California Cities to Implement Controversial Eminent Domain Solution for Underwater Mortgages

Should eminent domain be used to help cure the mortgage crisis in California?

San Bernardino, a city that just filed bankruptcy and one of the hardest hit areas when it comes to underwater mortgages is the inland area of California, is considering a plan that will help people who now owe more money on their house than what it’s worth, but the plan is not without its controversy.

Along with the surrounding cities of Ontario and Fontana, officials in this region are trying to stem the housing crisis by using the power of eminent domain. In short, what would happen with this plan is that the local government would seize the homes that are affected by the underwater mortgages. The government would then condemn these mortgages which would allow them to be seized from investors that have purchased them. This would make it much easier to rewrite the mortgage loans so the borrowers could lower their monthly payments.

Eminent domain is a law that is typically reserved for clearing land for new infrastructures. If the government wants to build new roadways, utility poles, gas lines or any other infrastructure and there is private property that is standing in the way, the owner can have their land taken through a court order. However, they must be given the current fair market value of their land at the time the government decides to seize the property. When this happens, it’s called “condemnation” proceedings.

With the new plan being discussed in San Bernardino and surrounding cities does not involve building infrastructure, officials say they can use the idea of eminent domain to condemn these mortgages because it is in the best interest of the public. Since the housing crisis has been so detrimental to the economy in this area of California, rewriting the mortgages and offering lower monthly payments to the borrowers will be a huge step in improving the local economy, according to those who are touting the plan’s positive impact.

If the plan goes into effect, it will focus on those mortgages in which the borrower is current on their payments but they owe more money on their home than its actual value. The mortgages for these homes would be “condemned” and the new loans would be written using the home’s current value rather than its value when it was purchased years ago. This would inevitably lead to a lower loan amount which would result in lower payments.

Some officials, however, aren’t sure that this is such a great idea. Although it will make mortgage borrowers and private investors happy, it could make banks hesitant to offer new mortgages in the area. Others say that the plan would result in “costly litigation” as some private investors who invested in mortgage securities will lose money on the deal. It will also discourage new investors from putting their money into fragile housing markets where it is needed the most.

If this plan works, do you think it will spread to other areas of the country where the housing market has been hit hard? Is it a good plan or will it create more problems than it solves?

Shopping for Mortgages Just Became Easier with Dodd-Frank Reform

The new regulations for mortgage shopping have recently changed due to the Dodd-Frank reforms. Are they good for buyers and the mortgage industry?

If you have tried shopping for a mortgage lately, you’ve probably encountered several difficulties. Mortgage documents are some of the most complicated papers that you’ll ever sign and the ordinary consumer does not understand everything that is explained when committing their name to the bottom line.

The Dodd-Frank Financial Reform legislation is seeking to simplify the process. This week, those new guidelines went into effect after months of testing their viability. Here are some new procedures and rules to look for when you are shopping for a mortgage as a result of the new guidelines.

Basic Information Cover Page
Instead of hiding the basic information about a mortgage loan (interest rates, loan amounts, monthly payments, closing costs, etc.) in the middle of the package of documents, lenders will now be required to put that information on the front page. This will help the buyer pinpoint all of the important information they need about their mortgage loan right away.

In addition to including this information on the first page, the lender will also be required to explain how the buyer’s payments, mortgage rates and the amount owed can change over the term of the loan. This information will need to include how high the monthly payments can potentially go along with information about insurance, taxes and other costs. This is all designed to help the buyer understand the total cost of the home before making the purchasing decision.

Information about Risks
Another guideline of the Dodd-Frank reform is that the lender’s forms need to give a clear warning to buyers about risky features. This includes information about prepayment penalties for the mortgage loan, the risks that are associated with adjustable rate mortgages and the possibility of a loan amount increasing due to negative amortization.

Simpler Forms
Instead of the huge packets of forms that have been commonplace when applying for a mortgage, lenders are making their forms simpler and shorter to give consumers a better chance of reading them and understanding everything that is in the agreement before they make their final decisions.

Realistic Loan Payment Determination
For a lender to offer a mortgage loan to a buyer, they must prove that they have a reasonable method for making payments on the loan. This means that the lender must calculate the payments based on a fixed rate that is equal to the fully-indexed adjustable rate plus 2.25 percent. As an example, if a buyer was getting a 5/1 ARM loan at 3 percent, the lender must calculate the cost of the rate based on 5.25 percent when determining if the buyer can afford the monthly payments.

These are just a few of the new regulations that you may notice with the Dodd-Frank reforms. Do you think they are going to be beneficial for buyers? Or is it going to make a difference?

Compare local mortgage rates here.

5 Strategy Tips for Placing a Bid on a Home

Finding the ideal home for your family is the beginning of achieving a dream. But how do you place a bid on the home that is a fair amount?

Finding a home that you want to move into is just the beginning of the home buying process. The step immediately after you find the home that you want to purchase is placing a bid on that home. But when making a bid, there’s a fine line between offering a reasonable price that you’re happy with and insulting the seller with a lowball offer. When it’s time for you to bid on a home, here are some strategic tips to remember.

1. Know the seller’s motivation to sell. Knowing how motivated the seller is can help you reach a fair bid that will be amicable for both you and the seller. Find out why they put it on the market and how much equity they have in the home. Also, knowing how long it’s been on the market will help you decide how much to offer in your bid. If it’s been on the market for awhile, they may be more motivated to sell it so they don’t have to make any more mortgage payments than necessary.

2. Talk to the neighbors. Placing a bid on a home should involve an evaluation of more than just the structure. It should also include a consideration of the surroundings. Does the neighborhood have a high crime rate? Are there any major construction projects planned in the near future? How are the schools in the area? If you can find some facts that seem less desirable, you can offer a lower bid based on what the neighbors tell you about the area.

3. Get your agent’s advice. Having a real estate agent working on your side is one of the best things you can do when buying a house. Before you making a bid, you should ask their advice on a reasonable offer that is fair and won’t insult the seller. A buyer’s agent has the skills and the resources to find prices of comparable homes in the area. They also have better negotiation skills for getting a better price for you.

4. Know the market. Before placing your bid, do some research about the real estate market overall. Is this a buyer’s market or a seller’s market? If it’s a seller’s market, the homeowner will be less likely to take low offers because they know there will be another buyer around the corner.

5. Include contingencies with your bid. It’s common for a potential home buyer to place a bid on a home based on contingencies. This means that there are clauses in the buying contract that give the buyer a legal way out if there are major problems with the home. It’s common to include contingencies that state that problems must be fixed in order for the bid price to be valid. Many times, the bid amount is contingent on the outcome of the home inspection or the buyer qualifying for a mortgage, but the offer can include other contingencies as well.

Placing a bid on a home shouldn’t be approached lightly. There should be careful thought and consideration in the amount that you bid so you and the seller can reach a price that can make everybody happy.

Find the best mortgage rates where you are looking to buy here.