We bought our current house in April 2010 and since then, we had refinanced our mortgage three times already, bringing the interest rate of our 15-year fixed mortgage from 4.25% of the original loan all the way down to 2.875% when we refied the last time in May (you probably can get a better deal now that the mortgage rates are at new lows after QE3, with the rate of 15-year fixed as low as 2.75%). All these refis we had done in the past two and a half years save us hundreds of dollars a month in interest payments, so it was quite worth the effort, even though every time we had to go through the seemingly tedious process of providing all the documents to prove that we are worthy borrowers who have the ability to make monthly payments. Another reason that we could refinance our loan again and again in such a short time period was that they were all no-cost refinance. We didn’t pay a penny out of our pocket, even the appraisal fees and credit check fees were reimbursed to us. If we had to pay thousands of dollars in closing cost every time, then we definitely would not have bothered.

Speaking about the tedious process of refi, the funny thing for us is that all our four loans, including the original one, were obtained through the same mortgage broker from the same bank, Provident Funding of California. And yet, every time we did it, we were asked to provide some documents that we never thought would be necessary or were not asked to submit before, in addition to those usual stuff such as tax returns, pay stubs, and bank statements. You would think that since I have dealt with them so many times and have provided all the required documents, the whole process would be simpler. But that was not the case with Provident Funding, which seems to follow very strict guidelines in the review process. For example, during the latest refinancing process, I was asked to provide a written statement for one item in my credit report. It was an inquiry from Chase early this year when I got a new credit card. I don’t know why I had to state explicitly that the inquiry was nothing more than a new credit card I acquired. Can’t they tell from the credit report what that was about? And, not just that. They asked my wife to sign a statement that the checking account I listed in the application was jointly owned by us, despite that only my name was in the application. They also asked me to provide every single 1099 form of my business for the past two years, even though the tax returns clearly showed my total business income. Besides, we also had to prove that every deposit into the checking account that was more than $2,000 had a clean source if it wasn’t a direct deposit from employers.

I am not complaining about the strict scrutiny Provident Funding exercised during the review, given what happened in the mortgage industry. What frustrated me the most was every time, there were new supporting documents we had to submit in order to get the loan approved, even for us as existing customer who has never late in making monthly payments. For our last refi in May, just days before closing, I was told that I couldn’t use my checking account for the closing because there were so many transactions in the account in a month. I didn’t know why that was a concern even after there were clear traces for all the transactions. In order to close the deal, I had to use a “clean” account instead. Eventually, I used a savings account and had to wire the money to avoid any delay. When all were done, I was again warmed to not make large transactions in that account even in the first two weeks after the closing. Seriously.

The reason that we kept going back to our mortgage broker to refi with Provident Funding is the rates we got so far were very competitive, and saving money was more important than having an easy process (not that we had anything to worry about). So if you are considering using Provident Funding for your mortgage or refinance, be prepared to answer many requests and provide lots of documents.

It really took quite some effort to save money

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When we did our last mortgage refinance exactly one year ago this time, we thought we were done with it because at that time, the nationwide mortgage rates were at historical lows and the rate we got, 3.875% for a 15-year fixed loan, was as low as we could get back then. Though the last refi didn’t lower our monthly mortgage payment by much, we were happy that we were able to save some money with the refinancing since the process itself didn’t cost us a penny.

Well, look how things have changed in one year, in a bad way. The economy is still struggling with no improvement insight, the unemployment rate is still high, and the  mortgage rates are even lower!!

Since last refinance in September 2010, I stopped following mortgage rates until early this month when I accidentally checked the 15-year rate and I was basically shocked when I saw the average rate on bankrate.com was at 3.375%. That was half of a percentage point lower than our rate. So I called  the broker who helped us refinance last year and on the same day, I completed and submitted all the required documents. A couple of days later, the broker told us that the rate was locked at 3.25%. With the new rate, we will save more than $300 a month in mortgage payment, much better than the refi we did last year. Since the refinancing was done with the same lender, the whole process went very fast. In a little over two weeks after the rate was locked, we signed all the paper and closed the transaction.

With the two refies since  we bought the house in April 2010, we were able to lower our mortgage rate by 1% and reduced the monthly mortgage payment by nearly $400.  That’s a big chunk of money saved, especially when both were done without any additional cost on us (even the appraisal fee and credit check fee were reimbursed by our loan broker). That’s the main reason for us to do the refinancing again in such a short interval since last one.

BTW, since it’s a new 15-year loan and if we borrowed the same amount as we had in our mortgage balance, it would be like starting all over again because we have already paid for one year. So eventually, we reduced the total amount borrowed this time by the amount equivalent to one-year principal. And with some extra payment each month, we hope we could pay the loan in 14 years if not faster

So are you planning to refinance your mortgage? With rates so low, it’s almost certain that you will come out ahead with a refi now.

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Many families in America are continuing to fight the battle with foreclosure.  Too many are losing.  In response to the ongoing mortgage crisis, the government has announced a new tool that it hopes will help stem the tide of foreclosure and keep more families in their homes.

 A couple of weeks ago, Washington unveiled the Emergency Homeowners Loan Program.  In it, the government is offering loans of up to $50,000 to homeowners who have lost a job and are currently in a hardship situation.  Here’s the real kicker – if the homeowner meets certain criteria, these loans don’t need to be paid back.  Now, before you go running off to the internet to apply for one of these loans, let’s look at the pros and cons of this seemingly free money offer.

 This offer is interesting in that if the homeowner is able to meet all the criteria and essentially earns $50,000 free from the government, this can be a great help in getting these folks back on their feet and in the black again.  But if the homeowner doesn’t meet all the requirements laid out in the loan agreement, they need to pay that loan back in full and that could ultimately land the homeowner in an even worse position than when they started.

 Homeowners receiving the assistance pay it back on a monthly basis just as they would they’re original mortgage.  The payment goes to pay off the outstanding balance on their mortgage.  The assistance period for this loan can last up to two years.  Once that two year period is up, 20% of that loan balance per year will be completely forgiven so long as the homeowner keeps current with their mortgage payments.  That would mean that the entire loan would be forgiven in five years after the assistance period has ended.

 This sounds like a good deal but homeowners who qualify for these loans (the ones who’ve lost a job and are quite possibly seriously behind on their mortgage) might find it a bit challenging to stay current on their mortgage payments for seven full years after receiving this loan.  To make matters worse, if they fall behind on their mortgage again or decide to sell the house before the end of the loan, the homeowner will be on the hook for the entire balance remaining on it.  That means they could ultimately be in deeper debt thanks to this program than when they started.

If you believe you might qualify you can make your application to be considered for the program at ehlp.nw.org.  Applications are being taken through July 22^nd and you’ll need to provide proof of job loss and loss of income.  But you may want to proceed with caution.  I think the intent with this program is good but the potential unintended consequences could be worrisome (and it may not end up reaching as many people as intended either).  This could be the helping hand you need to pull yourself out of the valley but it could also make things worse.

When the government extends you a helping hand it’s sometimes best to push that hand away.

Photo credit: Nick Bastian

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We bought our house around this time last year after more than three months of searching and negotiating. Even though it is believed that winter may not be a good time to buy a home (we started looking in December 2009) because of a smaller inventory, the purchase was made as we were trying to catch the deadline of the tax credit. But that wasn’t the only reason we kind of hurried the transaction. We like the house a lot and we also liked the mortgage rates at that time, both contributed to the quick decision we made.

The prolonged slump of the housing market and the slow recovery of the economy have pushed down not only home prices, but also interest rates of home loans. When we got our original loan in March 2010, the rate for our 15-year fixed rate mortgage was at 4.25% APR. At that time we thought we got a pretty good deal, but the rates kept getting lower as the housing market continued to struggle. Late last year, we refinanced our 15-year mortgage only 4 months after getting the original one because the rate was too low to pass by. By August, rates of 15-year fixed mortgage dropped below 3.75% APR, a new low back then. Despite the original mortgage was only a few months old, we didn’t want the opportunity of saving a little more slip away. So we applied and got a new loan at 3.875% APR. Though the rate wasn’t the lowest when the loan rate was locked, we were very happy with what we got because the refi had no other fee. In fact, we didn’t pay anything for the refi, except taxes

Since then, mortgage rates have fluctuated quite a lot, but overall remained at their lows. According to Bankrate.com, the current national average rates for 30-year fixed mortgage is 4.85% APR, while for 15-year fixed loan, the average rate is 4.06% APR, making it  a good time to lock in a good rate, whether it’s for first purchase or for refinancing an existing mortgage. If you are considering your options, you may want to check out CapWest Mortgage for your home loan needs, especially if you have good credit.

CapWest Mortgage is a wholly owned subsidiary of Farmers Bank & Trust, N.A. Farmers Bank & Trust is a family owned bank that has been federally chartered since 1907.  CapWest Mortgage can originate home loans, using conventional, FHA, and VA loan products, in all 50 states and it has helped a diverse set of homeowners achieve their dream. In addition, CapWest Mortgage also provides the lowest rates and closing costs available with no miscellaneous, hidden expenses. Being a Fannie Mae direct lender, CapWest  has the advantage of keeping rates low with no markups, passing the savings back to the borrower.

CapWest Mortgage is also a Costo approved lender. This means that if you are a member of Costco, whether at Goldstar level or Executive level, you can save even more with CapWest using your Costco membership. For details on how much you can save on mortgage costs with your Costco membership. According to CapWest, lender fee is capped at $600 for Executive members and $750 for other levels of membership.

Since CapWest is a prime lender, you will need to have a good or excellent credit history in order to apply for a loan. If you do have a very good credit score, you can get a free loan quote from CapWest Mortgage and compare it with offers from other lenders to see whether they can indeed save your money. To give you an idea about their rates, I used the free quote and got the current rates of our loan with exact the same term:

• 30 Year Fixed Rate: Rate 4.875%, Points 0.000%, APR 4.898%, Closing Fees, $6,999.83, Payment $2,169.75
• 20 Year Fixed Rate: Rate 4.500%, Points .000%, APR 04.531%, Closing Fees $6,999.83, Payment $2,593.86
• 15 Year Fixed Rate: Rate 4.000%, Points 0.000%, APR 4.039%, Closing Fees $6,999.83, Payment $3,032.72
• 10 Year Fixed Rate: Rate 3.375%, Points 0.000%, APR 3.431%, Closing Fees $6,999.83, Payment $4,030.36
• 5/1 Adjustable Rate: Rate 3.375%, Points 0.000%, APR 3.477%, Closing Fees $6,999.83, Payment $1,812.59

As you can see, the current rate of a 15 year fixed rate loan is only slightly higher than what we got last year.

BTW, CapWest is a partner of Credit Sesame. If you are using Credit Sesame, you can find out much easier if CapWest can give you a good rate based on your credit. More about Credit Sesame can be found in my Credit Sesame review post.

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The mortgage industry says it’s dishonest, irresponsible, dishonorable, and even anti-social. They term it as unscrupulous behavior. What could they be referring to? They’re referencing the latest phenomenon of homeowners walking away from their underwater mortgages.

What’s an Underwater Mortgage?

Well, that has become a pretty common occurrence these days with the debacle that has become the mortgage and housing industry. A mortgage is considered to be “underwater” when the value of the property drops below the total amount of outstanding loan. The homeowner has lost all of the equity in the home due to the decline in its value. For example, a homeowner purchased a house valued at $300,000 a few years ago at the peak of the housing boom. The mortgage on that home was $250,000, giving the homeowner $50,000 equity in his home. After the sub-prime mortgage led crisis and the subsequent burst of the housing bubble, home values plummeted and the home is only worth $180,000 now with an outstanding loan of $23,000. The homeowner owes more than the house is worth, has no equity, and should he try to sell, he will take $50K out of his own pocket in order to discharge that mortgage. His mortgage is underwater!

According to the graphic from creditloan.com (above, click to enlarge), foreclosures have skyrocketed since 2005 and at least two and a half million homeowners have fallen victim to the dreaded words, your home is being repossessed. Alarm follows such a staggering figure, but the numbers are still rising. Last July 6% more foreclosures occurred than in July of the previous year. Twenty-five percent of ALL homeowners currently holding a mortgage are face down in the proverbial pool, owing more than their homes are worth. To add insult to injury, of that 25% one fifth are a quarter underwater. Meaning that over 25% of their investment cannot be recovered should the owner attempt to sell, simply because the home is no longer worth it.

Only ten of the fifty United States did not have homeowners who were experiencing this submersion in 2009. The problem spanned all age groups with the 30-49 year olds taking the plunge at a disheartening 25%. Of course the unemployed saw a deeper dive as they comprised the larger percent of those hanging on for dear life, with those that were employed but making less than $30,000 just a percentage or two ahead of them. When it came to these topsy-turvy mortgages the Hispanics lead the pack with African-Americans a close second.

Walking Away?

Now faced with what seems to be a lose-lose situation what’s a homeowner to do?

Well, there’s a growing trend to just walk away. To the chagrin of many lenders some homeowners are packing up and moving away from their own personal tsunamis. These homeowners view this solution as a strategic way to solve their problem. Often they can find homes to rent for less than the watery mortgage that they were struggling with. But is this right? Is this the principled thing to do? By in large most people think not; 75% of those who rent their current living spaces and a hefty 83% who have mortgages agree with the lenders and say this is a no-no. Yet in 2008 over half a million homeowners chose to do just that. In spite of the mortgage industry’s cautioning about their “moral obligation,” what their family and friends would think, the legal consequences, and the damaged their credit rating would undergo they just left. 59% of Americans oppose this action; while 25% of those that are struggling day to day to survive applaud it. 5% more men feel it to be a viable choice than do women, but they are basically deadlocked when it comes to feeling this shouldn’t occur. 11% more of generation Y than the baby boomers feel it just shouldn’t be done. But no matter where you fall on the question of leaving an underwater mortgage you must agree that homeowners are in deep trouble. Leave or stay they are the ones left holding the bag.

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