in this country.

So my question to you is this:

Who do you think will be better equipped (and motivated) to get us out of this financial crisis? An ultra-rich de-regulator like McCain, whose staff is largely made up of lobbyists? Or Barack Obama?

Seems like a no-brainer to me. And on November 4th, we will find out how many voters are using their brains as well.