Kansas City North Real Estate Blog

New Loan Guidelines That Protect Buyers

If you're applying for a loan to purchase a primary or secondary home -- or planning to refinance -- be mindful of a little-publicized new set of federal consumer-protection rules that take effect July 30.

Among other key changes, the new Federal Reserve guidelines require lenders to provide initial disclosures of your mortgage costs within three business days of a loan application. If you don't get them, you can pull the plug.

The rule also prohibits lenders from collecting any fees -- except a reasonable charge for checking your credit -- until you've been given the loan-cost disclosures. This means no more out-of-pocket upfront application charges until you've received the truth-in-lending disclosures and an annual percentage rate calculation of those costs.

Many mortgage brokers and lenders traditionally have collected fees covering appraisal, credit and various other charges at the time of application, so this will be a significant change in procedure.

The rule also prohibits quickie closings on loans by requiring a seven-day waiting period after applicants are handed their early disclosures or the disclosures are mailed. Final truth-in-lending disclosures are due three business days before closing.

In addition, the new federal rules require lenders to deliver a copy of the real-estate appraisal to consumers three business days before the scheduled closing.

In the past, even though federal regulations guaranteed that consumers could request and obtain a copy of the appraisal, lenders and home buyers frequently ignored that right.

Now the timing of the loan closing itself will depend on a home buyer's receipt of the appraisal in advance.

Another significant change under the new rules: If the annual percentage rate on the early truth-in-lending disclosure increases by more than one-eighth of a percentage point (0.125), the lender will be required to "redisclose" -- i.e., provide a corrected version and allow the buyer an additional seven business days to consider the transaction.

What might cause the percentage rate to increase after the initial disclosure?

Potentially, many things: Say you left your initial rate on the loan to float with the market, but rates increase. You'll need to get an amended truth-in-lending disclosure. Or say the lender got inaccurate estimates of costs from third-party participants in the transaction, such as the settlement or escrow company. Or say that unexpected eleventh-hour junk fees materialize.

All these events -- which have been frequent sources of consumer complaints this decade -- could force the lender to redisclose loan costs and set back timing for the settlement.

What are some of the likely repercussions of the Fed's new mandates?

No. 1, the traditional approach of aiming in advance for a certain settlement-date target for home loan transactions almost certainly will be affected. Actual closing dates will be more closely tied to lenders' and settlement agents' accurate estimates and their ability to deliver disclosures and appraisals by the required dates. For example, if appraisers are backlogged and can't produce valuation reports quickly enough, settlements will have to be postponed.  Most lenders are now suggesting writing the purchase contract with the closing date set out 45 days.

Second, the purposes of the rules are to afford consumers better access to, and more time to consider, key elements of what are major financial transactions for most people. The intent is to have fewer instances of last-minute closing-date surprises on fees, where buyers are slammed with hundreds of dollars of charges they had never expected. 

Kansas City Mortgage Rates Continue to Hover at Record Lows

Mortgage rates increased slightly last week for the first time since early November, but are still at record lows. The weekly average rates for 30-year fixed mortgages increased to 5.07%, up from 4.96% the week prior, according to the Zillow Mortgage Rate Monitor, compiled by leading real estate website Zillow.com. Rates for 15-year fixed mortgages decreased to 4.86%, down from 4.91% and 5-1 adjustable rate mortgages increased very slightly to 5.56% from 5.55%.

"Sellers are literally giving homes away, " said Ron Henderson with Keller Williams Realty in Kansas City, "and with mortgage rates in Kansas City hovering around 5%, I can't imagine why anyone wouldn't see that right now is the time to buy a new home."

If you're a first time home buyer or considering moving up to a larger home, I hope you'll give me a call at 816-651-9001. 

What are you waiting for? This is as good as it gets!

What impact will mortgage money at historic lows have on local real estate markets in a recession with rising unemployment?

Lawrence Yun, chief economist for the National Association of Realtors, has estimated that 500,000 resales could be stimulated by a one point drop in rates like we've just seen.

The reason: He believes that, even with higher unemployment, there is a huge pent up demand to buy houses in many parts of the country -- especially first time purchasers who see prices at 2003 and 2004 levels.

Combine those bargain prices with rock bottom mortgage rates, and the real issue for thousands of potential buyers in the coming months may well be: What are you waiting for? This is about as good as it gets!

Avoiding Bankruptcy in your Retirement Years

With U.S. bankruptcy filings up more than 40% this year, Americans 62 years old and older should realize they may be able to avoid bankruptcy by applying for a reverse mortgage loan.

Many people filing for bankruptcy have experienced a major health crisis or have suffered a life-changing event, such as job loss or divorce. Properly utilizing the equity in a home can give people age 62 or older the funds needed to pay their bills during one of these difficult periods and avoid bankruptcy.

“People should consider their options carefully before securing a reverse mortgage,” said Doug Erickson, director of partner relations for Consumer Credit Counseling Service (CCCS) of Greater Atlanta. “In addition to obtaining reverse mortgage counseling from an independent and accredited counseling agency, a good financial advisor can help people weigh all of the information before deciding how best to proceed.”

A reverse mortgage is a loan that allows a homeowner to convert the equity in their home into tax-free income without having to sell the home, give up the title, or take on a new or additional monthly payment. Instead of making payments to a lender each month, the lender makes payments to the homeowner.

For some seniors, a reverse mortgage may be a better option than a home equity loan. However, some reverse mortgage loans have interest rates that are higher than regular fixed-rate mortgage loans, and lenders may charge points and other fees. A certified reverse mortgage counselor can help you evaluate those options.

You must be 62 years of age or older to be eligible for a reverse mortgage. You should also have a significant amount of equity in your home and the home must be in reasonably good condition. Although income and credit history are not considered in securing a reverse mortgage, CCCS believes it is critical for homeowners to review both items. Reverse mortgage clients need to develop effective budgeting skills to meet periodic expenses, such as property taxes and homeowners insurance.

Early warning signs of serious financial problems can include late or missed payments for more than one month, credit cards that are maxed out, and making only minimum payments on credit cards and other unsecured debts.

“While bankruptcy may be the only choice for many consumers, there are viable alternatives for some seniors,” said Erickson. “The decision to file for bankruptcy is definitely an opportunity to get a new start, but it also has long-term implications and consumers need to clearly understand them.”

If you'd like to know more about Reverse Mortgages and how they may benefit you, please call Ron Henderson at (816) 651-9001 or to speak with a trusted investment advisor, click here http://www.clayandplatte.com/content/partner.html?prtnrid=1306630

We can't give it to you if you don't ask

I just spoke with a friend today that has discovered something bazaar and he wanted me to know about it.

A couple of years ago, he refinanced his house with an adjustable rate mortgage that was scheduled to reset in two years time. He told me they thought they would probably move before that time, so the lower interest rate was enticing to them. Last month that interest rate jumped up enough to make his house payment go from $1,350 to $1,825 - an additional $475 a month!

When he called today, he confessed to me that his business wasn't doing very good right now and they've had to make their house payments late for the last two months. This not only destroyed his credit scores, but also made the payments go even higher with all the late payments and extra interest that was due.

Today his mortgage company called again to see when he would be making his October payment (today is October 29th) and here's the interesting part. When he told them the higher interest payments were killing him, the woman on the other end of the phone asked him to explain. He told her he needed some help to see if they could possibly work something out to lower his payments back to the old rate, so she transferred him to what she called, "our loan workout department".

Apparently, this lender has been so swamped with people having trouble making their payments and even risking forclosure, that they've created an entirely new department for helping people "work out" a new payment plan.

After taking some general information over the phone, my friend was able to negotiate a lower fixed rate interest payment and lock it in for a 30 year term, all because he asked. Apparently the woman told him, "We can't give you this option unless you ask." I suppose it's their corporate policy.

After he called me, I did some research and have since found out that this is becoming very common these days. Lenders are "working out" new plans that are more affordable, especially for people that got locked into a situation like my friend where their interest rate and payment made a huge jump seemingly overnight. These lenders have decided it doesn't benefit them financially or from a public relations standpoint to force people into these bad situations.

If you're having trouble with an adjustable rate mortgage such as this, you have 3 choices. Sell the house, refinance the loan, or you might simply try calling your lender to see if they might be willing to adjust your current interest rate.