Obama Unveils New Mortgage Modification Plan

Obama announced his much anticipated loan program today that is designed to help individuals that are still living in their homes. This plan is designed for a certain segment of borrower. It’s not really designed for people who are severely underwater in their homes and owe over 110% of it’s value. It’s really intended for people who may owe as much as the entire value of the home, but their mortgage payment has crept up and is now comprising over 40 to 50% of their income.

This new plans allows banks and the federal government to collaborate and try to get the loan payments for borrowers down to about 30% of their income level. There is $75 billion dollars allocated for this program so a lot of homeowners should get the help they need. The program isn’t live until March 4, 2009, but when it goes live there will be some strong incentives for banks and mortgage companies to get out in front of this and start negotiating with borrowers so they can adjust their rates and payments.

Lenders will get incentives that can add up to $1,500 per loan and may include additional payments later on if they are able to keep homeowners in their residence and paying their mortgage. This incentive part of the program is a tremendous first step to putting some actual teeth into the lending habits so that everyone can benefit. Before under the Bush Administration, banks were just given money and weren’t not forced or even better yet incentivized to lend, so not enough of it was happening to have any meaningful effect on the economy.

This might be a plan that can help the American economy turn the corner and maybe get a glimmer of hope that things will get better. Loan modifications are a huge part of the reality of where we’re at as a country. People everywhere are struggling mightily under the burden of too much debt and concessions need to be made by the banks so that we can once again return to the economic prosperity that we all strive for.

Mortgage Rate Resets for Alt-A Borrowers

Over 1 trillion in Alternate A loans are due to get their rates reset over the next 3 years. Alt-A Loans are a notch above subprime loans and this batch of loans are the ones that many people got in 2004-2006 and were adjustable rate mortgages.

Many people are already thinking that this reset of mortgages could cause as much damage as the submprime crisis we just went through in 2008 and early 2009. Fannie Mae owns upwards of 30% of those loans and has publicly acknowledged their is a large risk of default on this subset of borrowers.

When these loans originated, this Alt-A group of mortgages were considered to be relatively stable and not that high risk. Only over the last 6-9 months have people started to realize that the reset of these rates could spell further trouble for the already sagging financial markets.

One option that may help is for banks and lenders to start resetting these rates at levels that borrowers can afford. If the institutions wait until it’s too late we will end up seeing another huge freeze in the credit markets which will lead to a further decline in equities. Companies should wise up and realize that getting 5% on a loan is much better than getting nothing if the borrower goes into default and has to foreclose on the mortgage. The lost time of payment, while it takes about 6 months to complete the foreclosure process is a huge drag on earnings for the banks.

Let’s hope that lenders everywhere see this coming storm on the horizon and act prudently to reset rates to levels that borrowers can afford so we can start to rebuild the faith in our financial markets.

When to Lock in Mortgage Rates

With mortgage rates making huge swings over the past 15 years, it can be tough to decide if you should lock in mortgage rates or wait and hopefully get a better deal later on. Over the last 5 years mortgage rates have been historically very low and over the last 2 years they have been at almost record low levels. With the financial crisis that started in late 2008 and still is ongoing into 2009, you can find mortgage rates at close to 5% for an owner occupied home - though most of the time that requires 20% to get that rate.

Your own financial condition will dictate whether or not you should wait to lock in a particular mortgage rate. If you are planning to buy a home and only stay in it for 2 or 3 years then worrying about an extra 1/4 percentage point on your mortgage is not really worth it because the money on the loan is inconsequential. Now if you know you are going to be in your home for 30 years, then getting that extra 1/8th of a point deduction on your interest rate is a huge deal.

Mortgage rates are close to their record lows. It’s really not worth waiting an extra few months for a lower rate, because you’re never really giong to beat 5% or 5.25% interest rate on an owner occupied home. If you wait you may see rates jump to 6% and then you’re paying a lot more over the life of your loan. Most of the time it makes sense to act right away, because if you wait to get better rates you’ll just be second guessing yourself if they go up.

When you find a house or townhome that you like you have the option of locking in current rates, letting them float for a couple weeks or you can take out an adjustable rate mortgage, (ARM) instead of a traditional fixed rate mortgage. With the downturn in the housing market it is getting hard to find ARMS, because banks and mortgage brokers have been much more reluctant to lend that money, because many people that are interested in ARMS are subprime borrowers.

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Payday Loans For Bad Credit

If you are in need of a short term loan, a payday loan may be your best option. You can get payday loans up to $1,500, but be careful these loans come with a high interest rate. There are sometimes when you get in a pinch and if you have bad credit, payday loans can get you out of that bind. If you have bad credit, payday loans are one solution in times of emergency when you need cash quickly.

Most payday loan companies will let you have a loan even with bad credit. You must be careful and not get too many payday loans at one time or you will get hopelessly in debt and may need to consider bankruptcy. There are a time and a place for short term loans though. If you have a medical crisis or need to repair your car, sometimes a payday loan is a good choice to get your through until your next paycheck.

Your ability to pay the loan back is what will typically be evaluated by payday companies, not so much your credit history. So if you have a credit score under 600, it’s ok you can still get a payday loan - there are many companies that will get you a loan for a $1,000. Often all you need to do is fax your information over and you can your money in less than 24 hours - which can truly be a life saver.

Understand the pluses and minuses of payday loans and only use them if you have to. Always make sure to set aside money so you can pay back the loan in a short period of time, so you don’t end up paying huge interest rates that will set you back for a long time financially.

Home Equity Loans For Bad Credit

With interest rates at historically low leves are you looking to get some much needed cash out of your home? If you have just a little bit of equity in your home and you have access to it, you should soncidering tapping it to pay off high interest debt like credit cards. If you have a bad credit history, it may be more difficult to tap that home equity, but it’s not impossible, try to get a face to face with your bank and you’ll have much more success than letting them just run the numbers.

You will have to do some hunting around to find a lender who will approve you to take out that home equity loan. Home equity loans are very useful for paying medical bills, consolidating debt, making repairs around the house and fixing up your car. If you have a low credit score, a home equity loan may be able to help you to pool your debt which may reduce your overall payments and allow you to pay on time.

If you know you want a mortgage loan then you should definitely apply to as many lenders as possible. With poor credit, their is a strong chance you will not get accepted by the first lender you apply to so make sure to apply to at least 4 or 5.  There are some great online mortgage companies that offer extremely competitive interest rates because they can do a very large volume of loans and there is incredible competition on the internet (which helps drive down the interest rate that you have to pay).  Take advantage of that by applying online and doing it with many different companies.