Over the last few years, lower
interest rates have helped propel sales of new and existing homes to record
levels. Financing costs and a strong job market have helped stretch
the purchasing power and home ownership has risen to new heights
− fully two-thirds of all American families
now live in a home they own.
Good Faith Estimates
Starting January 1, 2009, lenders
and brokers are required to provide borrowers with new Good Faith Estimate
forms to show the final closing costs, and the maximum rate a borrower might
pay on variable loans, among other things. Borrowers are asked to sign the
document and return it to lenders and brokers before the underwriting process
can begin. This is required by the
Real Estate Settlement Procedures Act (RESPA).
The estimate must include an
itemized list of fees and costs associated with your loan and must be provided
within three business days of applying for a loan. These mortgage fees,
also called settlement costs or closing costs, cover every expense associated
with a home loan, including inspections, title insurance, taxes and other
charges. A good faith estimate is a standard form which is intended to be
used to compare different offers (or quotes) from different lenders or brokers.
The good faith estimate is only an estimate. The final closing costs may
be different – sometimes very different.
Mortgage Broker or Lender?
Mortgage
brokers, middlemen who shop for home buyers among banks and lenders, can
choose from programs from many banks. They may be able to offer a
variety of deals that are not available at your own bank. Examples
of deals include: first-time buyer programs, low- or no-down-payment loans
for certain occupations (police and firefighters), and low-cost mortgages
for energy-efficient homes.
Most of a broker's compensation
comes from fees paid by the lender. The lenders that mortgage brokers
deal with quote a "wholesale" price to the broker, leaving it to the broker
to derive the "retail" price offered the consumer by adding a markup. For
example, the wholesale price on a particular program might be 7% and zero
(0) points, to which the broker adds a markup of one (1) point, resulting
in an offer to the customer of 7% and one (1) point (Each point is equal
to one percent of the loan amount). But if the broker adds a two (2) point
markup, the customer would pay 7% and two (2) points.
Due to the mortgage problems, some of the biggest companies
in real estate have decided to stop working with brokers. Chase won’t lend
to brokers’ clients anymore. The PMI Group, one of the biggest companies
in the mortgage insurance business, flat out refuses to underwrite any policies
on loans that started with a broker.
All of this is happening just as borrowers need plenty
of guidance. Mortgage rates are low, fueling demand for refinancing. But
banks’ loan rules seem to change by the day, and many banks don’t have the
staff to handle the volume. So if you’re hoping to refinance or looking
to snap up a bargain home in the next year or so, you’re faced with a tricky
question. Given the number of institutions that want nothing to do with
mortgage brokers, shouldn’t you stay far away from them as well?
If you want to be sure you’re getting the best rate and
the lowest costs, the only way to come close to succeeding is to hunt extensively
on your own. Here are three of the most important steps on your journey
to home financing:
The Comparison Shopping will be simpler
if you pick a specific kind of loan and look only for that, say a 30-year
fixed-rate mortgage with no points. Start with a credit union or two
and then a few community banks. Next try a few big national banks nearby.
Give your investment firm a notice and the bank that has your checking
account, since they may offer you a deal. And if you’re refinancing,
don’t forget your current lender. Next, call a few mortgage brokers
recommended by people you trust. Talking to more than one isn’t a breach
of etiquette.
The Compensation If you find mortgage
brokers who can match or beat the best rate and deals you found elsewhere,
see if you can get a straight answer to the question of precisely how
they are getting paid. The problems in recent years, however, came when
banks offered more money to brokers who pushed certain loans or terms,
say loans with interest rates that rose quickly and imposed penalties
if the borrower refinanced within a few years. Though many of the worst
loans don’t exist anymore, it’s still worth asking mortgage brokers
point blank whether their yield-spread premium — the industry term for
the money they earn from lenders — could be lower if you were in a different
type of loan. And if you don’t understand the answer, run it by an accountant
or a more sophisticated friend whose compensation does not depend on
the answer.
The Guarantees If you’re comfortable
with the answers so far, you’ve probably found a good match. There are
plenty of mortgage brokers out there who earn their keep, and the best
of them know home loans. Still, test them with two more questions.
First, ask if they’ll guarantee the rate and costs in the good faith
estimate they give you when you apply with a lender. If the broker is
wrong on their good faith estimate, then they should pay you. We should
all have something binding upfront so people can shop. Second, ask if
they’ll sign a piece of paper agreeing to work solely in your best interest.
The legal word for this is “fiduciary" and it means a legal relationship
of confidence or trust between two or more parties.
Find an Upfront Mortgage Broker
Jack M. Guttentag, emeritus
professor of finance at the Wharton School of the University of Pennsylvania
coined the term, Upfront Mortgage Broker. Professor
Guttentag states that "An Upfront Mortgage Broker" (UMB) is
one who has elected to do business in an upfront and fully transparent way."
To quote from his Web site, the major differences between a UMB and a conventional
mortgage broker (MB) are:
UMBs disclose their fees
to customers in advance and in writing, and disclose the wholesale prices
(rates and points) passed through from lenders. Customers of UMBs
pay the broker's fee plus wholesale loan prices.
In contrast, conventional
mortgage brokers (MBs) add a markup to the wholesale prices, and quote
the resulting retail prices to customers. Most MBs reveal their
markup only in required disclosures after an application has been submitted.
Professor Guttentag states
that if you don't find a UMB in your state, you can convert a conventional
broker into a UMB for your deal. He says just to copy the
Commitment of an Upfront Mortgage Broker, and ask the brokers you approach
if they are willing to do business with you in this way.
According
to the Upfront
Mortgage Brokers Association (UMBA) Web site, the following mortgage
brokers have offices in the Portland area and are members of UMBA:
Associated
Mortgage Group Contact: David Jolivette.
Telephone: (503) 221-0064. Fax: (503) 221-0396. Licensed
in both Oregon and Washington. Address: 5441 SW MacAdam Avenue,
Suite 208, Portland, OR 97239.
Mortgage
Trust Contact: Kevin Gienty. Kevin's
email: Kevin Gienty.
Kevin's telephone: (503) 282-5626. Address: 4386 SW
Macadam Avenue, River Forum Two, Suite 401, Portland, OR, 97239.
Windermere Mortgage Services Portland Contact:
Ms. Bertha Ferran, email:
Bertha Ferran,
telephone (503) 464-9215 or (800) 867-1337. Address: Windermere
Mortgage Services, LLC/AT, Irving Branch, 636 NW 21st Avenue, Portland,
OR 97209.
Lake Oswego Contact: Mr. Clayton Scott, email
cscott@windermere.com,
telephone (503) 497-5060.
Address: Windermere Mortgage Services Series, LLC/AT, Lake
Oswego Branch, 220 "A" Avenue, Suite 200
Lake Oswego, OR 97034.
Portland Area Mortgage Lenders
Chase Home Finance
Their office is located in the Pearl District at 422 NW 13th Avenue,
Portland, OR, 97209. Telephone: (503) 804-8850.
Flagstar Bank A Michigan-based full service bank.
In Oregon they offer home mortgage services. Telephone:
(866) 733-3700 or (503) 223-2162.
Wells Fargo
Bank Contact: Ms. Cherie Stanley. Email:
Cherie
Stanley Telephone (503) 226-5805. Mobile: (503)
267-5517. Fax: (503) 653-4440. Address: 5615 SW
MacAdam Avenue, Portland, OR 97239.
Other Mortgage Sources
Bankrate
Online mortgage services allow you can click through to lenders
whose deals you find appealing.
Costco If you are a Costco member, the mega warehouse
company offers a full range of financial services to include mortgages.
They partner with
LendingTree
for home loans. Telephone: 800-237-3806.
HSH Associates Online mortgage services so you can click through
to lenders whose deals you find appealing.
Veterans
Administration Home Loans In 2009, the VA Home Loan Program
will receive $6 billion in funding. This funding provides one of
the only remaining options for a $0 down payment home loan, and
is the reason why each month, thousands of families are able to
take advantage of their VA Home Loan Benefits.
Oregon Mortgage Lending Regulations
According to the
Oregon Division of Finance
and Corporate Services Web site (Oregon Revised Statute 59.840 to 59.996),
the below rules govern the licensing of mortgage bankers and brokers in
Oregon:
Beginning on Jan. 1, 1994,
the State of Oregon required licensing for mortgage bankers and mortgage
brokers. The licensing law required that each licensee maintain a surety
bond or irrevocable letter of credit of at least $25,000 and use an
in-state clients' trust account if the licensee accepts clients' funds
prior to the close of escrow. Each licensee is also required to employ
an experienced person who has at least three years experience in mortgage
lending. The law provides for the licensing of the company, not the
individual loan originators.
Since Jan. 1, 2002, licensees
have been required to notify DFCS of the names of loan originators working
for the licensee that originate Oregon residential mortgage loans. All
loan originators also must complete 20 hours continuing education every
2 years.
Oregon Regulations on Fraudulent
Mortgage Marketing
On March 11, 2008, Governor
Ted Kulongoski signed into law Senate Bill 1064, which expands enforcement
over loan originators by allowing the Department of Consumer and Business
Services (DCBS) to ban or suspend loan originators from engaging in dishonest
or fraudulent practices. DCBS will maintain a registry of loan originators
and list complaints made against them as well as actions taken. The bill
also requires lenders to file an annual report with DCBS detailing their
lending activity.
Stricter and clearer rules
to enforce the 1993 Oregon Mortgage Lenders Law took effect on May 7, 2008
according to the state Division of Finance and Corporate Securities.
The new rules will, among other benefits, make it easier for the state to
penalize “bait-and-switch” tactics, in which companies lure customers with
fictitious loan terms and coax them into accepting inferior loans. Other
rules:
The new rules require
mortgage lenders to prominently display the complete terms of loan fees
and interest rates.
Mortgage companies no
longer may advertise a teaser rate in large print and bury the true
loan terms in tiny print at the bottom, or in a rapid-fire voice on
a radio ad.
If it’s a subprime loan
that resets after two years to a higher interest rate, that must be
explained and advertised in the same style and size of lettering.
If the loan allows “negative
amortization,” in which the borrower may – and often does – add to the
loan principal each month, that must be clearly stated.
Advertisers no longer
may pretend to be the customer’s existing lender, or make false statements
that a customer has pre-qualified for a loan.
Penalties remain unchanged at $5,000 per violation. As
before, regulators also may strip the licenses of the 1,500 mortgage lenders
licensed by the state to operate in Oregon. The new rules, as with
other state banking regulations, do not apply to national banks that are
federally licensed. Those banks include Washington Mutual, Wells Fargo and
other major home lenders.
Your Credit Score
Check Your Credit
Credit scores and reports are now used to determine the rates you pay on
loans and credit cards, your insurance premiums, whether you get a job or
an apartment. Lenders have long used credit scores and reports to
determine whether to lend you money and how much interest to charge you.
Some utility companies are linking credit scores to the size of the deposit
you must pay to have your power turned on.
Consumer Reports,
in their July 2005 issue, noted that, "Scores from the three credit bureaus
can vary by 50 points or more because of errors or out-of-date information.
That gap could result in a $100-per-month swing on a $150,000, 30-year fixed-rate
mortgage."
Free Credit Reports
Credit scores are based on credit reports, which will be free to all consumers
by September 1, 2005. Reports from the western states are available
as of July 2005. As of early July 2005, the government-mandated Web
site set up to provide the reports is difficult to use and doesn’t include
credit scores. The official government sponsored Web site address
for the free credit reports is
annualcreditreport.com
(this is the only Web site you should use). You can request a report by
mail, download a form, or call 1-877-322-8228. Scammers and marketers
are exploiting the federal law (2003 Fair and Accurate Credit Transaction
Act) by creating Web sites with similar names (over 200 Web site have domain
names similar to that of the government sponsored site) so be careful.
You can visit the Federal Trade Commission Web site at
www.ftc.gov
− it has a link to the free-report site.
The credit reporting industry
has gotten good at convincing people they need to know their credit histories
to include scores on an annual basis. Unfortunately,
they've also used some deceptive tactics to market these scores, leading
consumers to pay for reports they thought were free. That practice could
be curtailed in coming months, thanks to new rules taking effect in April
and September of 2010. In late February, 2010, the Federal Trade Commission
amended its rules so that Web sites advertising "free" credit scores must
link to free credit reports mandated by the government. Starting April 1,
online advertisers of "free" credit reports must post a notice directing
consumers to the FTC's site, ftc.gov,
and AnnualCreditReport.com.
The confusion started seven years ago when Congress passed the Fair and
Accurate Credit Transactions Act. It required the three major credit-reporting
bureaus to provide consumers a free report each year. The law did not, however,
provide scores for free − you must pay extra
for those.
Review your FICO scores and
credit reports several months before applying for a loan. Consumer
Reports recommends that you buy your reports and scores at
www.myfico.com and order
the $44.85 FICO Deluxe package. If you have a spouse, you should order separate
credit reports. Even if you've been married for a long time and share
a credit history. Here are the three major credit reporting
companies:
Factors That Lenders Weigh
when Examining a Buyer's Credit Report Lending institutions
−
in conjunction with Fannie Mae and the Federal Home Loan Mortgage Corporation
− have based loan decisions on credit scores that are provided by the credit
bureaus. Factors:
Level of delinquency (30,
60, 90 day late).
Derogatory public record
(lawsuits or legal judgment) or collections files.
Proportion of balances
to credit limits.
Length of time accounts
have been established.
Too many inquiries from
creditors in the last 12 months.
This can mean that even if
you have perfect credit, are never late with payments, but have all your
credit cards at their maximum and you keep moving them to get lower rates
and not closing them, your scores could be the same as the person with minimal
credit and a few small collections in the past.
Acceptable Debt Load
Every loan program has different acceptable debt ratios. Your
top ratio will be your new house payment against your annual gross household
income; your bottom ratio would be your house payment and all other
debts (consumer debt, child support, and union dues but not utilities
and insurance payments) against your annual gross household income.
Active Credit Accounts
Too many credit cards may cause your credit score to be lower than expected.
If you have several credit cards open with little or no balance, this
would give you an opportunity to go out and incur further consumer debt.
Secure Cards Can Improve
Credit Record If you have having a hard time establishing
credit, you can put your own money on deposit − say, $350
− and obtain
a secured card. You need to use this card and pay it off monthly
to have some activity on it. Don't take it to the limit quickly,
it might negatively impact your credit score by being a new account
already at the maximum credit limit.
New FICO Credit Score System
In late January, 2009,
Fair Isaac and one of the three major credit bureaus, TransUnion LLC,
started offering the revamped score, dubbed "FICO 08," to lenders. Equifax
Inc. is expected to follow in the second quarter, while Experian Group Ltd.
declined to comment due to pending litigation with Fair Isaac.
The new score is supposed to do a better
job of predicting borrower defaults, be more forgiving of one-time slipups
and take a harder line on repeat offenders. The score, which will still
range from 300 to 850 will provide a deeper analysis of subprime borrowers
or those with "thin" or young credit histories, according to Fair Isaac.
More consumers with accounts in good standing should also see their scores
increase slightly. Overall, Fair Isaac predicts fico 08 will improve the
accuracy of lending decisions by as much as 15%.
FICO 08 will still factor in credit-card
accounts for authorized users, such as children or spouses. Fair Isaac had
originally planned to exclude authorized users in order to curtail abuse
by "credit repair" Web sites. Such sites arrange for people with poor credit
to boost their scores by becoming authorized users on accounts held by strangers
with better credit. But Fair Isaac tweaked its model in a way that will
still help legitimate authorized users improve their credit scores − although
perhaps to a lesser extent than prior FICO versions would
− but would also protect lenders from people
who were trying to game the scoring mechanism. It could be months or even
years before the score is widely available to consumers.
The credit reporting industry has gotten good at convincing
people they need to know their credit histories − even scores
− on an
annual basis. Unfortunately, they've also used some deceptive tactics to
market these scores, leading consumers to pay for reports they thought were
free. That practice could be curtailed in coming months, thanks to new rules
taking effect in April and September. Last week, the Federal Trade Commission
amended its rules so that Web sites advertising "free" credit scores must
link to free credit reports mandated by the government. The confusion started
seven years ago when Congress passed the Fair and Accurate Credit Transactions
Act. It required the three major credit-reporting bureaus to provide consumers
a free report each year. The law did not, however, provide scores for free
− you must pay extra for those.
The site where you can get reports entirely free is
AnnualCreditReport.com
− you can also call 877-322-8228. But the most
logical address −
FreeCreditReport.com
− belongs to Experian Information Solutions
Inc., one of the credit bureaus. You can indeed go to that site, get a credit
report and, for an extra $1, your credit score. But unless you read the
fine print, you might not know that when you enter your credit card information,
you also sign up for Experian's credit-monitoring program. That will cost
you $14.95 a month. It will be deducted right from your card account, unless
you cancel within a seven-day trial period.
Hints on Getting The Right Home and Mortgage
Estimate
How Much You Can Afford Start by estimating how much
you can afford to borrow − especially first time buyers. Most
mortgage lenders say that, to be manageable, your total monthly payment
for principal, interest, mortgage insurance and property taxes should
not exceed between 28 and 36 percent of your family's gross income.
You can calculate this online at
Quicken
or Microsoft's
Home Advisor.
Consider what it would
cost if you were to take out a conventional 30-year fixed-rate loan
and what you could expect to pay on an adjustable-rate mortgage (ARM).
Rates on ARMs are initially lower than those on fixed-rate mortgages.
Preapproval
You can make yourself more attractive to sellers by getting a lender
or broker to issue you a preapproval letter for a mortgage. Preapproval
includes a check of your credit history, your earnings, and your family's
financial assets. You do NOT have to ultimately choose to finance
a purchase with the lender who preapproves you, but to a seller, a preapproval
letter puts you on nearly the same ground as a buyer offering to purchase
for cash.
Borrowing
A 30-year fixed-rate loan may offer a lot of peace of mind, but you
pay more for that security. One of the newer multiple-year ARMs
that remain fixed for 7, 10, or even 15 years before they are readjusted
may be more affordable without significantly adding to your risk that
interest rates will continue upward. On average, owners tend to
relocate with 6 years of purchasing a house, so one of these longer
ARMs may serve for as long as you remain in your home. Look for
an ARM offering an interest rate at least one-half percentage point
below what lenders ask for a conventional 30-year fixed-rate mortgage.
Risky Mortgages
In the July 2005 issue of
Consumer Reports,
the publication warned that many loans mortgage brokers and lenders
are pushing increase the odds of foreclosure by allowing borrowers to
accept more risk than they can manage, especially if home prices level
off or if interest rates increase. That’s because some loans, such as
interest-only mortgages, keep monthly payments artificially low at first
but can skyrocket to unaffordable levels later on. They concluded,
"With today’s low interest rates, the best option for most buyers is
still a 30-year fixed loan."
Hints
Dial mortgage lenders until your fingers hurt
when checking out rates. You will be surprised at the range
of quotes (and costing costs) you'll receive. Just a quarter
point can save you $25 a month on a $150,000 30-year mortgage.
Points and fees can also vary widely between lenders.
Make certain you obtain a written disclosure of
all loan costs in advance from any mortgage broker or direct lender
with whom you do business. Be prepared to challenge any large
discrepancies between the quote and the actual fee(s) at closing.
In Oregon, you have three business days after signing the final
papers to revoked the transaction − this applies only on refinancing.
Examples of honest third-party charges to expect include appraisal
fee (about $300), credit report fee (about $15), recording fee (varies
by county), mortgage or transfer tax (in some counties), courier
fee, wire fee, title insurance fee, and escrow or attorney fee.
Names of unnecessary, undisclosed loan fees include an administration
fee, documentation fee, processing fee, preparation fee, overhead
fee, management fee, and even "miscellaneous charges" when the lender
runs out of creative names.
After you get all the quotes and start comparing,
you may find a lender or broker who you would like to do business
with but their rate was higher than your lowest quote. Call
them back and tell them that you would like to do business with
them but they need to match your low rate. They may surprise
you and readily agree. Last, when you lock a rate, agree (get it
in writing) what happens if the rate drops before you close.
Should You Pay Points
Points are mortgage
loan costs typically in association with an interest rate. One point is
equal to one (1) percent of the loan amount, so one point on a $200,000
loan is $2,000.
Points are often looked upon
as prepaid interest, hence the potential tax deductibility. If you
paid points last year for your new home then you may be entitled to deduct
those points from your taxable income. Note, the tax deductibility can vary
for points between purchase and refinance transactions. Points paid during
a refinance are usually only deducted over the term of the mortgage. With
a purchase, points may be tax deductible for the year paid.
If you pay points, you're paying
your lender some of the interest up-front, in a single fee, in exchange
for a lower rate. There is no correspondent trade off between points and
rates, but usually one point will get you 1/4%.
Deciding Whether or Not to Pay Points
− Here are
the steps:
First calculate your monthly payments by paying
a point then do run the same routine with paying no points. Subtract
the two amounts to find the monthly savings.
Now divide the monthly savings into the point
you paid. The result is the number of months it will take to
recover the cost of the additional funds to drop your rate.
Example Let's say
you've got a loan amount of $250,000 and you're quoted 7.00% with zero
points. That's $1,653 per month in principal and interest for a thirty-year
note. Your lender can also offer a rate reduction of 1/4% for one point.
The monthly payment on a $250,000 note at 6.75% drops to $1,612, or
a difference of $40 per month. In this case, it would take just more
than 62 months, or five years, to recover that money. On the other hand,
your lender will make an additional $40 per month at the higher rate
in lieu of your up-front $2,500.
A lot of the decision rides
on how long you anticipate keeping the mortgage in question, either
by selling the property or refinancing later if rates drop. If you in
fact don't anticipate keeping the house for a long time then paying
additional points may not make much sense. But that $40 per month savings
adds up to $14,400 more than thirty years. It's really not necessary
to rely on outside experts to tell you if paying points is worthwhile
or not. Do some of the math yourself, then determine if paying points
are really in your best interest.
APR: Not the Best Gauge of Mortgage Costs
Consumers
shopping for a mortgage are frequently confronted with having to make a
choice between complex alternatives. For example, they can select a fixed-rate
mortgage on which the rate is set at 5 percent for 30 years, or an adjustable-rate
mortgage on which the introductory rate, say 4.375 percent, holds only for
five years after which it changes along with market rates. Furthermore,
on both types of loan, a lower interest rate is available if the borrower
pays points, an upfront charge expressed as a percentage of the loan amount.
In addition, borrowers have to pay a variety of fixed-dollar fees to lenders
and other fees to third parties such as title agents and appraisers.
To deal with this problem, the federal government, through
the Truth in Lending Act, decreed that lenders had to disclose one number
designed to be a comprehensive measure of all costs, which borrowers could
use to compare one loan with another. This one number is called the annual
percentage rate, or APR. By law, whenever a lender discloses an interest
rate, they must disclose the APR alongside it.
The APR is expressed as a percentage, same as the interest
rate, except that the APR is somehow a composite of the percentage rate
and dollar costs. How they are combined is a mystery to most. The mystery
is even deeper on ARMs because the ARM rate is subject to unknown change
in the future. Here are the problems with APR:
Few loan officers or mortgage brokers understand it
either. Indeed, within most lender firms, the only ones who understand
how the APR is calculated are the technologists responsible for having
it programmed into computers, and sometimes they get it wrong.
A second problem is that, despite its intent, the
APR has never been the comprehensive measure of cost that it was supposed
to be. A comprehensive measure would cover all costs that would not
arise on an all-cash transaction, but, in practice, third-party charges
are not covered. In principle, this is an easy problem to fix, and the
Federal Reserve has proposed a fix through recent proposals to amend
its Truth in Lending regulations. It has taken them only 30 years.
The third problem is more difficult. Cost depends
not only on the characteristics of the mortgage, but also on the characteristics
of the borrower. A given set of mortgage features may carry different
costs to different borrowers, but this is not reflected in the APR.
The most important difference among borrowers is how long
they expect to be in their house. The APR assumes they will live there for
the full term of the loan, though very few do so. This assumption can lead
to bad decisions.
Consider a borrower choosing between two 30-year fixed-rate
mortgages, one at 5.125 percent and zero points, the other at 4.25 percent
and 4.4 points. The first has an APR of 5.125 percent while the second has
an APR of 4.64 percent, suggesting that the lower-rate mortgage is the better
deal. But that is only because the APR is calculated on the assumption that
the borrower enjoys the lower rate over the full term of the loan. If the
borrower expects to be out in five years, the APR on the low-rate mortgage
calculated over five years instead of 30 − which
I usually call the "interest cost" to distinguish it from the APR
− would be 5.31 percent, and the higher-rate
mortgage would be the better deal.
Because of the built-in assumption that the borrower
will have the loan for the full term, the APR is also useless to borrowers
assessing the cost of adjustable-rate mortgages. If the borrower expects
to be out of the house before the initial rate period is over, an APR calculated
over the full term may be misleading. If the borrower expects to have the
mortgage beyond the initial rate period, or isn't sure, he needs to know
how much risk he faces from interest-rate increases after the initial rate
period ends. But the APR doesn't tell him that.
A second difference among borrowers that the APR does
not account for is their tax bracket. The APR is a before-tax measure. Because
mortgage borrowers can deduct interest payments and points from their taxes,
any measure of cost should be after taxes.
A third difference that the APR does not account
for is the borrower's opportunity cost − what they might earn by doing something
else with their money. Because the upfront and monthly payments required
by the mortgage could otherwise be invested to yield a return, that forgone
return is a cost to the borrower.
For
decades, the federal government has subsidized housing — particularly owner-occupied
housing. This has been especially true during a financial crisis, with Fannie
Mae, Freddie Mac and the Federal Housing Administration (FHA) propping up
the housing market by issuing guarantees for investors on most new mortgages.
Federal subsidies for housing essentially began in the Great Depression
with, among other things, the creation of the FHA in 1934 and Fannie Mae
in 1938. It all started for a simple reason: more than a third of all the
unemployed were identified, directly or indirectly, with the building trades.
At the time, there seemed to be no way to reduce unemployment without stimulating
housing, and much the same is true today.
In most cases, lenders will
sell your mortgage loan to
Fannie Mae Mae and
Freddie Mac, which
repackage them as securities for sale to investors. These two private shareholder-owned
corporations (operating under a congressional charter) guarantee trillions
in mortgages. The government does not guarantee the debt issued by Fannie
and Freddie. It does provide the companies with some special privileges,
including exemption from state and local taxes.
They used to have relatively
strict guidelines for the loans they purchased but these two institutions,
along with many lenders, dropped the ball in the mortgage mess (2004-2006)
and started buying NINJA (No Income, No Job and Assets) home loans.
Congress created Fannie and
Freddie to pump money into the home-mortgage market by buying home loans
from banks and other lenders and bundling them into securities for sale
on Wall Street. In 2008, the two institutions held or guarantee about $5.3
trillion in home-mortgage debt.
Homeowners Assistance Programs: First-Time Home
Buyers
Oregon Home and Community
Services (OHCS) is Oregon’s “state housing finance agency.” The Department
periodically issues mortgage revenue bonds to fund lower than market interest
rate mortgage loans for below-median income homebuyers in Oregon.
OHCS helps low and moderate income households in Oregon buy their first
home by providing below-market rate financing and cash assistance through
our Residential Loan Program, also known as the “Oregon Bond Loan”. The
program’s below-market rate helps eligible families increase their home
purchasing power and lower their monthly house payments to be affordable.
A qualified homebuyer cannot have an annualized gross household income exceeding
the following income limits: $58,600 statewide; $67,400 in Benton; and $67,900
if the property being purchased is located in Clackamas, Columbia, Multnomah,
Washington, or Yamhill counties (effective 2/27/04). They must be a first-time
homebuyer or not have owned and occupied a primary residence during the
three-year period prior to the date the note and mortgage is signed.
This requirement is waived if they are purchasing in a targeted area. A qualified
homebuyer must be (or intend to be) an Oregon resident, and must agree to
occupy the home being purchased as their primary residence. An Applicant
may not have been discharged from a bankruptcy within the past two years
or had a real estate foreclosure within the last five years prior to closing
the program loan.
When you contact a mortgage
broker or lender, make certain you inquire about the Oregon Homeowner Assistance
Programs and make certain they are willing to participate if you are eligible.
Mortgage Links
Appraisal
Services Bruce Pulley, a Portland metro area appraiser, has
information about calculating home values as well as other advice about
home owning on his well-designed Web site.
Common Mortgage Terms From Interest.com
− other useful information about mortgages
is also available on this site.
Compare
Interest Rates Find the best mortgages at the lowest interest
rates. Search for current mortgage interest rates from lenders
and brokers nationwide.
Freddie Mac
Visit this site for information about home buying. Freddie Mac
is private shareholder-owned corporations operating under a congressional
charter.
Oregon Association
of Mortgage Professionals The Oregon Association of Mortgage
Professionals (OAMP) represents the mortgage industry of more than 10,000
individuals in Oregon. They promote the mortgage industry through
programs and services such as education, government affairs representation,
networking events, and local chapters.
Professor Guttentag
Jack M. Guttentag, emeritus professor of finance at the Wharton School
of the University of Pennsylvania maintains this site and it's a goldmine
of information about mortgages.
Mortgage
brokers, middlemen who shop for home buyers among banks and lenders, can
choose from programs from many banks. They may be able to offer a
variety of deals that are not available at your own bank. Examples
of deals include: first-time buyer programs, low- or no-down-payment loans
for certain occupations (police and firefighters), and low-cost mortgages
for energy-efficient homes.
Borrowing
A 30-year fixed-rate loan may offer a lot of peace of mind, but you
pay more for that security. One of the newer multiple-year ARMs
that remain fixed for 7, 10, or even 15 years before they are readjusted
may be more affordable without significantly adding to your risk that
interest rates will continue upward. On average, owners tend to
relocate with 6 years of purchasing a house, so one of these longer
ARMs may serve for as long as you remain in your home. Look for
an ARM offering an interest rate at least one-half percentage point
below what lenders ask for a conventional 30-year fixed-rate mortgage.
Consumers
shopping for a mortgage are frequently confronted with having to make a
choice between complex alternatives. For example, they can select a fixed-rate
mortgage on which the rate is set at 5 percent for 30 years, or an adjustable-rate
mortgage on which the introductory rate, say 4.375 percent, holds only for
five years after which it changes along with market rates. Furthermore,
on both types of loan, a lower interest rate is available if the borrower
pays points, an upfront charge expressed as a percentage of the loan amount.
In addition, borrowers have to pay a variety of fixed-dollar fees to lenders
and other fees to third parties such as title agents and appraisers. 
For
decades, the federal government has subsidized housing — particularly owner-occupied
housing. This has been especially true during a financial crisis, with Fannie
Mae, Freddie Mac and the Federal Housing Administration (FHA) propping up
the housing market by issuing guarantees for investors on most new mortgages.
Federal subsidies for housing essentially began in the Great Depression
with, among other things, the creation of the FHA in 1934 and Fannie Mae
in 1938. It all started for a simple reason: more than a third of all the
unemployed were identified, directly or indirectly, with the building trades.
At the time, there seemed to be no way to reduce unemployment without stimulating
housing, and much the same is true today. 
