Dec 24, 2010

Should you take a mortgage break at Christmas?

Should you take a mortgage break at Christmas?

With Christmas on our doorstep, the extra costs of presents, catering and holidays can stretch the family budget. It would be great to not have to worry about paying your mortgage off during this period to help? Or would it?

There are many lenders who permit a mortgage break, where the homeowner takes a “break” from paying the mortgage for a short period of time – allowing them to use the normal mortgage payment to cover other expenses.

A word of caution though – it will come at a cost unless you plan ahead and save in advance.

Aussie founder and executive chairman John Symond says the best (and most economical) way to accommodate a break from making payments is to make excess payments onto the mortgage in advance, building up a buffer on the home loan.

“Making extra repayments is always a sensible option, and this way you’re using your own money to give yourself a break from the mortgage,” he said.

This type of payment break is dependent on the terms and conditions of the particular mortgage product, but they can last between two months to 12 months.

Another option is to switch to an interest-only loan for a period of time. This strategy doesn’t absolve the borrower of all payments, but it certainly brings down the amount required to pay each month.

“This may cost you to switch products, and should only be used as a short-term fix,” Mr Symond said. “It should be mentioned that anyone wanting to pay off a property eventually should be looking at principal and interest (P&I) loan.”

The third option, and one which should be the last resort according to Mr Symond, is to take what is called a “repayment holiday”.

“If you really are facing a challenge in making the loan payments, there are lenders who allow a repayment holiday,” he said. “But there are strict conditions such as length of time with the lender, have always made payments on time and the loan will need to be a P&I loan.”

Mr Symond said these repayment holidays will normally only be allowed for three months, and the loan will continue to accrue interest, which will add more to the outstanding balance.

“And the banks will probably charge a fee for this service,” he said. “I would strongly caution anyone from taking this path if they can avoid it.”

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Dec 22, 2010

Raise My Taxes, Please, Say Rich People Upset Over Breaks for Millionaires

While the wealthiest taxpayers will gain financially if Republicans and the president successfully extend the Bush-era tax cuts in Congress, a group of millionaires and business owners said they will be disheartened if they pay less taxes next year. Members of the Patriotic Millionaires for Fiscal Strength, a group of 89 millionaires, petitioned President Obama to allow tax cuts on incomes greater than $1 million to expire at the end of the year, as scheduled.

Morris Pearl, a managing director with BlackRock and a petition signatory, said he was "sad" rather than angry at President Obama for agreeing to the proposed tax cuts.

"I don't care if the rate is this or that," said Pearl, who added he was not speaking on behalf of his employer. "But I feel that just by changing his mind, it gives people the feeling that he'll change his mind about anything."

Pearl also expressed concern over the possibility that Social Security premiums eventually may be affected, because the president's debt commission proposed reducing Social Security benefits and raising the retirement age to 68 by 2050.

Other members of the Patriotic Millionaires have expressed a wide range of emotions, according to Erica Payne, who helps coordinate the organization.

"There is a lot of general frustration that the White House couldn't get a better deal and didn't lay the groundwork for a better deal," said Payne, a founder of the political strategy group, the Agenda Project. "A few people are resigned. Several of them are pretty mad."

"I think it's a terrible deal for Democrats," said Guy Saperstein, founding member of the Patriotic Millionaires and a former civil rights attorney. "It's terrible on many levels but the most important one is the tax cuts for the rich."

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Dec 18, 2010

Is HAMP a failure?

According to, "Failure" may be too harsh a word to describe the shortcomings of the U.S. Treasury's Home Affordable Modification Program, but HAMP hasn't exactly been an unqualified success either, judging by the Executive Summary of a 192-page report issued Dec. 14 by a Congressional oversight panel.

Here are three snippets, quoting directly from the report:

• The Panel now estimates that, if current trends hold, HAMP will prevent only 700,000 to 800,000 foreclosures -- far fewer than the 3 to 4 million foreclosures that Treasury initially aimed to stop.

• Many of the problems now plauging HAMP are inherent in its design and cannot be resolved at this late date.

• Absent a drastic increase in HAMP enrollment, many billions of dollars set aside for foreclosure mitigation may well be left unused. As a result, an untold number of borrowers may go without help -- all because Treasury failed to acknowledge HAMP's shortcomings in time.

Reasonable folks may differ as to whether the U.S. government should help homeowners avoid foreclosure and whether this program was a smart idea from the start.

But setting aside those debates, HAMP clearly has fallen far short of what was promised, and many of the shortcomings were easily foreseeable from the beginning.

Among them, quoting again from the report:

• Banks typically hire loan servicers to handle the day-to-day management of a mortgage loan, and the servicer's interest may at times sharply conflict with those of lenders and borrowers.

• HAMP attempted to correct this market distortion by offering incentive payments to loan services, but that efforts appear to have fallen short, in part because servicers were not required to participate.

• Many borrowers have second mortgages from lenders who may stand to profit by blocking the modification of a first mortgage.

• Treasury has also failed to hold loan servicers accountable when they have repeatedly lost borrower paperwork or refused to perform loan modifications.

To be fair, 700,000-plus loan modifications is that many more than the zero which might have resulted without HAMP. But that's bound to small comfort for the 2 million-plus homeowners who seemingly were promised something more.

Read more: Is HAMP a failure? |

Dec 13, 2010

Medical debt, a factor against refinancing activity.

Hidden medical debts can also kill refinancing. Well-qualified borrowers with good loan-to-value ratios and steady employment are increasingly finding it difficult to refinance because of medical billing mistakes marring their credit, say mortgage bankers and real-estate agents.

Despite the record low mortgage rates this year, refinancing activity has been lower this year than was expected. According to Brian Wickert, president of Wisconsin-based lender Accunet Mortgage, "when consumers begin to refinance, there are real impediments spoiling the refi party."

According to The Wall Street Journal, some 14 million Americans have errors on their credit report because of medical collections, according to the Commonwealth Fund, a Washington-based nonprofit focused on health-care research. These routinely small-balance blemishes, which can go unnoticed for years, can be a death knell for refinancing because they can cause outright refusals—or make closing costs so high that borrowers opt not to refinance at all.

To read more on this article, go to

PrivoCorp provides contract mortgage processing services to lenders, brokers, net branches across the country. We do not originate loans.

Modified version of Reverse Mortgages: Good option for the elderly homeowners

In October, the Federal Housing Administration that runs the reverse mortgage program known as Home Equity Conversion Mortgage, or HECM, introduced the Home Equity Conversion Mortgage Saver, or HECM Saver. HECM Saver, trims the upfront insurance premium due at closing to 0.01 percent of a property’s value, from 2 percent. But the amount that can be borrowed is also reduced, by 10 to 18 percent, compared with the standard HECM loan program.

To better understand the modified version of a reverse mortgage, we need to know what reverse mortgage is. Reverse mortgage is a type of mortgage in which homeowners can borrow money against the value of their house. Until the borrower dies or the house is sold, no repayment of interest or principal, is required. Often, the lender will require that there can be no other liens against the home. Any existing liens must be paid off with the proceeds of the reverse mortgage.
The loans don’t require a minimum credit score or have income limits. But borrowers cannot be underwater, or owe more on a current mortgage than the property is worth. Among the other restrictions is the age. Anyone who is an owner, and is listed on the title to the property, must be at least 62.

Since these reverse mortgages have large origination costs compared to other types of mortgage and since these costs become part of the initial loan balance and accrue interest, Senior citizen borrowers with good credit should carefully analyze the options of a more traditional mortgage, such as a home equity loan, against a reverse mortgage.

Consumers Union, the independent nonprofit testing organization that publishes Consumer Reports, says cash-needy homeowners should consider a home-equity loan before a reverse mortgage, because of the high closing costs and insurance fees. To read more about this click here

Analysts at PrivoCorp suggest that elderly homeowners find out options from their loan officers and grab this opportunity to get a loan. PrivoCorp does not originate loans. We process loans.

Dec 10, 2010

Rise in mortgage rates have dampened refinancing

The rising mortgage rates have snuffed out a refinancing boom which began earlier this year. According to the government backed mortgage firm,Freddie Mac's survey, the rate of a 30 year fixed rate mortgage averaged 4.61% this week which is the highest since June24th.

The Wall Street Journal says that a host of factors have helped drive rates higher, most recently including this week's tax compromise between President Obama and congressional Republicans. The package includes some measures to stimulate the economy and will likely result in higher budget deficits—both of which are anathema to bond investors.

Since the increase in mortgage prices, refinancing has become unattractive to more than 5 million borrowers. Mortgage Bankers Association said earlier this week that its index for refinancing activity fell last week to its lowest level since the early June. Refinancing activity surged between April and the early fall, as Treasury yields tumbled from 4% to less than 2.5% and mortgage rates fell from more than 5%. After the surge in rates, refi activity is down 42% from its peak in August.

However the good news is that the rise in rates have not effected the steady increase in home purchase activity. According to the MBA, new mortgage origination rose last week, but its still down more than 12% from a year ago. The team of analysts at PrivoCorp suggests that this steady increase in home purchase is a sure indicator that the economy is slowly improving. PrivoCorp processes loans and we do not originate loans.

Dec 8, 2010

Practice of default on second homes and its aftermath

There is an increase in the number of homeowners who are walking away from a second home or investment property that is worth less than what is owed on the mortgage, even though they can afford to make the payments. But this practice of dumping a beach condo- called as "strategic default" is not the same as discarding a poorly performing stock or bond. This trend of strategic default is on the rise and is accounted for 35.6% of all foreclosures this year compared to a 23.6% from last year.

The after effects of strategic default is a wrecked credit as it stays on the credit report for 7 years and will disqualify the homeowner from getting a loan for the next 7 to 10 years. There is also the question whether the lender can go after the homeowner who has defaulted. The answer depends on the location of the property. If the property is in recourse states, then the lender can come after you and other primary assets to get the full loan amount back. In"non-recourse" states, the lender cannot sue for the full loan amount and will get only the amount what the property fetches at a short sale, foreclosure sale, or a deed in lieu, in which the property is taken back and not formally foreclosed on.Florida, Connecticut and Arizona are among the nonrecourse states, while Colorado, Maine, New Jersey and Hawaii are recourse states.

There is a third category of state, called “single-action” or “one-action,” which allows the lender either to foreclose on the owner or file a civil lawsuit for the full loan amount. New York, California and Idaho are in that category.

Even in a nonrecourse state, however, those homeowners who opt for a strategic default on a previously refinanced property may not be protected from lenders, because the mortgage in such a case was not accorded for a first purchase, said Philip Faranda, a mortgage broker for J. Philip Real Estate, in Briarcliff Manor, N.Y.

Though not illegal, strategic defaults are controversial, because they are viewed in some circles as unethical. The practice is common among property developers. For homeowners under water, experts say, it can make economic sense. “It’s a business cash-flow decision,” Mr. Faranda said, “but the risk is that you’re rolling dice with your future credit.” Panel of advisers at PrivoCorp suggests that homeowners should take advice from their loan officers before they take loans on a second mortgage and should be well informed as to the location of their property and the rules of the particular states before they buy a property. PrivoCorp does not originate loans. We are a processing company.
For more information regarding this blog, check out Nytimes

Rise in spending on residential construction.

According to Wall street Journal, spending on new construction rose in October for a second month in a row, due mainly to a pickup in residential construction, according to the U.S. Census Bureau. It rose to a seasonally adjusted annual rate of $802.3 billion, up 0.7% from September. Spending on residential construction was up 2.4% in October from the month before, to a rate of $240.3 billion, but was down 8% from a year earlier. Nonresidential spending fell 0.1% in October from September to $562.0 billion and was down 9.9% from October 2009.

This is a positive sign that builders are predicting that there will be a demand in residential homes. PrivoCorp is a processing company and we do not originate loans.

Mortgage Rates Rise to 4.66%

According to Wall Street Journal, mortgage rates rose last week to the highest since july.The 30-year fixed-rate mortgage averaged 4.66% last week, up from 4.56% two weeks ago. Rising rates are likely to further crimp refinance activity, which was down 1% for the week and down 8% from year-earlier levels.

But rising rates could encourage some fence-sitting buyers to close deals, and home-purchase mortgage applications jumped by nearly 2% last week, sending activity to its highest level since May.

PrivoCorp is a loan processing company and we do not originate loans.

Mortgage lending in family - The up and down side of it.

According to the NewYork TimesIn cases like Matt Rado, who is in the market for his first home is getting a loan not from a bank but from his retired parents. Mr Rado who is preapproved for a 30 year fixed mortgage at about 4.75 percent from a commercial lender, will get at least as favorable a rate from his parents along with lower closing costs. At the same time, his parents will get a higher rate of return than is offered by a traditional savings vehicle like a savings account.

With credit tight and interest rates at historic lows, such intrafamily loans can be a win-win for parents and children. “It’s an absolutely terrific time to make an intrafamily loan,” said Carol G. Kroch, head of wealth planning for Wilmington Trust. Rick Kahler, a financial adviser in Rapid City, S.D., said, the intrafamily loans are much riskier than other investments. With an intrafamily loan, parents are betting that their children and their children’s significant others will have the income to repay the loan. And even if the children have excellent credit scores now, their status could change drastically — much faster than a corporation’s — if a job loss or illness were to occur. To help lessen these risks, financial planners have specific recommendations about who should make and get such loans.

  • Most financial planners recommend that parents make such loans only to children who would receive a loan on their own from a commercial lender.A loan to a child unable to get a bank loan, planners say, is more likely to be a bad investment with a greater chance of default. In such circumstances, gifts are a better idea.
  • Intrafamily loans probably aren’t right for parents who “have a lot of opinions about the lifestyle of their children” because a loan could make them become overly critical of the grown child’s spending habits and potentially damage the parent-child relationship, said Lauren Locker, a certified financial planner at Locker Financial Services in Little Falls,
  • To avoid tax consequences, the parents will need to charge an interest rate for loans with a set term that is at least what the government’s applicable federal rates are at the time the loan is created.
  • To make sure the money is considered a loan and not a gift for tax purposes, experts also recommend that the loans be documented as formal promissory notes that state the terms of the loan, including repayments, the interest rates and what will happen if the loan is not repaid.
  • To get the loan documentation drawn up, lenders can consult with lawyers willing to do the work for a lump sum, or check out companies like National Family Mortgage, which will help create notes for intrafamily loans. For $599, National Family Mortgage, which focuses on intrafamily mortgages specifically, will help families structure a promissory note, including penalty terms, and will also file the loan with the appropriate government authority.
Privocorp processes loans. We do not originate loans.