Who is to Blame?

I just saw a video you should take a look at on Bloomberg, In Depth Look - How Real Estate Came to Own Us. It's about a book Our Lot by Alyssa Katz. I've checked out the video a couple of times and personally I think it's all about the blame game. She talks about how government regulations were relaxed to encourage homeownership, hence the subprime market, hence the Great Depression of 2009 which we're all beset by...okay...whatever...

What she says is cool--keeping in mind I haven't read the book--but we have to look at the ABC of personal finance which goes a little like this...if your outflow exceeds your inflow, your upkeep becomes your downfall. Trust me, there ain't much beyond that, especially when you're considering purchasing a home. Therefore the only thing that matters is whether or not you can afford the home, not whether or not you can be approved for a mortgage. In the past anybody could get a mortgage, but now a lot of those anybodies are in foreclosure...ouch!

So, my point is I don't care what the government has done, is doing or will do in the future, we all have to exercise self-discipline regarding fiscal responsibility. The government never put a gun to anyone's head and made him sign on the dotted line to purchase a home. You've got to know what you can and can't afford, and it ain't rocket science to figure it out. Speaking of guns, as Dirty Harry once said, A man has to know his limitations.

On another note, when will all the madness end with a housing market rebound? I don't know, but check out Five Reasons the Housing Market Still Hasn't Recovered Yet and maybe you'll gain some valuable insight.

Since you asked me, I'll put on my swami garb and predict a turnaround in 2011. How did I come to that conclusion? First, I don't know a doggone thing about high finance and bonds and interest rates and economic cycles--sometimes I just don't know nuthin' period. But, if my burnt out Rutgers University brain serves me well, what I remember is that in 2007 the crap hit the fan in the mortgage industry--stuff was flyin' all over the place as most subprime companies were quickly sinking in quicksand during that summer. That being said, there were still a slew of 3 to 5 year subprime adjustable rate mortgages being approved up to the melt down. Add 3 to 5 years to 2007 and you get years 2010 to 2012. On top of the subprime there are a lot of toxic no-income verification mortgages which still have to implode, so my conclusion is the housing bottom has to be somewhere during those three years. Of course, the middle year is 2011 which I opine will be the rock bottom year. Sure, we'll get spurts in the housing market here and there, but they may be short lived. But in 2011 I think we'll see a somewhat steady incline. Keep in my opinions are like you know what...

All of that being said, there will be great opportunity during those years than ever before for you and Joe Sixpack. In fact, there's great opportunity now, as long as you know your limitations! Interest rates are still relatively low and there's a lot of inventory. Just get back to the basics of good credit, steady income and verifiable assets and you're golden.

What Causes Interest Rates to Go Up and Down?

Question #39 from HOW TO GET A MORTGAGE DURING & AFTER THE SUBPRIME CRISIS

Many, many economic factors! Strength and weakness of the dollar, the price of oil, how the Federal Reserve feels on any particular day, and much, much more.

The Real Deal: Many clients, especially on a refinance, want to wait until the Federal Reserve Board lowers interest rates next week to lock in an interest rate. Sounds good, but it's completely ineffective. The Fed determines two key indices: the Fed Funds Rate, which is an interest rate at which banks lend money to each other; and the Fed Discount Rate, a rate for lending to commercial banks. Neither of those indices directly affect interest rates of fixed or adjustable rate mortgages. However, the Fed's rate changes will affect your HELOC if your HELOC interest rate uses the prime rate as its index.

If you really want to know what mortgage interest rates are tied to, take a look at the 10-year Treasury note. There is not a direct correlation between the two, but most of the time as the 10-year Treasury note moves up and down, so do mortgage interest rates. So maybe the real question is what makes the price of the 10-year Treasury note go up and down? Although the answer may be complicated, as with most other items for sale, supply and demand determine price and rule the day. The greater the demand for the 10-year treasury, the higher the price-which means it's a good bet that mortgage interest rates will rise.

The Bottom Line: The Fed's concerns are about jillions of economic factors, not directly the interest rate for home mortgages. If the Fed slashes interest rates, don't expect a corresponding slash when you want to lock in your mortgage interest rate.

Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.

Should my spouse and I both be on the mortgage application?

Question #100 from HOW TO GET A MORTGAGE DURING & AFTER THE SUBPRIME CRISIS

Answer: It depends on the strengths and weaknesses of each spouse.

The Real Deal: When your mortgage application is taken, Lisa Loan Officer will look at the strengths and weaknesses of each spouse. As an example, Kenny and Karen apply, Kenny’s credit is 750 and Karen's credit is 615. Lisa would probably try to approve the application with only Kenny on it. But, what if Kenny’s income is not sufficient enough to close the deal? Lisa would put both on the application and move forward.

Mike and Mary apply for a mortgage. Mike filed Chapter 7 bankruptcy years ago after he lost his job and it was just discharged 18 months ago. Mary is a goodie-two-shoes and very strong financially with superlative credit. Lisa would probably move ahead with only Mary on the application. In fact, she may not be able to use Mike in any capacity with his recent bankruptcy.
James and Joanne apply. Both are squeaky clean, with great credit, but both have low income. In this case they need each other to qualify, purely based on income. Lisa would probably put both on the application.

There are many different scenarios and reasons why Lisa would want both spouses or just one on the application. Each mortgage application must fit into the specified underwriting guidelines and stand on its own merits.

The Bottom Line: Whichever way gets you the best deal determines who goes on the mortgage.

Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.

Should I Wait to Purchase A Home Until I Can Make a 20% Down Payment?

Question #98 from HOW TO GET A MORTGAGE DURING & AFTER THE SUBPRIME CRISIS

Not necessarily. It depends on your financial situation and/or how you feel about investing in real estate. There are many mortgage programs which allow you to put down less than 20%.

The Real Deal: Nowadays there are many purchasers who make less than a 20% down payment. For instance, in the Garden State of New Jersey, prices are exorbitant in certain areas. In some places $500,000 doesn’t buy that much home. Even if a home is half that price ($250,000) a 20% down payment would be $50,000. Many home purchasers don’t have that much loose change lying around to close the deal. On the other hand, if you can get approved for an FHA mortgage with a 3.5% down payment, you’d only need $8,750. One reason the FHA was developed in 1934 was to spur homeownership and make it easier for Americans to qualify for a home purchase by insuring mortgages. Why not take advantage of it? Even during those times many people couldn’t afford to put down 20% when homes cost far less than they do today.

On the flipside, the more money you put down, the more mortgage products are available to you. You may be able to lower your interest rate and your debt-to-income ratio with a larger down payment. Also, many homeowners feel more secure the greater the equity is in their homes. They feel as though they have funds in reserve and they’re always are able to do a cash-out refinance or get a HELOC if they must have cash.

The question is do you want to put that much of an investment into real estate, do you want to use your cash for another purpose, or do you have the cash period? If one purchaser puts down 20% he could be house rich and cash poor, while putting down 5% could make his economic situation more palatable. Another purchaser could be rolling in dough and putting down 20% is a piece of cake. Another purchaser may feel as though he can never save 20% for a down payment, so why not go for it with what he has? It entirely depends on your situation.

The Bottom Line: Whether you should make a 20% down payment depends on your financial circumstances, how you feel about investing in real estate and/or whether you have the ability to do so.

Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.

Credit Card Mistakes

This past Wednesday evening I had the pleasure of doing a homebuyer's seminar at the chic offices of Coldwell Banker Park Avenue Realty, 1015 Park Avenue in Plainfield, NJ. Call me superficial, but I always love going there because the office is so pristine and classy...BTW, pristine and classy is always good for business. Anyway, if you're looking for a home in the area drop in and see Sandy Jackson-Gill (908-251-6450) to make your homeownership dreams come true.

Inevitably, at all seminars I do, the issue of credit is always a big pain in the gluteus maximus for many in the audience. Therefore check out 10 Worst Credit Card Mistakes to save yourself a few headaches in the future. If your credit has just had a myocardial infarction, following are a few quick tips to resuscitate it and/or keep it on life support if you're looking for a home in the near future...

• Don't close credit cards, just pay them to a zero balance or keep the balance low. Closing the card could drop your credit score.
• Don't pay off collections until you speak with your loan officer. Paying off old collections (greater than 6 months old) would be activating an old account and could drop your credit score.
• Don't apply for any credit or open any credit cards if your looking to purchase a home in the next few months. If a new credit account hits your credit report it can temporarily drop your score. If you appy and you're denied for credit...ouch! That's ugly.
• Don't go over your credit limit. You'll get charged with extra fees and a drop in your credit score.
• Don't, don't, don't make any late payments. If you do I'll kick and pout...this one should be obvious, I hope.

Finally, this Saturday, May 9, 2009 at 12:00, I will be presenting a homebuyer's seminar at 178 South 9th Street, Newark, NJ at 12:00 noon. The event is sponsored by the Mid-Atlantic Investment Alliance. The goal of the group is to revitalize the area and turn it into the next Black Wall Street. For more information on the event please call 973-277-6342.

What is a Mortgage Pre-Qualification?

Question #3 from How to Get a Mortgage During & After the Subprime Crisis

A mortgage pre-qualification is a document from a lender outlining how much of a mortgage a home purchaser can qualify for. A loan officer asks questions which would be essential in underwriting the mortgage, analyzes the information, and drafts a pre-qualification letter.

The Real Deal: Many realtors refuse to show a prospective buyer a home until he or she is pre-qualified. Why? Because time is money--and most people don't have a lot of either one!

Paula Prospect calls Rebecca Realtor to see a $375,000 condo. Rebecca agrees and they drive 15 miles to Condo Paradise Estates. Paula is excited by what she sees and immediately wants to make an offer. Rebecca says we can't make an offer until we have a pre-qualification letter. Paula calls Ben Banker to get pre-qualified. Ben says, "Sorry, Paula, but I can only pre-qualify you for a $325,000 purchase. Don't be foolish and try to go beyond that amount!" At that point, Paula and Rebecca realize they've wasted a lot of energy and the one thing they can never get back--time.

The real deal is that it's ridiculous to shop for a home you can't afford. I've known plenty of realtors who have chaperoned prospective purchasers all around town, without a pre-qualification, only to find, to their chagrin, that the prospects have stinky credit, shaky income, or no money at all for a down payment.

Also, sellers determine which offer they will accept, based on the financial strength of the purchaser. If two equal offers come in, but one has a stronger pre-qualification, the intelligent seller will accept the offer with the stronger pre-qualification. Stronger in this sense may mean better credit, a larger down payment or a superior mortgage product (prime as opposed to subprime). No one wants to waste time, money and energy working on a deal that is either a pain in the neck to process or simply can't be closed.

On the other hand, mortgage pre-qualifications can be completely bogus. The loan officer relies on the representations of the prospective purchaser regarding income and assets. The credit report stands on its own two legs once it is run, although there may be mistakes on it! But oftentimes a prospective buyer says he makes $60,000 per year when it's really closer to $55,000. (By the way, do you know your exact income?) Or he says he has 10% for a down payment when it's closer to 8%. Those two misrepresentations, among others, could make or break a deal.

One of the big problems with the mortgage pre-qualification process is that many loan officers get a wee bit overzealous, telling Paula Prospect she can afford a little more home than she really can. Loan officers might do this because the truth hurts and telling Paula what she wants to hear keeps her happy. However, many deals have been killed because Ursula Underwriter does not quite agree with Ben Banker's assessment of Paula's purchasing power. Ursula smacks the deal down and, of course, even more time, energy and money is wasted.

The Bottom Line: The mortgage pre-qualification is essential to determine how much home you can afford. That being said, if a lender says you're pre-qualified for a mortgage of "X" amount, that doesn't guarantee that you will close the deal. You still must go through the underwriting process.

Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.

Short Sale Blues

The big trend in today's market is buying property via a short sale. What is a short sale? It's when you purchase a property for less than what is owed on the current mortgage. For instance, the seller owes $250,000 on his mortgage, but your offer is to purchase the home for $220,000. Obviously there's a $30,000 shortfall or loss the mortgage company has to eat if the deal is consummated, hence the term short sale.

A few things to keep in mind so you don't get caught off guard...

First, short sales can take a long, long, long time to be approved. I've had short sales which have dragged on for more than six months. The process is that you make the offer, the seller accepts the offer, but the bank which is eating the loss must approve the deal! Without the bank's approval, there ain't no short sale. Apparently the bank's committee -- or whatever other powwow group is in charge -- can drag its feet for as long as it wants to while keeping you, the purchaser, on hold and in a state of high anxiety. Then, when the committee approves the short sale, it normally wants to close as quickly as possible. It’s sort of a weird process, but it is what it is. Therefore, be very, very, very patient in a short sale transaction.

Second, in a lot of cases the subject property in the short sale transaction is sold in AS IS condition. AS IS condition means the bank or seller ain’t doing a thing to spruce the place up. If the roof is caving in, so be it--you have to deal with it! The problem, at least in many towns in New Jersey, is that you may need a certificate of occupancy for your mortgage company to approve your loan. The certificate of occupancy, or more affectionately called the C of O, is mandated by most municipalities to ensure the property is habitable. Therefore, if you can’t get the certificate of occupancy, you may run into a mortgage roadblock.

Lastly, if the property you’re trying to purchase is from a seller who is in foreclosure and you want to cash in on the short sale, watch out – there may be unexpected liens against the property. The seller may owe $250,000 on his mortgage, but there could be judgments and other noxious liens against the property which could pop up unexpectedly when title is run. Once I was involved in a transaction where the seller has $75,000 in liens against the property. Sellers who are in foreclosure oftentimes present an extraordinary challenge -- or a big pain in the you know what! Therefore, if a property is in foreclosure, expect the unexpected.

FHA Minimum Credit Scores

I've been getting a lot of questions regarding the minimum credit score for an FHA mortgage. I know, Larry Lender says the minimum score is 620, but Barbara Banker says she'll go down in the basement to a 500 credit score. Of course, you don't know who to believe because everybody seems to be full of manure. That being said, here's my take on it...

Many lenders are now requiring a minimum score of 620 to get an FHA mortgage approved. Some are saying 620, no exceptions, otherwise we won't play ball. Others are saying we'll go down to 500, but only for certain kinds of properties and only under certain conditions. Well, to make your life as simple as possible and reduce those ogeda flare-ups (or is it agita...who cares), do what you gotta do to raise your score above 620. But, if there's no hope to raise your credit score from the ashes in a short time period, here's what I've come to find out. If you're below 620, don't even think about getting approved for a 3- or 4-family FHA mortgage. As far as I can see, it ain't happenin'. I'm not saying it's impossible, but it's highly risky for a lender to approve it. Someone told me the default rate for 3- and 4-families is about 30%? Ouch! Would you loan someone money with a default rate that high? I think not.

Right now there are lenders who will go as low as a 540 credit score if the property is a 1- or 2-family. There aren't many which will do it, but some do exist. I know one lender which touts the credit score doesn't matter for a 1-family, as long as the deal makes sense. That means all of the other numbers and factors have to jibe regarding the deal, such as income, debt ratio, assets, extenuating circumstances, etcetera. Then you’d probably have to jump through multitudinous hula hoops, do back-backflips and give up your first born to get it approved, but so be it. So, what's the sense of it all?

Depending on how a lender does business -- meaning whether it's approved to underwrite FHA deals or whether it brokers the deals -- that may be the deciding factor regarding the lender you're dealing with. If your mortgage company is underwriting the loan and lending its own money, odds are 620 will be the minimum score. If the deal is brokered to an outside lender, then the minimum credit score requirement can dip down to 500 or below. When you go to Larry Lender and he brokers the deal, Larry isn’t lending his own money so he doesn’t care about credit score, debt ratio, etcetera – his money ain’t risk so it doesn’t matter to him.

Another factor is how your lender sells loans it underwrites to investors. Some lenders may have outlets to sell mortgages to investors with a credit score below 620, while others may not. Normally, if a mortgage can't be sold and/or traded like a baseball card, it won't be approved. Most lenders don't hold onto mortgages and sell them to Wall Street or whoever else will buy them. Also, if a lender holds onto your mortgage and doesn’t plan on selling it, it may make certain exceptions to get your loan approved.

Anyway, the real deal is that if someone says you can't get an FHA mortgage with a credit score below 620, that ain't reality on my side of the tracks. It can be done under certain conditions. You may have to put on your walking shoes and shop around, but sometimes it's worth it.

Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.

$8,000 Home Buyer Tax Credit

Well, the President is starting out on the right foot with the $8,000 tax credit for first time home buyers. I've been getting a lot of questions about it and I gave him a buzz to get the inside scoop, but he hasn't called me back yet. I'm not holding my breath, so in the mean time I'll tell you what I know and how it will benefit you...

1. The tax credit applies to homes purchased between January 1, 2009 through December 1, 2009.
2. The tax credit is 10% of the purchase price of the home up to a maximum of $8,000.
3. For single taxpayers you can get the credit up to $75,000 of income; for couples the income limit is $150,000. Over those amounts and it phases out.
4. First time home buyers are eligible, as well as those who have not owned a home in the last three years.
5. The home you purchase must be your principal residence.
6. And the big biggy...the credit does not have to be repaid.

The 101 explanation of the plan is if you buy a home this year and you owe $20,000 in taxes, just deduct $8,000 from it and you now owe $12,000 in taxes. That ain't too bad. And, unlike the Dubya plan a few years ago, you don't have to pay the $8,000 back (which never made sense to me). That ain't too bad either.

So, here's what we have...low interest rates, low housing values and an $8,000 gift! Is there anything else to ask for? Well, of course there is, but don't be greedy! There's even talk that in certain parts of the country it's becoming cheaper to own than to rent. I don't think that applies to Joisey or New York, but you know what I mean. The time may be ripe to purchase a home...and I'm not saying that because I'm in the mortgage business. Many people are waiting for the market to bottom out before seizing the opportunity. I hope it has bottomed out, because if I lose any more equity in my home I'm going to choke somebody (maybe one of those AIG execs who won't give his bonus back!).

The real deal nowadays is to make sure you have the income to handle the home. It's all about debt to income ratio. If you can't afford a home it doesn't matter if the economic factors are in your favor or not...it just ain't happenin'.

On another note I have disbanded my website temporarily and I'm working on a MySpace page. I'll keep you abreast of the situation.

And, if you still aren't on FaceBook, shame on you. If you are, look me up.

Of course, feel free to buzz me at any time at 973-919-8065 for any help.

Reverse Mortgage Tidbits

My fellow Americans,

Some interesting news! In the soon to be released Obama Stimulus Plan, there is a provision which increases the maximum loan amount for a reverse mortgage up to $625,000 through December 2009. That sounds like pretty good stuff for those with bigger homes who want some monthly payment relief.

Just in case you're not familiar with the intricacies of the reverse mortgage, I'll give you the abridged 101 Cliff Note bullet points...

1. You (and your spouse if married) must be 62 years of age or older to get a reverse mortgage.
2. The reverse mortgage allows you to pull equity out of your home, in the form of cash to you, and you don't have to pay the money back on a monthly basis for as long as you're alive.
3. You must continue to have the home which has the reverse mortgage as your primary residence.
4. If you currently have a mortgage on your home, you can refinance into a reverse mortgage and pay off your old mortgage.
5. You don't have to worry about having income or good credit, it doesn't matter when getting a reverse mortgage.
6. The amount of the reverse mortgage depends on the value of your home, your age and your life expectancy.
7. The money you take out of your home can be paid to you in lump sums or installment payments.
8. Interest accrues on the money you take out of your home.
9. You can use a reverse mortgage to purchase a home.
10. You still must pay applicable taxes and insurance on your home.

That's probably more than enough to get you started, so let's look at a scenario. You're 65 years old and just retired. You're getting a small pension and social security. Your home is worth $300,000 and you have $100,000 left on your mortgage. You need a little money, maybe $30,000, to refurbish your home and make it a little more comfortable. Your monthly mortgage payment is $925, not including taxes and insurance. The problem is you can make your mortgage payment every month, but it's choking you financially. You hardly have any money left over at the end of the month to enjoy your retirement. You want to refinance and take money our of your home to spruce up your home, but starting over with another 30 year mortgage doesn't sound too delectable to you. Aside from that, you really can't afford it anyway. What do you do?

Well, this scenario may be tailor made for a reverse mortgage. You can get a reverse mortgage to pay off the $100,000 you have left on your current mortgage and take out $30,000 in cash. If you add on closing costs you may have a new reverse mortgage of approximately $135,000 to $140,000. The beauty is you don't have to make any monthly mortgage payments for as long as your home remains your primary residence. What you've done is put $30,000 in your pocket to use at your pleasure and you've eliminated the $925 monthly mortgage payment you previously had. What a deal!

Is there a downside? Yes and no. Yes, if you think about the fact that interest is accruing on the $140,000. That means if you sell your home 3 years from now, the loan could be maybe $155,000 (just as an example, depending on your interest rate). If it bothers you that your mortgage balance is increasing instead of decreasing, that can be an issue. Also, you may feel as though you're locked into your home because it must remain your primary residence for you to retain the right to not have any monthly mortgage payments. On the contrary, there is no downside if you don't care that interest is accruing on the $140,000 and you don't intend on moving, especially since you're livin' the high life because your cash flow has increased by $925 per month.

Of course, every scenario is different and it's best to speak to a professional and get all the facts. Feel free to contact me at any time.

Kirk Charles, 973-919-8065

Obama's Big Plan!

Well, finally we have something from the feds that can have a big impact on the housing crisis! Team Obama has scored a big win with the new stimulus plan that is set to take effect sometime in March.

Here are a few highlights...

• Enabling 4 to 5 Million Responsible Homeowners to Refinance. If you're underwater on your mortgage and it's owned by Fannie Man or Freddie Mac, you may be able to refinance into a much lower interest rate, given that you've been paying your mortgage in a responsible fashion. -- If you intend to stay in your home for the long haul, this sounds really attractive.
• Reducing Monthly Payments. There will be a low cost refinance for those who don't have 20% equity in their homes. -- This sounds good if you've been thwarted in your attempts to refinance.
• Helping Hard Pressed Homeowners Stay in Their Homes. This initiative is to help those struggling with mortgage payments because of an interest rate increase, yet cannot sell their homes. -- I assume homeowners will be allowed to apply for some sort of loan modification. Exactly how remains to be seen.
• Protecting Neighborhoods. When a home is foreclosed on all of the surrounding properties are affected negatively. There is some plan to help the surrouding homeowners retain their home values. -- I don't know how this one is going to work.
• Support for Responsible Homeowners. This plan will help homeowners get loan modifications before they start missing payments. -- How will these people be targeted?
• Shared Effort to Reduce Monthly Payments. This is a plan to bring a homeowners mortgage payment down to 38 percent of his monthly income by reducing his interest rate. Furthermore, there is incentive to get the mortgage payment down to 31 percent. Lenders will also be able to reduce the principal to bring down the monthly mortgage payment. -- This sounds like a winner, which is simply just modifying the mortgage to make it reasonable for the homeowner to pay each month.
• "Pay for Success" Incentives to Servicers. Mortgage servicers will get an up-front fee of $1,000 foe each eligible loan modification meeting guidelines established under the initiative. They will also receive monthly fees for three years, up to $1,000, as lon as the homeowner stays current on the loan. -- This sounds like a winner. There's no incentive greater than money to get the job done.
• Incentives to Help Borrowers Stay Current. A monthly balance reduction plan is proposed to those who pay their mortgage on time. -- For obvious reason this sounds like a winner too.

All in all, I think this plan is ambitious and can help a whole lot of folks who are in trouble, however there may still be a whole lot of folks who are left standing outside in the storm. If your mortgage ain't owned by Fannie or Freddie, what do you do? Are Alt-A and subprime loans eligible for the plan? It doesn't sound like it just yet. How will second mortgages be affected? How will the PMI companies handle insuring the mortgages?

What I'm really saying is I don't know what's going to happen. Things are still very much up in the air. We in the mortgage industry are anxiously awaiting guidelines from banks, investors, etcetera. This housing problem is so complicated that even if the President seems to have a perfect solution for it, it has tidal wave effects throughout the entire economy, the ramifications of which are obviously undetermined at this point in time.

But, aha, I did look into my crystal ball this morning. What did I see? My prediction is that this plan is going to help a lot of people and do a great job, but implementing it might be a pain you know where. It all seems to be one giant loan modification. The question is who is going to do all of the modifying???

Anyway, if you have any questions or concerns, contact me.

Subordination Agreements

Many homeowners refinancing today have a 1st and 2nd mortgage on their home. For instance, their housing value is $300,000 and they have a 1st mortgage of $200,000 with a 6.5% interest rate and a HELOC (2nd mortgage) of $50,000 at 3%. And you know how HELOC interest rates are now, right? Low, low, low! The homeowner is trying to seal the deal to refinance the $200,000 at 4.75%. Of course, any sane individual would want to keep the 3% HELOC. (Keep in mind the HELOC has a variable interest rate. A year from now it could shoot up to God knows what!) But that sneaky little HELOC is in a very powerful position. If you try to refinance the 1st mortgage the HELOC must sign off on a Subordination Agreement.

So what you say? The Subordination Agreement means the HELOC will not take first lien position after the refinance and it will remain in second lien position. So what you say, again? Let's say that our homeowner slips into the abyss of foreclosure. The first and second mortgage would have to be paid off if the home is sold at auction. But, let's say the home auctioned off for $215,000. When it's auctioned, the mortgage in first lien position gets paid off first. In this case, the $200,000 mortgage is paid, but there's only $15,000 left over to pay the $50,000 HELOC. Of course, the HELOC gets upset because it's short $35,000! That's the risk of being in second lien position.

If the homeowner wants to refinance and the HELOC does not sign off on the Subordination Agreement, the HELOC would get paid off first in case the homeowner slips into foreclosure. You know what that means? It's almost impossible to refinance the first mortgage without the Subordination Agreement signed off by the HELOC. The mortgage company refinancing the first mortgage would almost never put itself in the position of being in second lien position behind the HELOC in first position. In this case it's purely a matter of who gets paid off first if the stuff hits the fan.

So, what am I saying? Although there's a refinance boom right now because of low interest rates, the process is not a slam dunk. In our scenario, if the HELOC does not sign off on the Subordination Agreement, the homeowner may have no choice but to refinance both mortgages, which could present another problem if the homeowner didn't get the 1st mortgage and the HELOC at the same time. Oh well, I'll save that discussion for next time...

Give me a buzz if you're in need of a mortgage...or just a friend in need!

Kirk Charles, 973-919-8065, kirkcharles@comcast.net

FHA Streamline Refinance

Happy New Year,

Okay, I'm late, but I'm just recovering from all of the champagne and Mimosas to help me get through this tumultuous real estate and mortgage market. As you know, it's hard out here, but there are rays of light for those who need a little Vitamin D!

On the mortgage front, something for you to investigate immediately is the FHA Streamline Refinance--but don't get too aroused just yet! I know you've been salivating over those low, low, low interest rates and you want to refinance, but it's only for those who currently have an FHA mortgage. One of the beauties of the FHA Streamline Refinance is that you may be able to get one without doing an appraisal. Of course, you know what that means, right? If you're upside down on your mortgage you can stop pulling your hair out (for those who still have some left).

For instance, you bought a home in 2005 for $300,000 with a 3% down payment, therefore your FHA mortgage is $291,000. But, oops, 2007 rolls into town and the subprime crisis smacks us all in the face. Unfortunately you lose equity in your precious home and it's now only worth $270,000. The question is how can you refinance your $291,000 mortgage when your home is only worth $270,000??? At a $270,000 value you can only get another FHA mortgage for a max of approximatley $262,000. Subtracting $262,000 from $291,000 leaves us with $29,000 you'd have to pay out of pocket, plus closing costs of maybe another $5,000 or more. Do you have $34,000 of spare change to make the refinance happen? I'll be you don't, but if you don't have to be concerned about the value of your home to do the FHA refinance, you don't need $34,000. You'd only need the normal amount for closing costs, if that, because your lender may be able to absorb some of the costs for you. Plus, when you refinance you normally skip a mortgage payment. Just used the skipped payment money to partially pay for the closing costs and you're golden. You can drop your interest rate from where it's currently lingering to something more delectable like 5% or lower!

Some other beauties of the FHA Streamline Refinance...

You don't need to put down income or assets on the mortgage application. However, you will have to put down where you work.

Only your mortgage history is checked on your credit report. So, if you have a multitude of late payments, stop sweating bullets. (Of course, you don't have any late payments on your mortgage, right?)

The real deal is no appraisal...no credit check...no income check??? Come on...it's a no brainer. If you have an FHA mortgage, contact your lender immediately, give me a buzz or shoot me email for more details.

Also, Saturday evening and Sunday afternoon Black Men Magazine will be having its 15th Annual Male & Female Swimsuit and Fashion Show this weekend. Click on the COMPETITION tab on the website to get more information. I'll be there signing my book HOW TO GET A MORTGAGE DURING & AFTER THE SUBPRIME CRISIS.

Check out my website at http://www.getmeamortgage.net/.

Hasta la vista,

Kirk Charles
973-919-8065
kirkcharles@comcast.net