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Avoiding mortgage rate-lock problems

By Jack Guttentag, Monday, August 10, 2009.

Locking the price of a mortgage is full of potential problems for the unwary borrower. Locking is especially problematic in today's market because prices can jump around from day to day, and lenders take much longer than in pre-crisis years to approve an application, and often can't.

Locking means that the lender commits that the price at closing will be the lock price, even if the market price is higher at closing than it was on the lock date. The price commitment holds for a specified period, usually 30 to 90 days, with longer periods priced higher. Whether the borrower is equally committed if the price at closing is lower depends on the lender's policy, see below.  more...

Consumer protection plan worries some

By Jack Guttentag, Monday, August 3, 2009.

Among the Obama administration's proposals for Financial Regulatory Reform (FRR) is one for a new Consumer Financial Protection Agency (CFPA). It is designed to replace the existing system of consumer protection where authority is fragmented among different federal agencies plus 50 states, where some nondepository firms are regulated loosely or not at all, and where regulators generally give higher priority to protecting the solvency of financial firms than to protecting consumers.

I have a strong predisposition favoring this proposal because I view it as the best and perhaps the only way to make mortgage disclosures useful to borrowers. The major shortcoming of existing mortgage disclosure rules is that critical information that borrowers could use often is not disclosed ...  more...

Appraisal rules backfire in down market

By Jack Guttentag, Monday, July 27, 2009.
Flickr photo by <a href="http://www.flickr.com/photos/wwworks/2963461192/">woodleywonderworks</a>.

Enacting rules to curb abuses arising during a housing bubble, which don't take effect until the succeeding financial crisis, can easily do more harm than good. This is the case with new rules requiring that property appraisals be insulated from pressures exerted by any of the parties with a financial interest in an appraised value: primarily lenders, mortgage brokers and Realtors.

Appraisals are informed judgments regarding the value of specific properties. They are not perfect because appraisers must work with incomplete information. Further, appraisers are subject to bias, and more so if less complete information is available to them.  more...

New plan to jump-start loan mods

By Jack Guttentag, Monday, July 20, 2009.

With no end to the housing crisis in sight, the need to modify loan contracts to make payments more affordable is greater than ever. While the number of modifications is rising steadily, it is running far behind the need. In the first quarter of 2009, the loan servicers reporting to the government reduced the interest rate or loan balance on only 120,465 loans. This is an annual rate of about half a million, which is no more than one-fifth of what is needed.

Modifying a mortgage is not that big a deal. According to Joseph Smith of Default Mitigation Management LLC, who has been modifying loans on a small scale for several years, "After you get the borrower's complete package, it takes only about 45 minutes from beginning to end to modify a loan.  more...

Savvy buyers save on settlement costs

By Jack Guttentag, Monday, July 13, 2009.

"Do you agree with the advice contained in the recent USA Today article, in which you were quoted, on how to save on settlement costs?"

That article made me realize that my views on how borrowers can best prevent overpaying on settlement costs are very different from those of most counselors. The author listened to my views but understandably went with the majority. This article will compare the different approaches.  more...

Preventing another bubble meltdown

By Jack Guttentag, Monday, July 6, 2009.

A major focus of the Obama proposals to redesign the regulatory system is to bring all the major financial institutions that were implicated in the current financial crisis (or might be implicated in the next one) under regulation. These include hedge funds, investment banks and mortgage companies, which have been only loosely regulated.

The general presumption seems to be that if all the major categories of firms are regulated, with clear lines of regulatory responsibility, all should be well. But will it?  more...

Secrets to saving money on mortgages

By Jack Guttentag, Monday, June 29, 2009.

Some of the most difficult questions I receive from readers concern the relationship between making extra payments and refinancing. I have never been very happy with my answers, and recently took a harder look at how making extra payments and refinancing are related. The hope was that if I understood it better, I could answer the questions better. This article reflects my current understanding, followed by new answers to some common questions.

Extra-payment decisions and refinance decisions should be made independently because they are based on very different factors. Yet each may affect the other, which is why it is easy to become confused.  more...

Mortgage repayment yields big returns

By Jack Guttentag, Monday, June 15, 2009.

One consequence of the financial crisis has been to make investment in mortgage repayment increasingly attractive. Mortgage repayment is a riskless investment that yields a return equal to the interest rate on the repaid loan. If the loan carries a 6.125 percent rate, the borrower earns that rate on the balance repaid. The yield on other investments of comparable risk, including federal government securities, CDs and money market funds, are way down. My money market funds today are yielding barely more than 1 percent.

Not so obvious but even more compelling, some borrowers in process of refinancing can earn a much higher return on partial loan repayment if the balance reduction allows them to reduce or avoid mortgage insurance coverage.  more...

Helping borrowers who don't deserve it

By Jack Guttentag, Monday, June 8, 2009.
Illustration by <a href="http://www.flickr.com/photos/hikingartist/3000884918/" target=blank>Frits Ahlefeldt-Laurvig</a>.

I don't ordinarily like to publish long letters, but this one is worth the space because it captures the mood of a sizable segment of the population:

"I'm upset by your recent article advising people having trouble with their mortgage on how to get it modified. In my view, they should be allowed to take their lumps.

My first home was a single-wide trailer that cost $18,000, which was all we could afford at the time. We have upgraded three times ...  more...

New bill gives prime borrowers a pass

By Jack Guttentag, Monday, June 1, 2009.

A competitive mortgage market that would work for borrowers requires an effective system of mortgage disclosures and a set of transaction simplification rules to equalize the playing field between borrowers and loan originators.

As indicated last week, an effective disclosure system would require that Congress remove itself from disclosure operations, eliminate all existing congressionally mandated disclosures, which are largely useless, and entrust sole responsibility to one agency that would set and revise the required disclosures as needed. Last week, I lamented that HR 1728 did not fix any of the deficiencies in the system of mandatory disclosures, but simply added more disclosures to an already excessive pile.  more...

Borrowers suffer disclosure overload

By Jack Guttentag, Monday, May 25, 2009.

Reading proposed legislation designed to "reform" the mortgage market is usually a depressing experience for me. Most of the proposals would take us further away from, rather than closer to, a competitive system that works for borrowers. This is certainly true of HR 1728, called the Mortgage Reform and Anti-Predatory Lending Act, which was winding its way through Congress when this was written.

Virtually every section of HR 1728 bears the fingerprints of consumer groups and/or mortgage lenders. Legislators and their staffs operate under the illusion that by adjudicating between these groups, they can achieve a balance between the interests of borrowers and those of lenders.  more...

Better off renters

By Jack Guttentag, Monday, May 18, 2009.
Flickr photo by <a href="http://flickr.com/photos/blmurch/2388647548/" target=blank>blmurch</a>.

Some people are not cut out to be homeowners. I call them NOHOs. What distinguishes them is not their income, their mobility, or where they live -- rather, it is how they live.

NOHOs live from week to week or month to month, depending on how often they are paid. Typically, they have nothing left at the end of the period, and if they run out early, they often borrow at high interest rates.

When they purchase durables, such as a TV set, NOHOs price the purchase in terms of the monthly payment, which they attempt to fit into their weekly or monthly budget.  more...

Loan mod: Go it alone?

By Jack Guttentag, Monday, May 11, 2009.

Last week, I went over the steps involved in getting a loan modified. This article examines which, if any of these steps, may require a borrower to seek help.

The bottom line is that many, perhaps most, borrowers can handle it all themselves, but some may need an assist here or there. And some may want to delegate the entire responsibility.  more...

The loan mod to-do list

By Jack Guttentag, Monday, May 4, 2009.

In recent weeks, I have been inundated with letters from mortgage borrowers who, for any number of reasons, can no longer afford their mortgage payment, though they could afford a lower payment. They seek help on getting their mortgages modified.

I have written several articles on modifications, but, as one letter writer put it, these provide "background but are not specific enough to really help." Ouch! In this article I attempt to make amends by laying out the steps in 1-2-3 order. Because the process is tedious, I have placed some of the boring details on my Web site.  more...

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