State to refinance troubled mortgages

Plan calls for $250m fund and for lenders to accept some loss

Massachusetts officials today are expected to unveil a $250 million fund to help delinquent borrowers of subprime mortgages refinance into more affordable loans to prevent them from losing their homes to foreclosure.

One of the first such efforts underway around the country, the Massachusetts plan has an unusual edge to it: State officials said they would use hardball negotiating tactics to force lenders to take a financial hit on the troubled mortgages the state will refinance.

The Patrick administration and the Massachusetts Housing Finance Agency, or MassHousing, reached agreement on the program yesterday. MassHousing will provide financing in conjunction with Fannie Mae, a federal agency that invests in mortgages.

Tina Brooks, Governor Deval L. Patrick's undersecretary of housing, said the refinancing fund is the largest piece yet of the administration's multipronged effort to deal with the rising number of foreclosures hitting Massachusetts homeowners.

The refinancing plan "is the big piece of the governor's program that we've all been waiting for," Brooks said.

The program will allow only those subprime mortgage borrowers who are 60 or fewer days behind on their monthly payments to refinance into 30-year loans at fixed rates of about 7.75 percent. The money should be enough to refinance loans for about 1,000 delinquent borrowers statewide.

Financial regulators blame the rise in foreclosure actions against Massachusetts homeowners on the proliferation of subprime mortgages used during the state's housing boom.

Such loans were targeted at people with less-than-stellar credit and typically offered low "teaser" interest rates that made them manageable in the first two years, but then spiked up to levels many homeowners could not afford.

Perhaps the most disputed element of the Massachusetts plan is state officials' insistence on forcing lenders to accept losses on loans when the value of the properties has dropped since the loans were first made, which is common in the current real estate downturn.

For example, if a subprime borrower purchased a home with a $250,000 mortgage and that property is now worth $230,000, MassHousing would offer $230,000 to the subprime borrower in a refinancing. The lender, to accept, would take a $20,000 loss.

Thomas Gleason, MassHousing's executive director, said lenders in such situations may have no choice but to accept the state's offer because, "that's the best deal they're going to get. Lenders understand if they go to foreclosure, that property will be worth dramatically less."

A spokesman for the trade group of Massachusetts mortgage lenders could not be reached to comment.

Some housing specialists questioned whether many lenders will agree to the state's tough terms.

Massachusetts' approach will "get the lenders to pay some share of the cost of the problems they created," said William Apgar, a senior scholar at Harvard University's Joint Center for Housing Studies. "Whether it works or not depends on whether the lenders have the authority to accept" losses on mortgages they've resold to Wall Street investors, he said.

The state of Ohio has initiated a similar refinancing effort with a $100 million fund. Such bailout programs have drawn criticism from some economists who contend such assistance efforts let overly aggressive lenders or overextended borrowers off the hook.

Massachusetts Secretary of State William F. Galvin said the program was "a step in the right direction, but it wasn't going to solve any major problems" because it can't help all the borrowers now in trouble -- those already in foreclosure. He's proposed legislation to require lenders to obtain court approval before they can foreclose on, and seize, a property.

The refinancing program has income limits: qualified borrowers in the Boston area can earn up to 135 percent of median household income, or up to $108,000. In the rest of the state, the income limit is 125 percent, or $98,000. MassHousing will refinance single homes up to $417,000 in value and three-family homes up to $645,300.

However, borrowers who used subprime mortgages as a refinancing tool to cash out equity from their homes would not be eligible for the assistance.

To apply for refinancing, borrowers must call NeighborhoodWorks America through a toll-free number (888-995-4673). NeighborhoodWorks will screen borrowers and pair up those who are eligible with a counselor.


http://www.boston.com/business/globe/articles/2007/07/11/state_to_refinance_troubled_mortgages/

real esate investment loan : refinance - "Cash Out Refinancing As A Way To Get Out Of Debt"

Cash-out refinancing is a way of accessing home equity by taking out a new mortgage with a larger principal than the current one. The difference in principal in the two mortgages is available to you to use as cash to use for almost any purpose you choose.

You can use cash-out refinancing to obtain a new mortgage with a higher principal than what you owe. Let's suppose your home is worth $200,000, and you owe $100,000 in principal. Your equity is $100,000. If you have a $50,000 balance on a credit card that carries an 18 percent interest rate, you can refinance to a mortgage with a principal of $150,000 and receive the difference between your old principal and your new one in cash. In this case, the amount would be $50,000. You may then use that money to pay off your credit card.

Once this is done, you will no longer have credit card debt and, therefore, will have no monthly credit card payment. You will also have a better interest rate on your debt, so you will save quite a bit in interest each month. Even though you may pay more in your mortgage payment, you will be out of credit card debt, so you will have more money free each month.

To use cash-out refinancing you should:

1. Assess your debt load.
2. Talk with a lender about using cash-out refinancing.
3. Apply for the loan, go to closing and pay off your credit cards with the cash-out refinancing.
4. Save money each month by paying less in interest.
5. Control your spending.

The key to using cash-out refinancing is to be sure that you curtail your spending. If you use this strategy, but go back to your old spending habits, then you will have made a mistake. Not only will you have increased your mortgage, but you will have high interest credit card debt again. You can easily dig yourself back into the same hole, but this time you will not have the option of using your home equity to help yourself out. Also, remember that the loan is secured to your home with cash-out refinancing. That means you can lose your house if you default on the loan.

If you do use restraint with your spending, however, then cash-out refinancing can be a wise way to consolidate your debt. It can cut back your monthly debt expenses and allow you to pay off your high interest loans with a lower interest rate mortgage. Be sure to carefully consider whether cash-out refinancing is a good option for you before making your decision.


http://www.realestateinvestmentarticles.net/Article/real-esate-investment-loan----Cash-Out-Refinancing-As-A-Way-To-Get-Out-Of-Debt-/457

When Is It a Mistake to Re-Finance?

Many homeowners make the mistake of thinking re-financing is always a viable option. However, this is not true and homeowners can actually make a significant financial mistake by re-financing at an inopportune time. There a couple of classic example of when re-financing is a mistake.This occurs when the homeowner does not stay in the property long enough to recoup the cost of re-financing and when the homeowner has had a credit score which has dropped since the original mortgage loan. Other examples are when the interest rate has not dropped enough to offset the closing costs associated with re-financing.

Recouping the Closing Costs

In determining whether or not re-financing is worthwhile the homeowner should determine how long they would have to retain the property to recoup the closing costs. This is significant especially in the case where the homeowner intends to sell the property in the near future. There are re-financing calculators readily available which will provide homeowners with the amount of time they will have to retain the property to make re-financing worthwhile. These calculators require the user to enter input such as the balance of the existing mortgage, the existing interest rate and the new interest rate and the calculator return results comparing the monthly payments on the old mortgage and the new mortgage and also supplies information about the amount of time required for the homeowner to recoup the closing costs.

When Credit Scores Drop

Most homeowners believe a drop in interest rates should immediately signal that it is time to re-finance the home. However, when these interest rates are combined with a drop in the credit score for the homeowner, the resulting re-financed mortgage may not be favorable to the homeowner. Therefore homeowners should carefully consider their credit score at the present time in comparison to the credit score at the time of the original mortgage. Depending on the amount interest rates have dropped, the homeowner may still benefit from re-financing even with a lower credit score but it is not likely. Homeowners may take advantage of free re-financing quotes to get an approximate understanding of whether or not they will benefit from re-financing.

Have the Interest Rates Dropped Enough?

Another common mistake homeowners often make in regard to re-financing is re-financing whenever there is a significant drop in interest rates. This can be a mistake because the homeowner must first carefully evaluate whether or not the interest rate has dropped enough to result in an overall cost savings for the homeowners. Homeowners often make this mistake because they neglect to consider the closing costs associated with re-financing the home. These costs may include application fees, origination fees, appraisal fees and a variety of other closing costs. These costs can add up quite quickly and may eat into the savings generated by the lower interest rate. In some cases the closing costs may even exceed the savings resulting from lower interest rates.

Re-Financing Can Be Beneficial Even When It is a “Mistake”

In reality re-financing is not always the ideal solution, but some homeowners may still opt for re-financing even when it is technically a mistake to do so. This classic example of this type of situation is when a homeowner re-finances to gain the benefit of lower interest rates even though the homeowner winds up paying more in the long run for this re-financing option. This may occur when either the interest rates drop slightly but not enough to result in an overall savings or when a homeowner consolidates a considerable amount of short term debt into a long term mortgage re-finance. Although most financial advisors may warn against this type of financial approach to re-financing, homeowners sometimes go against conventional wisdom to make a change which may increase their monthly cash flow by reducing their mortgage payments. In this situation the homeowner is making the best possible decision for his personal needs.


http://www.articleclick.com/Article/When-Is-It-a-Mistake-to-Re-Finance-/1401

Paying Points For A Lower Rate

In refinancing, a mortgage company usually offers a range of interest rates at different amounts of points. A point equals one percent of the loan amount. For example, three points on a $100,000 mortgage loan would add $3,000 to the refinancing charges.

Analzying various interest rates and associated points may save you money. As a rule of thumb, each point adds about one-eighth to one-quarter of one percent to the interest rate the mortgage company is offering.

Generally, the lower the interest rate on the loan, the more points the lending institution will charge. Some companies offer refinancing with no points, but generally charge higher interest rates.

To decide what combination of rate and points is best for you, balance the amount you can pay up front with the amount you can pay monthly. The less time that you keep the loan, the more expensive points become. If you plan to stay in your house for a long time, then it may be worthwhile to pay additional points to obtain a lower interest rate.

Some companies may offer to finance the points so that you do not have to pay them up front. This means that the points will be added to your loan balance, and you will pay a finance charge on them. Although this may enable you to get the financing, it also will increase the amount of your monthly payments.

http://www.bmcfunding.com/library.html?category=refinance&article=1041&p=bmcfunding&acctid=305492&PVLID=3616

Mortgage Refinance Information - Welcome!

Each year, thousands of Americans refinance their mortgage loans in order to free up cash, secure a better interest rate, convert their mortgage type, or a combination of these things.

Certainly, mortgage refinancing can help you create a better financial picture for yourself. But to get the most out of your mortgage refinance, you'll need to conduct plenty of research to arm yourself with the right knowledge. That's where this website comes into the picture.

This website is published by the owners of Home Buying Institute, a vast library of tips on home buying and mortgage loans. Following in the footsteps of our parent website, we seek to make this one of the Internet's largest libraries of mortgage refinance advice. With hundreds of articles currently on the site, we are well on the way!

Our goal is to help you learn as much as possible about the mortgage refinancing process, through the articles we provide and the resources we have gathered for you (and continue to gather). Learn more about our mortgage education goals.

Always Seek Financial Guidance

Please note that while we strive to provide the best information possible on the subject of mortgage refinance, we are not trying to take the place of professional financial advice. This website is meant to complement the advice given by mortgage professionals -- it is not meant to replace that advice. In other words, if you are planning to refinance your home mortgage, seek the advice of a qualified professional before making any decisions.

Start Learning About Mortgage Refinance

With that necessary disclaimer out of the way, we invite you to peruse this website in order to broaden your mortgage refinancing education. You'll find a glossary of mortgage terms, helpful articles about the refinancing process, news from the mortgage industry and much more.


http://www.mortgage-refinance-advice.com/