As per the Truth in Lending Act, the right to rescission helps a borrower to cancel home loans of certain types within three days of closing. This right is offered on a “no-questions-asked basis”. The lender will have to refund all the fees within 20 days of exercising of the rights and also give up its claim over the property.
How to exercise right of rescission:
You’ll have to inform the lender in writing if you want to exercise the right of rescission. A phone call will not help you in this case. You’ll have to drop the letter in a mailbox within the deadline of 3 days. However, it is not necessary that the letter has to be postmarked.
Calculating the 3-day rescission period:
After the closing of a loan, you’ll get 3 business days time to rescind your loan. Weekends or holidays will not be a part of the time period. So, how can we define a business day? Well, every day except Sundays and federal holidays is a business day. You will find that though the lender’s office is closed on Saturday, it will be counted as a business day. The time period expires on the midnight of the third full business day after your loan documents are signed.
Type of homes that qualify for right of rescission:
Types of homes don’t really matter in this case. Your property can be a condominium, a floating home, single-family house or a manufactured home permanently attached to the land. In all these cases, you would still have the rights to rescind a loan. Read the rest of this entry »
Before discussing whether or not the adjustable rate mortgage (ARM) is dead, let’s first check out what ARM is all about. We can define an adjustable rate mortgage as a home loan wherein the interest rate on the mortgage note adjusts periodically. These adjustments depend upon factors like 1-year constant-maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). As per the report of the Mortgage Bankers Association, presently ARMs account for just 5.5% of mortgage applications.
Are there any benefits of ARMs?
There are two major benefits of adjustable rate mortgages. Let’s check out what they are and if people can take advantage of those benefits these days:
Low initial rate: ARMs initially have a low rate. This means the borrower will have to pay a smaller monthly payment than a FRM of the same size. Thus, it becomes easier for a borrower to qualify for a loan as well as afford the loan.
Low interest rate: ARM is attractive to borrowers if one believes that the interest rates will remain low over the years to come or will fall lower.
The burst of the housing “bubble” has caused many a change in the housing and mortgage market. Many of the first time buyers are now skeptical about their chances of getting a home loan in this depressed economy, even though they possess good credit scores. Here’s what one such first time buyer has described about his situation and asked the community whether he stands a chance to qualify for a mortgage:
The poster says the 3 credit bureaus list his credit scores as 682, 686 and 639. He has worked hard to improve his credit, which now has 2 derogatory items listed. One of them is a collection since 6/04, while the other is a charge-off on an auto loan since 8/06. The poster has an income of $25,500/year. He asks the following queries:
1. Do I have a chance to qualify for a loan?
2. What interest rate can I expect on the loan?
3. Which is the best bank to get my loan from?
4. Do I qualify for any first time buyer program that does not require a down payment
The poster does have a chance to qualify for a home loan. His credit scores are good enough to help him meet the lender-specified credit requirements for a mortgage. However, the only problems with his credit are the 2 derogatory items – the charge-off and the collection. No lender would want to get him approved for a loan until the two negative items are removed from the credit report.
How do you remove negative items from credit?
The poster owes a total of $19k on the collection and the charge-off. So, does this mean he cannot qualify for a loan unless he comes up with $19k cash? Not necessarily. If he does not have the cash to pay off the debts, he can try and set up a repayment plan to pay off the negative items. He can pay off the debts through monthly payments. But if he sets up a repayment plan to pay off those 2 items today, will he be able to get a loan tomorrow? Well, the answer would be “no”. The lender would want to check if he has lived up to the terms of the repayment agreement. Read the rest of this entry »
With the crisis in the real estate market, the American dream of homeownership has come to an abrupt end. Lots of people have lost their homes in foreclosure and many more are delinquent on their mortgage payments. Most people are facing such a situation mainly due to job loss. However, there are some homeowners who can afford their mortgage but are struggling to make their payments. Such borrowers are tempted to walk away from the property in order to make a fresh start.
However, walking away from property is not a very good option in my opinion as it would ultimately lead to foreclosure. Take a look as to how it can affect you:
Credit effects: If you walk away of the property, it will result into foreclosure. The lender would sell off the property to recover his dues. You would be responsible for paying the deficient amount. It will lower your credit score by 250 points and you won’t be able to get a loan for the next 3-4 years. Moreover, the foreclosure would remain on your credit report for the next 7 years.
Tax penalty: If your lender forgives the deficient mortgage balance resulting from the sale, then you will have to pay taxes for that forgiven amount. The balance amount would be considered as your income and the IRS will charge you the income tax. However, with the Mortgage Debt Relief Act in vogue, you won’t be liable for paying the taxes on the deficient amount from the sale of your primary residence if the debt was incurred between 2007 and 2012. After that, the taxes are planned to kick back in.
So, you must be thinking that there’s no respite. No one’s there to help you from this mortgage mess, isn’t it? However, that’s not the case. You can get help provided you take the right step at the right time. Just have a look: Read the rest of this entry »
Given the depression in the economy, many borrowers are uncertain as to whether they can meet the stringent underwriting guidelines and qualify for a particular loan program. Debt-to-income (DTI) ratio is one of the key factors that determine a borrower’s eligibility for a mortgage. In a forum discussion at MortgageFit one of the posters asked the community about her chances of qualifying for a home loan with a high DTI ratio in this market.
The poster’s husband is an army veteran, looking to buy a home for the first time and requires a loan worth $150,000. The poster and her husband have credit scores of 730 and 760, with a monthly income of $7,700. They have cash savings of $9k. But they are concerned about their DTI ratio, which is around 37-39%, if they add monthly payment of $1100 for the mortgage and taxes. Their monthly payment towards debt obligations is $1730, including child support, student loans, etc. She asked the following questions:
1. Whether they qualify for a mortgage with a DTI ratio of 37-39%
2. If they should first refinance to pay off a personal loan of $25k before applying for a home loan.
It’s true that things have changed a lot in the mortgage industry since the sub-prime mortgage crisis. Qualifying for a new loan is not as easy as it was 4-5 years back. But the poster and her husband have impressive credit scores, despite the fact that most of the borrowers are facing problems with their credit due to pay-cuts, lay offs and other financial reasons. For FHA or VA loans, a minimum score of around 620 is required. For conventional loans, the requirement is something around 720. So, they qualify not only for FHA and VA loans, but also for conventional loans, in terms of credit scores.
There are millions of people all over the world who die without a valid will. Their heirs may face serious problems while dealing with their property or how they should divide it amongst themselves. So, let’s have a look as what a “will” is all about:
What is a will?
A will is a legal document which can help you in dividing your assets amongst your heirs as per your wishes. You would decide as to “who” would receive “how much” of your property. Along with this, you can also name the executor of the will and guardian to the minors in this legal document. A will is advantageous because it helps you control your assets even after your death.
How do I draft a will?
You can contact your attorney and get the will drafted by him. It should be signed in the presence of two witnesses to become legal. If you do not want to take the help of an attorney, you can draft it yourself. Holographs or handwritten wills are accepted in most of the states. You may even use the “do-it-yourself” will-maker which is available both in print and in electronic version to draft your will.
Are wills too costly?
Wills do not cost much. A simple will (no trust, estate value less than $3.5 million) drafted by an attorney may cost you less than $100. If your estate value is more than $3.5 million, then federal estate taxes at the rate of 4.5% will come into play.
What if I die without a will?
If you die intestate, the administrative bond will come into play. An administrator would be appointed by the court in order to distribute your property. He/she will have to post a bond which will ensure that the administrator doesn’t loot the estate. The cost of the bond is paid from the estate. For every $100,000 in the estate, the cost of the bond would be $100 per year.
There was a forum discussion, where the poster wanted to do a deed in lieu of foreclosure on his house as he had to leave the property and move out of state. His house was destroyed by Hurricane Ike and he had to relocate to a different state for a new job. The poster could not afford to make payments on the mortgage anymore and wanted to sign over the property to the lender through deed in lieu. But the lender said a deed in lieu was not possible since the loan was insured by FHA. The lender further said that he could not approve the DIL even if the poster qualified for it, until foreclosure proceedings had started. The poster had the following questions:
1. Does having an FHA loan disqualify him for a deed in lieu?
2. Can he do anything to speed up the foreclosure proceedings so that the lender can offer a DIL?
The poster is no doubt stuck in a bad situation. On one hand, his house has been devastated by Hurricane Ike and may not sell in the market for a fair price. On the other hand, he cannot get rid of the property through a DIL as the lender would not approve of it.
A deed in lieu in this situation can be quite helpful for the poster. It will enable him to sign over the property to the lender. The lender can then sell off the property and recover the outstanding balance on the mortgage. Though it will affect his credit in a negative way, yet it will at least help him get rid of this property and move on with life.
FHA guidelines regarding DIL
There is no FHA rule or guideline that disqualifies a borrower for a deed in lieu of foreclosure. FHA lenders do accept deed in lieu requests if the borrower has exhausted all his loss mitigation options. FHA does not also have its own criteria to determine if a borrower qualifies for a deed in lieu. It is completely at the lender’s discretion if he would allow the borrower to deed over the house to him. The lender assesses the borrower’s extent of hardship, financial situation, etc. in order to check the borrower’s eligibility for the DIL. Thus, FHA does not have any rule that prohibits deed in lieu on FHA loans. In fact in 2006, when Hurricanes Katrina, Rita and Wilma wrecked havoc in many of the states, HUD extended special DIL authority to lenders to help borrowers affected by the hurricanes in major disaster areas. This may not apply to the poster’s situation. But it certainly goes on to prove that a DIL is possible on FHA loans.
If you’ve defaulted on your loan payments, you must be thinking of applying for a loan modification to save the property. We, the borrowers, think that it would be beneficial for the lenders and mortgage servicers to modify the loan rather than foreclose. But in reality, things are different.
As per a new report of the consumer advocacy group, mortgage servicers make more money if they foreclose the property. So, who are the mortgage servicers? They are the companies who collect the monthly dues from the borrowers and distribute it amongst the investors. It has been noted that the homeowners, lenders and investors generally lose money on a foreclosure whereas mortgage servicers do not.
What do homeowners think of foreclosure?
As homeowners, we think that a foreclosure would not be a good option for the lenders and investors. Both of them would lose money if they foreclose the property. It is believed that if a lender forecloses the property, he will have to settle for 20-30 cents on a dollar.
What do mortgage servicers think of forceclosure?
The loan servicers have different priorities and thus, do not think of foreclosures in the same way as the borrowers. Servicers do make profit when a property is foreclosed unlike loan modification wherein the servicers may face a loss. Also, the incentives offered to servicers in order to help avoid foreclosure are much less compared to the profits they make by foreclosing a property. This is one of the reasons which resulted in the $75 billion program to limit foreclosures by the Obama Government. The money would be given to servicers who would modify home loans.
Your mortgage can disappear – sounds too good to be true, isn’t it? But, it can be true if you are lucky enough. If your lender is unable to find your mortgage paperwork, he will not be able to prove that he owns the mortgage on your property. Thus, the judge can erase the debt and you have a debt-free house.
On 9th October, 2009, in the Southern District of New York, such a ruling was given by the federal bankruptcy court. As per nytimes.com, a lender called PHH Mortgage could not prove that it holds the mortgage for a borrower’s property. As a result, the judge simply wiped out $461,263 mortgage debt on the borrower’s property. Yes, you’re correct in thinking - the mortgage debt disappeared due to a court order.
Why can’t the lenders confirm the mortgage? Well, the notes have gone missing as a lot of mortgage securitizations occurred during the housing boom. Banks loans were sold off to the investors but the notes were never properly recorded during the boom.
However, do you think it’s fair to erase the borrower’s debt completely? I don’t think so. It has to be accepted that the borrower owed to money to a lender. The court should rather come up with an alternative plan wherein the borrowers will have to make payments for a certain period of time to the court. Meanwhile, the lender will get some more time to prove the ownership of the mortgage. If the lender can’t prove it after a certain period of time given by the court, the judge may erase the debt. This will help the court remain fair to both - the borrower and the lender. What do you say?
With many of the homeowners feeling the pinch of economic depression, loan modification has become one of the most sought-after options to avoid foreclosure. Recently there has been a forum discussion that focuses on an issue, where the lender charges off the second mortgage even after approving modification of the loan.
The poster received a verbal agreement from the second lender for a trial modification plan. He paid the first trial payment on time as per the agreement. But the next month when he pulled his credit report, he found the loan account has been charged off. On contacting the lender, the poster learned that the former had again reinstated the loan. The second lender then asked him to make the next trial payment by Oct. 27, 2009, else he would again charge off the debt.
Following are the questions the poster asked the community:
1. Does he have any ground against the second mortgage company that charged off the loan even after approving a trial loan modification?
2. If the lender charges off the debt after Oct. 27, 2009, can the poster still negotiate with the mortgage company for loan modification?
3. In case the second lender forecloses on the property, will the first cancel negotiations for the modification?
Trial modification plan & mortgage charge-off
It seems the second mortgage company erroneously reported the debt to the bureaus as charged off. It could also be possible that they charged off the debt as they thought they could not recover the balance on the loan. Though the poster paid his first trial payment in good faith, he has no ground against the second lender as there is no written agreement for the loan modification. The second lender is not legally bound to offer modification as the verbal agreement is not legally valid. So, the lender reserves the right to charge off the debt to whoever they want.
