Are the Banks Following through on Their Promise of Mortgage Help?

In February 2012, five major banks agreed to help troubled homeowners in order to settle lawsuits brought against them. Are they following through with their promises?

Five of the major banks in the United States are following through with their promise to help thousands of troubled homeowners who have had problems paying their mortgage payments. According to reports from the government, more than 140,000 homeowners have received financial assistance that totaled $10.6 billion and there is more to come.

The five major banks involved in this mortgage relief are JPMorgan Chase, Wells Fargo, Bank of America, Ally Financial and Citigroup. In total, the five banks have agreed to offer as much as $25 billion in relief in order to settle cases against them that resulted from investigations of foreclosure abuse. The agreement was reached in February so the banks are making good progress on their efforts to hold to their word.

There was only one reported incidence of one of the banks faltering. Bank of America did not complete any modifications between March 1, the first effective date of the settlement, and June 30. But BofA responded to those reports quickly by saying that it completed more than 3,800 mortgage modifications between July 1 and August 21. Those modifications totaled nearly $600 million in financial help. One of the reasons cited for not getting modifications completed by June 30 was because homeowners had to wait until a three-month trial period before they were finalized.

The other four banks, however, completed a total of about 7,100 first mortgage modifications during the March 1 to June 30 time period. The total money spent among those four banks was about $749 million. About $367 million of that was for modifications made through JPMorgan Chase which helped almost 3,000 troubled homeowners during that initial four month period.

The banks are volunteering the information about how many homeowners they have helped since the agreement was put into place. The data is made public which is one of the motivations for them to keep good to their promise. Another motivation for helping homeowners with their mortgage modifications is due to the fact that each bank gets credits for their efforts. For instance, the bank is given a credit of 45 cents for every dollar that it forgives in a short sale if the bank owns that loan. If the mortgage loan is held by an investor, the bank gets a credit of 20 cents for every dollar. Short sales, which occur when the bank lets a homeowner sell their home for less than what they owe, account for the biggest debt forgiveness under this new settlement. In fact, the five banks forgave nearly $9 billion worth of mortgage debt as a result of short sales.

According to Katie Porter, a law professor at UC Irvine who has been following the settlement and the compliance of the banks, this is a great step in the right direction. However, she says more needs to be done. Do you feel the same way?

Compare the best mortgage rates here.

Is Serial Refinancing a Good Idea?

As mortgage rates continue to fall lower and lower, should homeowners keep refinancing their loans even if they may have recently completed a refinancing?

With mortgage rates continuing to be at historic lows, it’s no wonder that millions of homeowners are refinancing their homes to take advantage of these low rates. But does it really pay to refinance your home more than once in a short period of time?

According to The Wall Street Journal, there are more than two million homeowners who have refinanced their mortgage loans at least two times since 2009. Between the years of 2006 and 2008, more than three million homeowners refinanced their home two times or more. That is because the mortgage rates continued to drop below their expectations through the years and it made financial sense to refinance several times to save money over the term of their loan. This is referred to as “serial refinancing” and many banks and lenders have helped homeowners save money by waiving closing costs when they refinance their mortgage loan.

Refinancing is a much viable option now than it was at the height of the housing boom. According to Freddie Mac, more than 85 percent of the mortgage borrowers who refinanced during that time ended up with a loan amount that was higher than their balance because they decided to take out some extra cash at the time as well. In order to do this, many borrowers agreed to thousands of dollars of closing costs and a large fee if they decided to pay off their mortgage early. During those days, it was only prudent to refinance your mortgage if you could save at least two percentage points on your interest rate and if you planned on staying in your home long enough for the lower monthly payments to break even with the upfront costs that refinancers had to pay.

These days, however, homeowners are refinancing their mortgages when they can save as little as three-eighths of a point. One homeowner – Dean Spalding – is also a financial executive in Kentucky. He has refinanced his 15-year loan four times in the last three years. Two of those times were in the last year alone. He has a balance of $350,000 on his home and he has been able to reduce his mortgage rate from 4.25% to 2.875% by refinancing. His last refinancing effort has given him a savings of $150 on his monthly payments.

But it can’t be that easy, right? There is a small catch. In exchange for waiving the closing costs, the lender has to do something to make up for that loss of revenue. As a result, many of them are increasing the rate that you qualify for by about 0.25%. That differs depending on the actual lender, but that’s what many of them are starting at. But that’s a small price to pay in exchange for getting a much lower mortgage rate that will save you money in the long run. This exchange is also helping the banks bring in business during a time when mortgage applications are significantly down.

Interested in refinancing?  Check out the best rates where you live.

Is serial refinancing worth all the trouble? Or would you rather pay the extra percentage point or two in order to avoid all of the paperwork involved in a refi?

Four Common Myths about Prequalifying for a Mortgage

There is a great deal of misinformation out there about getting prequalified for a mortgage. Here is the real truth about some of those common myths.

One of the most important things that you need to know before you start shopping for a home is your prequalification status. This is one of those terms that many inexperienced home buyers get confused about. Many home buyers think that prequalification is the same thing as preapproval, but that simply isn’t the case. Your prequalification is the actual amount of a mortgage that you can afford and that number is based on your current financial situation. If you’ve been confused about what it means to prequalify for a mortgage, here are some common misunderstandings and real answers to give you a better understanding.

Myth 1: Getting Prequalified is the Same as Getting a Mortgage Loan
Many people think that once you are prequalified for a certain amount, it is the same as signing up for a loan. But that is simply not true. A mortgage loan is much more involved and it is a much larger commitment than getting prequalified. Prequalified just tells you how much you can afford. The commitment begins when you get approved for a mortgage loan.

Myth 2: All Lenders are the Same When Getting Prequalified
You might think that getting prequalified is going to be the same regardless of the lender. But when you are going through the prequalification process, you want to make sure you find a company that will work with you. During this stage, the lender will do some coaching and advising so you want to be sure you work with a company that you are comfortable with. If you do not feel comfortable working with them during the prequalification stage, you could be asking for trouble in the next phase of your mortgage loan shopping.

Myth 3: No Preparation is Needed for a Prequalification
Getting prequalified is not as difficult as getting approved for a loan, but much of the process is the same and it does take some preparation on your part. In fact, you should prepare for the prequalification phase the same way you prepare for the mortgage approval stage. You may not be required to bring any paperwork when you are getting prequalified, but it will help you get a more accurate figure of what you will be able to afford. Bring your most current pay stubs with you along with tax returns from the last two years. You should also be able to prove your current income and a recent credit report. This will give the lender a better idea of your financial situation and they can be more accurate with your prequalification amount.

Myth 4: Stretching the Truth about Your Financial Situation has No Long-Term Effects
Many first time home buyers go into the prequalification stage thinking that they can exaggerate their income or their current financial status so they can get prequalified for a larger amount. But this can be detrimental to the entire process. For one thing, if you are prequalified for a larger amount than you can afford because you lied about some numbers, you could end up in major financial trouble if you get approved for that loan amount. But you should also be honest about your income. Don’t hide anything because you could lose credibility with the lender and they could decide not to work with you any longer.

Check out mortgage rates where you live.

These four misconceptions about getting prequalified for a mortgage are very common. But now that you know the truth, you can get a more accurate figure when you decide to go through the prequalification stage for your next home.