Today's Mortgage Rates

One of the most common questions that I hear as the number of banks begin to fail increases is “If my bank goes out of business, do I have to keep making my mortgage payment?”

Hmmm. Before we answer that question, let’s review a few things that you agreed to when you took out your loan.

When you took out your mortgage, you were required to sign a document called the “mortgage servicing disclosure” which is a standard document stating that the lender who is originating your loan will most likely not be the one who services your loan for the entire term of the loan.  In other words, the bank that first has your loan is most likely going to sell the rights to collect payments on your loan to another bank.

And then they will most likely sell those rights to another bank from time to time — and then that bank will also sell them to another bank, etc.

When you ask most people “have you ever had your mortgage sold?” the most common reply is “yes” and then they tell you how much they liked one bank and hated another for <insert reason>. The important thing to remember when thinking about your loan being sold from one bank to another is that although the lender that you make your payment to may change, the terms of your loan can’t change.

In other words, you can pretty much count on making the same mortgage payment regardless of who you make it to.

Use this same logic when thinking about the question of “what happens if my lender goes bankrupt, will I still have to make my payments?” and the answer is Yes.

Yes, you want to keep making your payments because should your lender fail, a new one (if no one else will it will be the FDIC) will be in charge of servicing your loan (collecting your payments).

In other words, it really doesn’t matter all that much who the lender is that you make your payments to – if you miss a payment it will impact your credit and if you keep missing your payments and don’t get a loan modification, you may ultimately end up in foreclosure.

So you want to make sure that you keep making your mortgage payment.

Regardless of who is collecting it.

If you currently have an FHA loan and have been working with your lender on a loan modification – good news! HUD has just issued a “new set of rules” that your lender should be very interested in following.

Recently HUD issued the official mortgagee letter that outlines what servicers should be doing to help people with FHA loans that are having trouble making their mortgage payments.

The reason that HUD gave for issuing the letter is that apparently recent studies show that more people are trying to get their loan modified and that many borrowers who were actually successful in getting their loan modified often had an increased monthly mortgage payment after their loan modification and that there was a significantly higher re-default rate than borrowers whose loan modification provided a lower payment.

As FHA looked deeper into what kind of loan modifications that borrowers were seeing, they discovered that generally speaking, many people actually ended up with a higher monthly mortgage payment than they had before because their lender still charged them too high of a rate and/or didn’t extend the term of the loan to 30 years.

Basically what FHA found was that many lenders were just tacking on any past due amounts and late fees to the back of the loan.

As a result, FHA/HUD issued the updated guidance for lenders to follow.

From the letter:

Mortgagee Incentives for Loan Modifications

This Mortgagee Letter clarifies and updates the guidance provided… with respect to interest rate and term requirements for loan modifications that are eligible for payment of a mortgagee incentive and costs for a title search and/or recording fees on the Loan Modification.

Interest rate and term requirements

In cases where the current note rate is 50 basis points or more over the current market rate:

The Mortgagee shall reduce the loan modification note rate to the current Market Rate. For purposes of this requirement, the Department shall consider Market Rate to be no more than 50 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey Rate for 30-year fixed-rate conforming mortgages (US average), rounded to the nearest one-eighth of one percent (0.125%), as of the date the Modification Agreement is executed. The weekly survey results are published on the Freddie Mac website at http://www.freddiemac.com/pmms/ and the Federal Reserve Board includes the average 30-year survey rate in the list of Selected Interest Rates that it publishes weekly in its Statistical Release H.15 at http://www.federalreserve.gov/releases/h15/.

The Mortgagee must re-amortize the total unpaid amount due over a 360 month period from the due date of the first installment required under the modified mortgage.

Will the new guidance help? It should. Hopefully any FHA borrower who is trying to work with their lender now knows what their lender is being asked to do by HUD and they can ask for the same.

For many years, the FHA streamline program has been popular with people who have an FHA loan because it allows them to refinance their FHA loan without having to completely re-qualify for a new loan. For example, it used to not require income verification, asset verification or credit scores.

But times have changed. Recently, FHA announced that they were changing the guidelines for the FHA streamline program effective November 17th, 2009. Highlights of the changes to the FHA streamline program include:

1. At the time of application, the person wanting to refinance with the FHA streamline program must have made at least 6 payments since they got their loan.
2. For people who have had their loan longer than 6 months but less than 12, they cannot have even one 30 day late payment in the preceding 12 months.
3. For people who have had their loan longer than 12 months, they can have a maximum of one 30 day late payment in the last 12 months.
4. In order to see if the loan makes sense, a calculation called the Net Tangible Benefit calculation will be done by the Underwriter. The streamline must lower the total PITI ( Principal, Interest,Taxes,and Insurance) by at least 5% when going from a fixed rate to a fixed rate mortgage. If going from an ARM to a Fixed rate, then the interest rate cannot go up by more than 2%. When going from a Fixed rate to an ARM but the new ARM must be at least 2% less than the current rate or reduces the overall total term of the mortgage.
5. In order to be eligible, the property must be occupied by the borrower: investment properties are not eligible and second homes are not eligible.
6. All employment, income , and necessary assets now must be verified — or in other words, it is pretty much just like getting a new loan again.

If you ask me, I don’t know if this is a good thing or a bad one — but I think that it is probably safe to say that the “streamline” word can probably be removed — and maybe replaced with something similar to “FHA refinance”.