FHA Ends Post-Payment Penalties

The Federal Housing Administration is overhauling a long-held policy of charging extra interest payments on loans it insures to borrowers who have already paid off the principal debts on their mortgages.

FHA has permitted its lenders to charge borrowers a full month of interest when they sell or refinance a home, even if borrowers had paid off the mortgage weeks prior to the end of the month. For example, if borrowers went to closing on an FHA loan on Sept. 3, lenders would be allowed to continue to charge them interest through Sept. 30.

Beginning Jan. 21 of next year, new FHA mortgages will require lenders to collect interest only on the balance remaining on the date of closing for a home sale or refinancing. (However, sellers and refinancers who currently have FHA loans and expect to close before Jan. 21 likely won’t see much benefit from the new policy.)

The Consumer Financial Protection Bureau raised the issue with FHA last year, asking why FHA was allowing its lenders to collect post-payment penalties from borrowers at closing. FHA had argued that its bond investors, who purchase packages of insured mortgages, expected full-month payments of interest plus principal. FHA said that its lenders did charge borrowers slightly below market rates to help compensate for the post-closing payments.

However, critics argued that the policy was unfair to borrowers. The National Association of REALTORS® had lobbied against the FHA policy for more than a decade. NAR estimated that during 2003 alone, sellers and refinancers paid nearly $690 million in extra interest charges due to the policy.

Source: “FHA to Ban Lenders From Charging Extra Interest Payments on Mortgages,” The Los Angeles Times (Sept. 7, 2014)


Authorities Uncover Growing ‘Mortgage-Relief Scams’

Federal and state officials have filed dozens of lawsuits against companies they say have been duping a growing number of home owners who are facing foreclosure with big promises to lower their mortgage payments or rescue them from foreclosure while collecting millions of dollars in illegal upfront fees from home owners.

Dubbed Operation Mis-Modification, federal and state officials are uncovering pockets of law firms and counseling services that they say are falsely offering assistance to modify mortgage terms or payments for struggling home owners.

Officials say it’s against federal law for companies to collect fees from home owners until they have received a written modification offer from their lender or mortgage servicer.

In a crackdown on such cases, the Consumer Financial Protection Bureau recently filed three lawsuits against eight companies. The agency alleges that the companies collected more than $25 million in illegal upfront fees for services like modifying a mortgage or trying to prevent a foreclosure. The agency has issued warnings to consumers to be cautious about such mortgage-related scams, looking for such red flags like companies that demand upfront payments and guarantees that a modification or other assistance can be obtained.

Source: “Authorities Crack Down on Mortgage-Relief Scams Nationwide,” Los Angeles Times (July 23, 2014)

New Mortgage Rules Roll Out – What is the Impact?

New mortgage rules that set out to protect borrowers against risky lending practices. One of the biggest changes is that borrowers will likely need to show more proof that they can actually afford the mortgage they’re applying for.

Here are two main terms to know from the new rules:

“Ability-to-repay” rule: Mortgage lenders must ensure borrowers can actually afford their loans over the long term. Applicants’ income, assets, savings, and debt against their monthly house payments will be more closely scrutinized. Borrowers likely will need to produce “even more tax records, pay stubs, and bank and investment account information,” USA Today reports.

Qualified Mortgage: Borrowers who meet the ability-to-repay requirements may be eligible.  QM loans must meet at least some of the following guidelines: They cannot contain risky features, such as terms that exceed 30 years or interest-only payments; carry more than 3 percent in upfront points and fees for loans above $100,000; or push a borrowers’ total debt above 43 percent of their monthly income unless the loan qualifies to be backed by Fannie Mae, Freddie Mac, the FHA, or a small lender.

The Consumer Financial Protection Bureau estimates that about 92 percent of mortgages currently meet QM requirements.

Still, the real estate and mortgage industry, the CFPB, and others will watch implementation of the new rules closely to determine whether they make it more difficult for borrowers to qualify for mortgages.

Source: “New Mortgage Rules Aim to Prevent Risky Loans,” USA Today (Jan. 9, 2014)

Housing’s Big Thorn: Student Loan Debt?

Student loan debt is the main culprit hampering the housing recovery, says Rohit Chopra, the student loan ombudsman for the Consumer Financial Protection Bureau.

“We are already seeing signs of economic drag from student loan debt,” Chopra says. “The impact on the housing market is the most troubling part.”

Student loan interest rates typically are at 8 percent or above, Chopra says. An estimated 7 million borrowers with student loans are in default, he adds.

“The fact is student indebtedness impacts the credit profile of first-time home buyers,” Chopra says. “Three-fourths of the fall in household formation can be directly correlated to student debt.”

The CFPB will be serving as the new regulator that will oversee student loan servicing and lending. Chopra says the agency plans to address this issue. Your comments?

Source: “CFPB: Student loan debt hijacks the housing recovery,” HousingWire (Oct. 8, 2013)

Need help understanding financial jargon?

The Consumer Financial Protection Bureau (CFPB) has created a new tool that helps explain financial terminology, called Ask CFPB. With over 350 questions and answers, Ask CFPB demystifies financial products and services through a comprehensive search tool. This interactive device responds to inquiries with three different types of answers:

•definitions translate industry jargon into clear concepts;

•explanations provide simplified clarifications of financial products; and

•situations offer information and tips to help you navigate through various situations.

Ask CFPB allows its users to provide feedback. Any answer can be rated as “helpful,” “too long,” “confusing” or “incorrect.” If the answer to your question is not available on the Ask CFPB website, then you can submit your question for consideration. And don’t forget – for personal real estate questions, or questions about the local real estate market call us today – We’re here to help!

Sorting through lending costs!

Although the Consumer Financial Protection Bureau, the federal agency created to oversee mortgage lending, only recently opened, the Bureau started looking at ways to protect consumers during the loan-shopping period long before it’s official start date.

Making sense of the story:

1) The bureau is exploring avenues for combining the two forms that borrowers currently receive – the three-page Good Faith Estimate and the two-page Truth in Lending Act form. These forms tell would-be borrowers the terms of their loan – for instance, how payments on an adjustable-rate mortgage change. They also lay out fees.

2) Fees can make a big difference when comparison shopping. The simplest way to compare loans is by looking at the Annual Percentage Rate, or A.P.R. That calculation rolls in fees as well as the stated interest rate. Because lenders are required to follow the same formula, useful comparisons can be made.

3) Borrowers are advised to request a Good Faith Estimate from every lender they approach. While the Good Faith Estimate is in place to help borrowers, according to one lender, some lenders may provide interest-rate quotations that expire almost instantaneously, making it difficult for buyers to comparison shop.

4) Borrowers should be wary if they receive two or three different Good Faith Estimates and there is a difference of several thousand dollars.

Read the full story at: http://nyti.ms/oYblab

Other articles relating to the Sacramento and Placerville, California regions at: www.sierraproperties.com

Mortgage Forms to get More Consumer-Friendly?

Borrowers may soon have an easier time sorting out all of those key details and expenses associated with their mortgage as well as more easily compare loan terms when trying to shop around for a mortgage that works best for them.

The Consumer Financial Protection Bureau recently unveiled its “Know Before You Owe” project and is seeking public feedback on two “consumer friendly” prototype mortgage disclosure forms that will replace the current required disclosure forms by July 2012.

The prototype forms itemize key costs associated with the mortgage, including total closing costs, monthly payments, and projected monthly payments for future years. The forms also provide more details about the mortgage’s terms than the current form does.

The bureau is running tests on the prototype forms as well as seeking public comment. Review the sample forms and provide feedback at http://www.consumerfinance.gov/knowbeforeyouowe.

Source: “Mortgage Disclosures Getting Another Revamp,” Associated Press (5/18/11) 

 Other articles relating to the Sacramento and Placerville, California regions at: www.sierraproperties.com


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