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Comparing Second Mortgages to Credit Card Rates

When consolidating debt, we recommend considering second mortgage loans versus using a credit card. A mortgage carries simple interest and the credit cards use compounding interest that can put you in debt quickly.  An equity loan or second mortgage is a fixed rate loan or a variable rate line of credit that is in second position on the property’s title.  Second mortgage loan amounts approved by lenders are typically determined by calculating the difference between what you owe on your house and the estimated value of the house.

In most cases, these types of home equity loans do not require borrowers to pay significant lending fees. Many homeowners are reluctant to refinance their first mortgage because most refinance lenders charge $3,000 to $5,000 in closing charges and most homeowners already have a great interest rate between 4 and 5%.

Consolidate with a Second Mortgage

In most cases, second mortgage rates are bit higher than to prime mortgage rates available when refinancing on first mortgage liens.  However, home equity loan rates are drastically lower than credit card rates and the terms for credit cards can change without your consent.

Posted in 2nd Mortgage Tips.

HFA offers North Carolina Second Mortgage Assistance

Millions of Americans are looking for better paying jobs but many North Carolina homeowners have been struggling in 2010 more than ever.  Second mortgage foreclosure rates continue to rise but many homeowners are hopeful that mortgage help is on the way with government relief.   North Carolina residents have been applying for first and second mortgage modifications from lenders at a record pace. 

The Treasury announced last Wednesday that the N.C. Housing Finance Agency will be receiving $159 million from the U.S. Treasury Department to help unemployed North Carolinians save their homes from foreclosure.   Even though, North Carolina mortgage rates remain at record lows, the state was one of five states approved for a total of $600 million. Arizona recently received second mortgage relief that was beginning to reach homeowners.  With the funding, the HFA will be able to expand its Home Protection Program, estimated to help 7,200 homeowners in the next three years pay their first and second mortgage loans or refinance into a new more affordable home loan.

According to housing experts both 1st and 2nd mortgage foreclosures have been on the rise this year statewide because of high unemployment.  Foreclosure starts in the county totaled 985 properties in the first half of 2010, up 35 % from the same period in 2009. Connie Helmlinger, a spokeswoman for the HFA said, “Given the fact that we’ve lost more than a quarter of million jobs between 2007 and 2009, and we now have 457,000 people out of work in June, this is very much needed.”  The HFA’s current program, the Home Protection Program, was started by the N.C. General Assembly in an effort to help homeowners who lost their job, keep their homes. The program helped 600 homeowners across the state since 2004. 

HFA introduce several unique programs in an effort to help homeowners who are receiving reduced wages by paying a portion of their home loan. One option will help refinance high-cost second mortgages and the other will reduce principal from their home mortgage through a loan modification.   The second-mortgage refinancing program will be offered only in counties with severely high unemployment. All of the programs will provide assistance in the form of a zero-interest loan forgiven over 10 years, as long as the owner continues to live in the home.   The HFAs submitted their Hardest Hit Fund proposals to Treasury on June 1. Treasury then reviewed each state’s proposal to ensure compliance with the Emergency Economic Stabilization Act of 2008.

Posted in 2nd Mortgage News, Foreclosure Prevention, North Carolina Mortgage, Second Mortgage Modification.

Negotiating Second Mortgage Relief

Many homeowners seeking a mortgage refinance or a loan modification have been hindered because of their second mortgage loan.  Many borrowers looking to lower their payments with fixed home refinancing solutions are frequently denied because their 2nd mortgage raises their combined loan to value level beyond the threshold allowed for refinancing.  Even people pursuing loan modification plans run into problems because their second mortgage lender will not cooperate.  Very few homeowners have been successful getting a second mortgage modification.  In some cases it’s easier to negotiate a buyout so that you no longer have a mortgage in second position. Lawyers and loan modification companies call this second mortgage lien stripping and these mortgage relief firms usually charge between $1,500 and $3,000 for their services.  If you are able to buyout a $100,000 second mortgage for less than $20,000 then paying these fees makes sense.  You must make sure however that if they are unsuccessful stripping the second lien that you are reimbursed your money.

Posted in 2nd Mortgage News, Foreclosure Prevention, Mortgage Relief, Second Mortgage Modification. Tagged with , .

Arizona Gets $125 Million in Second Mortgage Relief

Second mortgage defaults have been troubling lenders in Western states like Arizona, California and Nevada.  Many borrowers got in over their heads taking out second mortgage loans for home improvements and buying things they could not afford.  As property values dropped second mortgage defaults soared.  Some lenders offered second mortgage modifications and some simply wrote off the losses. Arizona will receive $125 million in federal money, as one of five states that have been hit the hardest by the housing market crash.

The Hardest Hit Fund, created by the Obama Administration, is distributing the money to the Arizona Housing Finance Authority, which will disburse it through three means:
• Financial assistance through principal reductions, mortage rate reductions or term extension programs with the goal of securing permanent loan modifications to pay off second liens in cases where the second mortgage loans is preventing a homeowner from modifying the original first mortgage.
• To distressed homeowners who are either unemployed or underemployed cannot make their second mortgage payments to give them time to find a new job and resume making mortgage payments.

Arizona and the other four states — California, Florida, Nevada and Michigan will be receiving a total of $1.5 billion.  “These states have identified a number of innovative programs that will make a real difference in the lives of many homeowners facing foreclosure,” said U.S. Treasury Assistant Secretary for Financial Stability Herbert M. Allison Jr. in a press release.  Five other states will receive about $600 million for housing assistance programs in the near future: North Carolina, Ohio, Oregon, Rhode Island and South Carolina.

Posted in Mortgage News, Mortgage Relief, Second Mortgage Modification, Second Mortgage Updates, second mortgages. Tagged with , .

Banks See Poor Second Mortgage Loan Performance

The second mortgage defaults continue to rise. A few years ago borrowers were using second mortgages or home equity loans to consolidate credit card debt.  They were also used to heavily in purchase mortgage transactions in order to avoid mortgage insurance.  80-20 loans were the no money down loan combinations that enabled borrowers to get 100% financing.  There was a day not too long ago that second mortgages rarely defaulted, but as the mortgage market crashed so did the will of borrowers to pay their 2nd mortgage.  Second mortgage lenders occupy the subordinate position in the debt stack on your home mortgage are finding out that being No. 2, quite frankly, sucks big time.  Prior to 2007, money was easy to access and banks also were happy to extend second mortgage loans and lines of credit to single-family homeowners.  It was as easy as walking into a bank empty-handed and out another with a toaster and home equity loan.  Since credit flowed like water, banks were equally happy to do an 80-20 loan, which was basically a first mortgage for 80 % of the value of a home plus a second mortgage for the remaining 20%. Whoopee, no money down for the borrower.

Now it’s time for banks to pay the piper. Here’s the big problem: If the home value is underwater or the homeowners are having trouble paying bills, the holder of the second mortgage or home equity loan doesn’t get paid back until after the holder of the first loan, which in those two scenarios almost never happens.  Those 80-20 loans by definition meant the loan-to-value was high, high, high, and now that home values have declined, collecting any money for the second-lien holder is slim at best.  If there is a Home Affordable Modification Program procedure or a short sale, the second mortgage holder also gets wiped out. Needless to say, second-lien holders are in no rush to see loan modification plans completed or jump into short sales, both of which would mean writing down the loans as full losses.  At most banks, second mortgage loans, no matter how precarious, for as long as possible are carried on the books at full value — a bit of a fiction, but it does make the banks look better.

In March, Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, openly called for the major banks to start writing down second mortgages. His point being, reported the Wall Street Journal, was “the banks’ reluctance to write down second mortgages is hurting efforts to reduce the first-lien mortgage balances of many borrowers who owe far more on their loans than the current value of their homes.”  Indeed, one new change for the Obama administration’s HAMP is that borrowers who get reduced payments on the first mortgage through HAMP would automatically get a break on the second lien as well. Underneath all the politics, however, are some serious problems in regard to home equity loans:

Delinquencies are rising very rapidly.  Historically, “delinquencies on home equity loans have been very low, but all that changed last year.”  In 2005 and 2006, delinquency rates for home equity loans and home equity lines of credit remained under 1%. By the end of 2008, the delinquency rate for home equity loans crept above 2%. Then, over the course of 2009 those numbers vaulted to 5%, a major leap in percentage.   “Most of the gain was in a one-year period,” Leonard reiterates. “That’s a huge pick-up in delinquency.”  The curve of home equity loan delinquencies mirrors that of the unemployment rate. Leonard suspects delinquencies will stay high as long as unemployment rates hover around 10% or climb higher.  As a result of home equity loan delinquencies, banks have taken some very large charge-offs. Net charge-off rates increased by 50% among the top five banks in 2009. Without naming names, Leonard said she knows one of the largest lenders of home equity loans took a $4 billion charge-off last year.  Read the original article >

Posted in 2nd Mortgage Tips, Home Equity News, Mortgage News, Published Loan Articles, Second Mortgage Modification, Second Mortgage Updates. Tagged with , .

Obama Second Mortgage Loan Modification Plan Failing

It’s been year since Obama administration announced a revolutionary plan to aid almost 2 million distressed homeowners modify their second mortgage loans, yet not one homeowner has received mortgage relief.  The Huffington Post reported that the second mortgage relief program has failed as part of the administration’s $75 billion anti-foreclosure initiative.  This plan was supposed to reward mortgage servicers to coordinate payment reductions on subordinate mortgage loans when the first mortgage is modified under the administration’s Home Affordable Modification Program.  Many real estate experts believe that addressing the second mortgage issue is essential in overcoming the foreclosure crisis.

The second mortgage relief plan was first announced last April. In August the Treasury Department released guidelines on how the 2nd mortgage program would work. Several months passed before any loan servicing even signed up. More than five weeks ago, Bank of America, the nation’s largest servicer with about three million second mortgage loans, signed an agreement to join, but a bank spokeswoman said the firm is still awaiting final guidelines from Treasury before proceeding. A Treasury spokeswoman said the firm could technically begin the process now.  On Thursday, Citigroup chief executive Vikram Pandit told the Congressional Oversight Panel why Citi has not signed up yet. “We’ve said to the Treasury we’re willing to work with them as to what this no equity loan modification program is.” Pandit said in response to a question from New York’s top bank regulator.

According to RealtyTrac, about three million homes were lost to foreclosure last year and 2010 looks to be worse, in part because so many distressed homeowners have 2nd mortgage loans. In April, the administration estimated that “up to 50 % of at-risk mortgages currently have second mortgages.”  The Obama administration noted:  Second mortgage loans contribute to the number of American homeowners unable to afford their housing payments. Even where a 1st mortgage payment may be affordable, the addition of a 2nd mortgage payment can increase monthly payments beyond affordable levels. In addition, second mortgage loans often complicate or prevent a loan modification agreement or mortgage refinancing for the 1st lien.  The Second Mortgage Program will help create a sustainably affordable mortgage payment for millions of homeowners who qualify for a 1st mortgage loan modification, yet still face challenges in affording their monthly payments because of a second mortgage.

Compounding the problem is that more than 11 million homeowners owe more on their home loan than their house is worth, putting them “underwater.” For homeowners who owe more on their mortgage loans than their home is worth, reducing the principal owed on the mortgage is more important than interest-rate cuts, because it gives homeowners back their home equity in the house and offers them incentives to continue making the home loan payments. Neiman noted to Pandit on Thursday that the second mortgage matter “has been a real disincentive that we are hearing from second mortgage lenders on making particularly principal reductions.”  According to Citi’s regulatory filings, about 28% of its first mortgages are now worth more than the underlying assets, along with about 42% of their second mortgage loans. Read the original article >

Posted in Foreclosure Prevention, Home Equity News, Mortgage News, Mortgage Relief, Second Mortgage Modification, second mortgage. Tagged with , .

Home Loan Defaults Drop while Credit-Card Defaults Rise

A U.S. central bank official said Tuesday that the Federal Reserve is unlikely to hike mortgage rates any time soon given what is likely to be a slow move out of recession.  Default rates for first and second mortgage loans declined in April from March but rose for the third month in a row for bank cards, to data released today from Standard & Poor’s Ratings Services.  The defaulting balances of bank-card loans were 9.1% in April, up from 8.9% in March and 7.7% a year earlier. First and second mortgage default rates were 3.7% and 2.5%, respectively, both down from March. Auto loan defaults were 1.9%, dropping from 2.4%.

David Blitzer, chairman of the index committee at S&P Indices, said consumer defaults for mortgage loans bottomed out around the same time as the stock market in early 2009. Bank cards, on the other hand, continue to worsen and are at levels not seen in the history of S&P’s indices. That could spell bad news for consumer spending which has shown improvement in recent months.  “With attention focused on consumer spending and little hope for a fast rebound in housing, the bank card series may raise concerns for many consumer related businesses as well as for consumer oriented lending institutions,” Blitzer said.

Consumer-credit defaults varied across major cities and regions in the U.S., with Chicago showing the smallest decline in the past year among the five metropolitan areas included each month in the data. However credit card debt settlement and bankruptcy filings Sharper declines were seen in Los Angeles and Miami, reflecting a somewhat more stable, though still weak, housing market as well as some economic improvements.

Posted in Mortgage News, Published Loan Articles.

Second Mortgage Loan Programs 2010

Reuters reported that second mortgage loans defaults rose again last quarter.  The 2nd mortgage defaults have made such an impact that borrowers can no longer get second mortgages for cash out or consolidating credit card debt unless they have great credit and at least 25% available home equity have the new loan is factored into the combined loan to value.

The second mortgage loans originated in 2005 and 2006 with the 80-20 loans are biggest contributor to the loan defaults.  Many of those borrowers that have 100% loans were not afraid to walk away from their homes.  Many borrowers that took out adjustable rate credit lines a few years ago want to refinance this debt into a fixed rate second mortgage, but those programs no longer exist.  Second mortgage rates remain low, but not many borrowers can meet the criteria to qualify for a home equity loan in 2010.  Only time will tell if the second mortgage market can recover.

Posted in 2nd Mortgage Tips, Mortgage News, Second Mortgage Updates.

Bank of America Signs Contract for Second Mortgage Modifications

Bank of America announced on January 26 that it is the first mortgage servicer to sign an agreement committing them to participation in the next phase of the U.S. government’s Home Affordable Modification Program (HAMP) which is aimed at resolving problems with struggling homeowners who have more than one mortgage on their home.  A continuing issue with HAMP loan modifications and other non-government attempts to help homeowners modify their loans so they can afford to remain in their home has been the prevalence of homeowners with two liens against the property.  The HAMP loan modifications are very important for borrowers that don’t qualify for a second mortgage refinance through the Home Affordable Refinance Program.

At the height of the housing boom, many homeowners opted for an “80-10-10″ or “80-15-5″ loan which allowed them to buy a home with a down payment of just 5% or 10%, borrowing the rest in two loans in order to avoid paying private mortgage insurance (PMI). PMI is typically required when a lender is making a loan for more than 80% of the value of the property.  As homeowners have watched the value in their homes diminish, making them ineligible for a traditional refinance, and have also experienced either a job loss or reduced income, they have been struggling to meet their mortgage obligations. The federal government stepped in with the HAMP program, but found that in most circumstances the second mortgage holder was unwilling to make a loan modification even when the first lender would modify that loan.

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The Second Mortgage Modification Program (2MP) guidelines are expected soon from the federal government. Bank of America will begin implementing the program as soon as the guidelines are in place.  The second mortgage program will require loan modifications to reduce the monthly payments on qualifying home equity loans and lines of credit under specific conditions, including a HAMP modification on the first lien.  “For many homeowners facing severe financial difficulty, decreasing the payment on the first mortgage without a reduction in the payment on the second lien may not produce an affordable combined mortgage payment,” says Barbara Desoer, president of Bank of America Home Loans.   Financially strapped homeowners may have to wait a little longer for this program to resolve the issues between first and second lien holders. But in some cases, both loans are held by the same lender, which should make modification of both loans easier.  Article was written by Michele Lerner.

Posted in 2nd Mortgage Tips, Foreclosure Prevention, Mortgage Relief, Second Mortgage Modification. Tagged with , , .

Second Mortgage Defaults Soar

Second mortgage defaults have sky-rocketed again.  The foreclosures, loan modifications and 1st mortgage delinquencies certainly have not helped the second mortgage payment records.  The 2nd mortgage delinquencies seem to break records each quarter, so there is no reason to believe the second mortgage defaults will slow down.  According to mortgage executive, Bryan Dornan, “The housing crisis created several phenomena’s that buried the second mortgage market indefinitely.”

Posted in Bryan Dornan Quotes, Home Equity News, foreclosure, second mortgage. Tagged with .

Second Mortgage Rate Update

According to California mortgage consultant, Pete Gaddi, second mortgage requests are rising rapidly from borrowers in the last month.  Gaddi said borrowers are seeking 2nd mortgage cash to finance home repairs or to consolidate credit card debt. Home equity loan rates were reported virtually unchanged last week. The average second mortgage rate for a ten-year home equity loan was down to 7.612%, the prior week’s average 10-year home equity rate was 7.616%. While rates on a fifteen-year equity loan decreased to 7.737%, down from the prior week’s average rate of 7.742%.

Rates for Home equity line of credit rose to 4.805% this week, up from last week’s average home equity line rate of 4.800%. Home equity line of credit rates haven’t changed much recently so if you’re in the market for a short term loan a home equity line is probably the way to go. Remember that home equity line of credit rates are not fixed rate mortgages and that interest rates can rise with the variable rate index. Smart Home Equity posts free home equity rate tables so you can search for today’s interest rates on equity loans, home equity lines or cash out refinancing.

Posted in 2nd Mortgage Tips, Home Equity News, Mortgage News, Mortgage Refinancing News. Tagged with , , , , , .

Government Expands Mortgage Relief Program to Slow Foreclosures

The Obama administration announced expanded mortgage relief yesterday as borrowers with mortgages worth up to 125 percent of their property’s value will be able to refinance under the administration’s program to assist foreclosure victims. The one hitch is that the homeowner cannot be behind on their mortgage loan payments.  The other concern for millions of struggling homeowners is that second mortgages are not eligible for this program.  The second mortgage exclusion really takes a lot of potential borrowers out of the mortgage refinancing equation.

Housing secretary Shaun Donovan says borrowers who owe up 25 % more than their home’s market value will qualify for government help refinancing their mortgages. The refinance program currently is limited to borrowers who owe 5% more than their homes are worth.

The goal of this change is to help homeowners who have not been able to take advantage of the low mortgage rates that have been available in recent weeks due to the fact that the value of their property has dropped significantly. The program currently caps eligibility for the program to homeowners that have a loan-to-home value ratio of 105 %. Many homeowners in the country are unfortunately well above that ratio.  The change will certainly draw the ire of people who believe that policies like this are the reason that we got into the housing mess in the first place. However, rising interest rates could be the real issue. The days of 4.8 % interest rates are in the past, and refinancing has noticeably decreased in recent weeks. Thirty-year fixed rate mortgage loans are now back at 5.4%.

Posted in 125 percent, 2nd Mortgage Tips, Mortgage News, Mortgage Refinancing News, Published Loan Articles. Tagged with , , , , , .

A Second Mortgage Foreclosures Coming

When it comes to bailouts of American business, Barney Frank and the Congress may be just getting started. Nearly two trillion tax dollars have been shoveled into the hole that Wall Street dug and people wonder where the bottom is.

As correspondent Scott Pelley reports, it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy. In the executive suites of Wall Street and Washington, you’re beginning to hear alarm about a new wave of mortgage loans with strange names that are about to become all too familiar. If you thought bad credit mortgages were irresponsible wait until you hear what’s coming.

One of the best guides to the danger ahead is Whitney Tilson. He’s an investment fund manager who has made such a name for himself recently that investors, who manage about $10 billion, gathered to hear him last week. Tilson saw, a year ago, that subprime mortgages were just the start.  “We had the greatest asset bubble in history and now that bubble is bursting. The single biggest piece of the bubble is the U.S. mortgage market and we’re probably about halfway through the unwinding and bursting of the bubble,” Tilson explains. “It may seem like all the carnage out there, we must be almost finished. But there’s still a lot of pain to come in terms of write-downs and losses that have yet to be recognized.”

In 2007, Tilson teamed up with Amherst Securities, an investment firm that specializes in second mortgage loans. Amherst had done some financial detective work, analyzing the millions of mortgage loans that were bundled into those mortgage-backed securities that Wall Street was peddling. It found that the subprime mortgages, loans to the least credit-worthy borrowers, were defaulting. But Amherst also ran the numbers on what were supposed to be higher quality mortgage loans.  

Second mortgage rates remain very high or unattainable when borrowers have less than 20% equity in their homes.  Gone are the days of the 80-20 home loans that featured an adjustable rate 2nd mortgage that homebuyers would have to quickly refinance.  Mortgage lenders aren’t going to make that mistake again, said mortgage executive, Scott Hess.

The trouble now is that the insanity didn’t end with subprime home loans. There were two other kinds of exotic mortgages that became popular, called “Alt-A” and “option ARM.” The option ARMs, in particular, lured borrowers in with low initial interest rates – so-called teaser rates – sometimes as low as one percent. But after two, three or five years those mortgage rates “reset.” They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.

Now the Alt-A and option ARM home loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.   “The defaults right now are incredibly high. Read the complete story >

Posted in 2nd Mortgage Tips, Home Equity News, Mortgage News, Published Loan Articles. Tagged with , , , , .

Debt Consolidation Advice

Whether you finance your credit card bills wih a debt consolidation 2nd mortgage or negotiate a settlement, you need to do consolidate or eliminate any credit that carries a variable interest rate.  The compounding interest of credit card debt has become an epidemic in America with millions of consumers facing bankruptcy in these difficult economic times.  Many unsecured customers are making efforts to settle their credit card debt with new debt settlement plans that most finance companies are agreeing to through debt negotiations.  Unfortunately, in most cases revolving credit card debt is not paid back quick enough and most consumers end up just paying the minimum payment each month.  When borrowers only make the minimum payment, they end up just paying interest on top of interest and the outstanding balance grows rapidly. 

Consider a fixed rate second mortgage that will lower your monthly payments and provide additional tax incentives that credit card payments do not provide.  Second mortgage rates have dropped to levels not seen since 2005.  More home equity is required and you will need full income documentation to qualify.  Read the complete debt advice article > Become Debt Free in 2009

Posted in 2nd Mortgage Tips, Debt Consolidation Tips. Tagged with , , , , .

What are Second Mortgages?

Second mortgage loans are liens held in second position and they are secured by the value of your property. Some people get a second mortgage without refinancing their existing home mortgages. The amount of equity available to you is based on the loan to value ratio, which is the value of the loan against the fair market value of your home. So a loan of $75,000 on a $100,000 home has a loan to value ratio of 75%. The standard ratio is 80%, but some lenders have loans with a loan to value of 90% or even 100%.

There are two types of these 2nd mortgage loans. You can either get a home equity line of credit or a fixed rate equity loan. A credit line operates a lot like a credit card. It has a revolving line of credit that can be paid off and used again. Equity lines of credit however, have a variable interest rate. Home equity loans on the other hand, involve getting all of your cash out at once and have a fixed mortgage rate. These work more like a standard loan. Rebecca is a free-lance writer and author of nine books. She offer more tips and advice about home equity loans and Mortgage Refinancing at the Nationwide Mortgage Loans website. Read the complete article. 

Posted in 2nd Mortgage Tips, Published Loan Articles. Tagged with , , .

Second Mortgage Versus Credit Card Card Debt

Recent statistics indicated that American credit debt totals $785 billion and this comes to an average of $7,500 per household. Many of us however, carry much heavier loads. Credit card debt is insidious, growing while we pay the absolute minimum payments and still use our cards. Revolving debt will also bring down your credit rating and create a financial situation where you are working just to make your payments. If your credit card debt is getting out of hand, now may be time to take a hard look at your spending habits and your options.

There are a great many reasons to mine your home equity instead of making payments on revolving debt. Credit cards are open-end loans, unlike second mortgages. Most second mortgages have fixed interest rates and are considered closed-end loans. Credit cards calculate interest using compounding interest formulas. Home equity loans and lines of credit have mortgage interest that is tax deductible unlike credit cards where the interest isn’t tax deductible. Also credit cards are not secured by your home, which means higher interest rates and payments. The reality is that credit card debt ultimately costs you more money in interest than if you had consolidated it into a second mortgage loan.

There are many different mortgage refinancing programs available to homeowners and when considering the best financial options, choose the right loan that help you eliminate your debt problem. Find a trusted mortgage lender that you can trust and talk over your options.

Posted in 2nd Mortgage Tips.

When is the Time Right for a Second Mortgage?

A frequent question we get all the time from homeowners is “When is the best time to take out a second mortgage?”  Obviously we respond to that question by asking more questions like, What do you need the money for?  Cash out?  Debt Consolidation?  Home improvements?  What is your house worth?  What is the balance on your existing mortgage loan?  How is your credit?  How long do you plan to live in your home?  Depending on how the loan applicant answers those questions will dictate how we advise them. 

For example, If you have bad credit and no equity, the likelihood of qualifying for a home equity loan or equity line of credit is very minimal.  In most cases if you need a bad credit second mortgage, you will need to have at least 25% equity in your home.  Two years ago, you could have had a poor credit with a 580 fico score and still been able to qualify for a 2nd mortgage with only 5 or 10% equity in your home.  In today’s market, we typically will suggest pursuing a FHA loan if you need to raise capital because the 203B FHA mortgage program enables cash out refinancing to 95% loan to value.  Credit scores are not an issue with most FHA loans as long as you have compensating factors and have the ability to document your income and show the underwriter that you have the ability to make your mortgage payment after the loan.

There are times when taking money out of your home equity collateral with a 2nd mortgage may not be advised.  For instance, if you were considering relocated in the near future, and if taking out an equity loan would strip all your equity, then you might be forced in a position that doesn’t enable you to sell your home and move as quick as your new job would require. 

The most common purpose for second mortgages continues to be debt consolidation.  Using a home equity loan for consolidating credit card debt could potentially save you thousands of dollars a year, while increasing your cash flow significantly.  In most cases, second mortgage loans are tax deductible, so it makes sense to consolidate revolving debt with a fixed rate mortgage that enables you to get money back for deducting the interest at the end of the year.

Posted in 2nd Mortgage Tips, Published Loan Articles. Tagged with , , , , , , , , , .

Hawaii Second Mortgage Foreclosure Rates Rise

If Hawaii home foreclosure rates have begun to increase at a rapid pace and Ewa Beach has become the center for the first and second mortgage loan defaults.  In November 2007, there were three foreclosure filings in Ewa Beach. Last month, there were 55, twice as many as any other community in Hawaii, according to California-based RealtyTrac, which tracks default notices, bank-owned property sales and other actions considered foreclosure filings.  Until recently, Hawaii was near the bottom of the monthly state-by-state ranking of foreclosures.  But in November, Hawaii rose to No. 28 with 393 foreclosures or one for every 1,272 households.  Ewa Beach became the foreclosure capital of Hawaii most likely because of the rapid construction of this area heading out to the West side of Oahu. 

A high percentage of the borrowers who purchased properties in this region used 100% financing with 80-20 loans that included 80% first and 20% second mortgages.  Most of these 80-20 loans were featured with adjustable interest rates for both the first and second mortgage liens.  Countrywide Home Loans provided a lot of these combination loans that used a home equity line of credit for many of the second mortgages.  Home equity lines, also called, HELOC’s are credit lines that revolve like credit cards with variable interest rates. 

During this Hawaiian home construction boom Countrywide was the biggest mortgage lender originating 9,236 residential mortgages worth $2.8 billion from July 2005 to June 2006.  A recent article pointed out that Countrywide pushed the “Pay Option ARM for the first mortgages that featured a negative amortization providing low payments with teaser rates.  In addition to requiring no money down many of these first and second mortgage loans required no income documentation either.  When considering the promotions of these risky home loans, it may not come as much of a surprise that these 2005 and 2006 financings are seeing a significant increase in foreclosure rates. 

Many of the borrowers who financed their purchase with a 1st mortgage and home equity loan, are negotiating loan modification agreements that in some cases allow the 2nd mortgage to be bought out for pennies on the dollars. 

According to Albert Joy, a Honolulu real estate professional, “There are two reasons why foreclosures are increasing.”  Joy continued, “First, mortgage lenders were lending too much money to borrowers who could not afford it, and second, people were borrowing too much.”  Unfortunately Hawaiians who purchased properties in these areas in 2005 and 2006 with little or no down-payments have seen the property values decline to the point where most borrowers are upside down with their 1st and 2nd mortgage balances being much greater than their property values. 

Posted in 2nd Mortgage Tips, Mortgage News. Tagged with , , , , , , , , , , , .

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