Will Maryland Pass a New Foreclosure Bill?

Some people have expressed some concern over possible ramifications of the new foreclosure bill that Maryland Governor Martin O'Malley would like to see passed in that state.

The basics are that the bill stipulates that lenders have to be able to verify that they made efforts to modify a loan before they begin the foreclosure process and give homeowners the paperwork necessary to contest the foreclosure. In addition to this, lenders would have to pay $100 each time they issue a foreclosure notice.

Most legislation is signed with the intent to do good and establish order, but there are always unintended consequences, no matter the purpose of a new law. While it seems clear that the idea is to help homeowners, lenders are not exactly thrilled about this bill. The idea is to stop predatory lenders. Some experts say it will discourage lenders from doing business in Maryland and that it puts all contracts on shaky ground.
What do you think?

Foreclosure and Credit Card Interest Rates

Foreclosure (or any other negative filing in your credit history) does not happen in a vacuum. Foreclosure can have an effect on your credit cards. Because of universal default, a credit card company can see that you have had trouble paying back one creditor and raise your interest rate because they now see you as a high-risk customer. It does not matter that you may have always made timely payments in the past. Past good behavior can be ignored in the light of any present difficulties. So if your house is foreclosed upon, you may find that your credit card interest rates increase. At least this is how it has been up until now…

Starting February 22, new legislation that will cut into the power of universal default will go into effect. One change will be restrictions on rate increases during the first year and borrowers must be given notice in a more timely fashion if their rates for future purchases are going to increase.

Read more about this new legislation: Clearing up some misconceptions about the Credit CARD Act

FHA LOANS HARDER TO GET...FIRST TIME BUYERS AFFECTED!!

The FHA is expected to announce publicly some major changes to their lending requirements. Weeks ago I mentioned that changes were coming because of the huge increase in the use of FHA loans. Someone at FHA is paying attention and has made two positive changes in the last several weeks. One has a positive effect on investors regarding flipping and one on new lending requirements is overdue. Although I am all for first time and for that matter all home buyers having as much advantage to buy a home as possible, it should not be at the expense of taxpayers.

The new rules will increase minimum down payment requirements for those borrowers with credit scores of 580 or below. I would assume they researched foreclosure rates and found a correlation between credit score and foreclosure. These borrowers will be required to put down 10% of the sales price of a home instead of the current 3.5%. This, unfortunately may prevent many from buying their first home.

Secondly, the MIP (mortgage insurance premium) will be increased from the current 1.75% to 2.25%. On a $200,000.00 loan that is an added $1,000.00 to the total loan amount. MIP is charged on FHA loans as an insurance policy in case of default. The premiums are placed in a fund controlled by FHA to help offset losses on defaulting loans. This is a change will have little effect on borrowers. They can finance this in the loan, making an insignificant change in the monthly payment.

Thirdly and in my opinion one of the toughest changes is the reduction in the amount of money a seller can contribute to the closing costs of a buyer. 3% is a big reduction and forces buyers to have more up front funds. Gift funds may be needed more than ever by FHA borrowers from family to help borrowers offset this change in seller contributed funds.

Overall these changes are needed to protect the financial vulnerability of FHA. This agency provides a valuable service to homebuyers and has been under emmence pressure since the mortgage crisis began several years ago. It has become, in essence, the only game in town for borrowers with little money down. FHA is still one of the best options for borrowers in todays marketplace.

Lenders Must Inform Consumers if Credit Rating Affects Loan Rates

A recent Washington Post column alerted readers to the fact now "rules require lenders to alert consumers whenever derogatory credit data cause them to be charged higher rates, higher down payments or less than optimal terms on a "risk-based pricing" system."

This will help protect not just the individual consumer in question, but other consumers as well. How? Well, what some of you may not have known was that some of the wave of foreclosures in the housing crisis was a result of lenders deciding that instead of rejecting applicants that did not fit their criteria, they would just give them loans at higher rates. Giving homes loans to high-risk borrowers at increased rates, masked problems that rose to the surface later.

You can take matters into your own hands by monitoring your credit own reports and making sure that they are free of errors. That way, when you go to get a loan, you will already know your rating, will have a good idea of where you stand, and will not need any alerts from a lender.

Benefits of the Propsed 'Cash for Caulkers' Program

Late last year, we told you about the possibility that the federal government would enact a 'cash for caulkers' rebate program that might work in similar fashion to the 'cash for clunkers' program that was initiated to help struggling automakers.

We have heard people wondering aloud just why the government would choose to help homeowners in this way--after all shouldn't they concentrate their efforts on sluggish home sales and not on helping people who already own homes to fix them up?

We can tell you that one of the reasons for the proposed program is that the construction industry is also seriously ailing. And putting people back to work is one way to assist all areas of the economy.

Another reason for this program is putting some action behind our nation's ongoing commitment to "going green." If we can get a large part of the American home-owning public to make their homes more energy efficient, this will go a long way towards cutting down on carbon dioxide emissions and conserving resources.

FHA Gets Stricter with Condo Buildings Too

We have already mentioned that new rules and changes brewing at the FHA could have detrimental effects on the housing market and we must include condos in that mix, along with stand-alone residences.

The FHA will now limit the number of buyers in a condo building who can receive an FHA loan. This move will shut out many potential condo buyers, since the FHA is behind about one out of every four new loans. It also puts added pressure on developers—so much so that some developers may have to cancel new projects since they will not be able to be certain of finding enough buyers who do not need to rely on the FHA for a loan.

In addition to the rules that restrict the number of FHA-backed loans for a condo building, they agency has also decided to up the ante on the number of condos that must be pre-sold before they will insure loans in a condo building. For now, 30 percent of the units in a building must be pre-sold to get FHA backing; in 2011 that percentage will increase of 50 percent.

Read more on the stricter FHA guidelines:

Homebuyers Hurt if FHA Changes Rules

FHA Guidelines May Become Stricter

Congress Extends Home Buyer Tax Credit, pt. 2

On Monday, we talked about how the first-time home buyer tax credit has been extended into next year. It was originally slated to end November 30, 2009. This is good news for those who qualify who still want to buy their first homes.

The extension went beyond making things easier for first-time homebuyers; it also includes people who are not buying a home for the first time. If you have lived in your home for at least five of the last eight years, you too can get a tax credit, albeit a smaller one than a qualified first-time home buyer would get, but any break on taxes is a good thing, right? Those of you who fit into this category may be able to get a $6,500 tax credit on a home if you buy it between November 6, 2009 and April 30, 2010.

Those who take advantage of the first-time home buyer tax credit or the tax credit for those who are not first-timers, have to stay in the home for three years if they do not want to have to repay the tax credit.

Congress Extends Home Buyer Tax Credit, pt. 1

We've made a big deal of the tax credit that the government extended to first-time home buyers and warned you when time was running out to take advantage of this amazing opportunity--after all we could not be sure it would renewed.

Well, those of you that missed out can still take advantage of it because Congress has decided to extend the deadline. Now, eligible first-time home buyers who purchase a home can get the tax credit. And those who sign a contract by April 30 and close by June 30, 2010 will also be able to receive up to $8000 from the government.

So some who you who may qualify may have been in the middle of your property search and felt that you would not make the November 30 deadline. It is good that you did not try to rush and buy a property just to get a tax break. Now, you can continue to take your time and know that you can get some assistance from the federal government.

New Loan Guidelines from the Federal Reserve

The rules in the real estate game change all the time, but sometimes they change in your favor. Prospective buyers will be pleased to learn that new guidelines from the Federal Reserve will offer them added protection. These new stipulations will be in place as of July 30.

-Your lender will be responsible for getting you the initial disclosures about mortgage expenses within three days of your loan application. You can walk away if they do not do this.

-Your lender cannot exact any fees (with the exception of a reasonable fee to check your credit) unless they have given you a disclosure about the costs associated with a loan.

-Your lender will also have to get a copy of the real estate appraisal to you three business days before the day that has been set for your closing.

-To give potential buyers more time to think about finalizing a property purchase, there will now be a mandatory waiting period between the time a potential buyer gets the early disclosures and the closing date. As a buyer, you will get seven days so that you can be certain that you want to make the deal.

These are just some of the changes that will start at the end of the month. For more information see this statement from the Federal Reserve regarding new loan guidelines.

Congress Gives Homeowners a Break

The growing crisis in the housing market has prompted Congress to act and relieve some of the anxiety and pain the American public is experiencing. In two separate bills, the Senate has turned its attention to the real estate industry and we can only hope that these measures will really provide the assistance that homeowners need.

The FHA Modernization Act could lower down payments, while at the same time also making the mortgage rates higher for loans that the FHA insures. The FHA Modernization Act has been in the works for a long time and just in time for Christmas, the Senate decided to give out the gift of its approval.

The Mortgage Forgiveness Debt Relief Act is a complicated piece of legislation, but one of its main tenets is that it aims to help homeowners who are threatened with foreclosure. It will make it easier for homeowners to refinance a mortgage because they will not have to pay as much in taxes. Under this Act there will be a three-year window during which homeowners can refinance and not pay taxes on the debt that has been forgiven.

For more information on the Mortgage Forgiveness Debt Relief Act, check out this fact sheet.